Incoterms explained: all 11 rules
By Mohamed Omer, Chairman & Chief Executive Officer, Mooventory Global
Incoterms are the ICC's standard trade rules. They set three things in a sales contract: who pays for each leg of the journey, who handles customs, and the exact point where risk passes from seller to buyer. Choosing the wrong one is one of the most common causes of surprise costs on shipments into Africa.
Rules for any mode of transport
The seller makes goods available at its own premises. The buyer handles everything else, including export clearance and loading.
The seller clears goods for export and hands them to the buyer's carrier at a named place.
The seller pays freight to the named destination, but risk passes when goods are handed to the first carrier.
As CPT, but the seller must also buy cargo insurance, at the higher Institute Cargo Clauses (A) 'all risks' level.
The seller delivers to a named destination, ready for unloading. The buyer handles import clearance and duties.
The seller delivers and unloads at the named place. It is the only Incoterm where the seller must unload.
The seller handles everything, including import clearance and duties, up to the buyer's door.
Rules for sea and inland waterway only
The seller places goods alongside the vessel at the named port of shipment, cleared for export.
The seller loads goods on board the vessel at the named port of shipment, cleared for export.
The seller pays sea freight to the destination port, but risk passes once goods are on board at origin.
As CFR, but the seller also buys minimum-cover marine insurance, Institute Cargo Clauses (C).
Quick comparison: where risk passes
| Term | Risk passes | Best for |
|---|---|---|
| EXW | When goods are placed at the buyer's disposal at the seller's premises, not loaded. | Experienced buyers with their own agent in the origin country. |
| FCA | On delivery to the buyer's carrier at the named place (loaded if at seller's premises). | Containerised and air shipments where the buyer controls freight. |
| CPT | At handover to the first carrier in the origin country. | Multimodal and air cargo where the seller has better freight rates. |
| CIP | At handover to the first carrier. | Higher-value manufactured goods moving by air or multimodal routes. |
| DAP | When goods arrive at the named place, ready for unloading. | Buyers who want door delivery but prefer to control their own customs clearance. |
| DPU | Once goods are unloaded at the named place. | Project cargo and terminal deliveries where the seller controls the handling. |
| DDP | At the named destination, ready for unloading. | Buyers who want a single landed price with no customs exposure. |
| FAS | When goods are alongside the ship at the port of loading. | Bulk and break-bulk cargo such as grain, timber or steel. |
| FOB | When goods are on board the vessel at the port of loading. | Bulk and conventional sea cargo where the buyer nominates the ship. |
| CFR | When goods are on board the vessel at the port of loading. | Bulk commodities where the seller has strong freight contracts. |
| CIF | When goods are on board the vessel at the port of loading. | Bulk and commodity trades, and letter-of-credit deals that require insurance documents. |
Choosing a term for Africa-bound cargo
- Shipping containers? Use FCA or CPT/CIP rather than FOB or CIF, which are written for cargo loaded directly onto the ship.
- Want control of freight cost? Buy FCA and book freight with your own forwarder.
- Want one landed price? DAP or DDP, but confirm who is importer of record.
- Know your CIF value. Many African customs authorities calculate duty on it whatever term you buy on.
Sources
International Chamber of Commerce (ICC), Incoterms® 2020 rules. Incoterms® 2020 remain the current ICC edition in force.