Incoterms, short for International Commercial Terms, are a set of 11 standardised three-letter rules published by the International Chamber of Commerce (ICC) that define, for a sale of goods, who arranges and pays for transport, who bears insurance, and the exact point where risk passes from the seller to the buyer.
The current set is Incoterms 2020, in force since 1 January 2020. There is no 2023 or 2026 version, so 2020 remains the one to use.
The 11 rules split into two groups by transport mode:
- Any mode of transport (7): EXW, FCA, CPT, CIP, DAP, DPU, DDP.
- Sea and inland waterway only (4): FAS, FOB, CFR, CIF.
This guide gives the full chart, explains each rule, compares the ones people confuse, covers what Incoterms do not do, and shows what the choice means for an Indian exporter, from the commercial invoice through to the export proceeds finally received.
What are Incoterms?
Incoterms are the common language of a shipment.
First published by the ICC in 1936 and updated roughly every decade, they let a seller in one country and a buyer in another agree, in three letters, exactly how far each party's responsibility runs.
Written into a sales contract as, say, "FOB Nhava Sheva, Incoterms 2020," they remove the argument over who pays for what and who carries the risk if the goods are damaged in transit.
Each rule allocates three things:
- Cost. Who pays for carriage, terminal handling, insurance and, in some rules, import duty.
- Risk. The precise place and moment the risk of loss or damage moves from seller to buyer.
- Obligations. Who handles export and import clearance, documents and delivery.
What they deliberately leave to your contract is covered further down, because it is where most disputes actually start.
One scope point up front: Incoterms govern goods, not services, so a software or services exporter does not use them and works instead with the distinction set out in export of services vs export of goods.
The Incoterms 2020 chart: all 11 rules
Every Incoterm answers three questions: who pays the main carriage, who has to insure the goods, and where does risk move from seller to buyer. This chart lays out all 11 in one view.
| Rule | Full name | Mode | Main carriage paid by | Insurance | Risk transfers to buyer |
|---|---|---|---|---|---|
| EXW | Ex Works | Any | Buyer | Buyer, optional | At the seller's premises, goods placed at the buyer's disposal |
| FCA | Free Carrier | Any | Buyer | Optional | When goods are handed to the buyer's nominated carrier |
| CPT | Carriage Paid To | Any | Seller, to destination | Optional | At handover to the first carrier |
| CIP | Carriage and Insurance Paid To | Any | Seller, to destination | Seller, high cover (Clause A) | At handover to the first carrier |
| DAP | Delivered at Place | Any | Seller | Seller bears risk | At the named destination, ready for unloading |
| DPU | Delivered at Place Unloaded | Any | Seller | Seller bears risk | At the named destination, after the seller unloads |
| DDP | Delivered Duty Paid | Any | Seller | Seller bears risk | At destination, seller having cleared import and paid duty |
| FAS | Free Alongside Ship | Sea | Buyer | Optional | When goods are placed alongside the vessel at the port |
| FOB | Free on Board | Sea | Buyer | Optional | When goods are on board the vessel at the port |
| CFR | Cost and Freight | Sea | Seller, to destination port | Optional | On board the vessel at the origin port |
| CIF | Cost, Insurance and Freight | Sea | Seller, to destination port | Seller, minimum cover (Clause C) | On board the vessel at the origin port |
The single most important column is the last one.
Under CPT, CIP, CFR and CIF the seller pays the freight all the way to the destination, yet the risk still passes at origin, the moment the goods are handed over or loaded.
That split, cost to destination but risk at origin, is what trips most people up.
Incoterms for any mode of transport
These seven rules work for road, rail, air, sea or a combination, which makes them the right choice for containerised and multimodal cargo.
- EXW (Ex Works) places the maximum obligation on the buyer. The seller simply makes the goods available at its own premises, and the buyer handles loading, export clearance and every leg of transport. Simple for the seller, heavy for the buyer.
- FCA (Free Carrier) has the seller deliver the goods, cleared for export, to a carrier the buyer names. Risk passes at that handover. FCA is the modern, container-friendly replacement for FOB.
- CPT (Carriage Paid To) has the seller pay carriage to the destination, but risk passes to the buyer as soon as the goods reach the first carrier.
- CIP (Carriage and Insurance Paid To) is CPT plus insurance: the seller must insure the goods, and under Incoterms 2020 at the higher all-risks level (Institute Cargo Clauses A). Risk still passes at the first carrier.
- DAP (Delivered at Place) has the seller deliver to a named destination ready for unloading, bearing the risk the whole way; the buyer unloads and clears import.
- DPU (Delivered at Place Unloaded) is the only rule where the seller unloads at the destination. It is the renamed, broadened successor to the old DAT.
- DDP (Delivered Duty Paid) is the maximum seller obligation: the seller delivers to the destination, cleared for import, with duties and taxes paid.
Incoterms for sea and inland waterway transport
These four rules assume the goods cross a ship's rail, so they suit bulk and non-containerised sea freight.
- FAS (Free Alongside Ship) has the seller deliver the goods alongside the vessel at the port of shipment; risk passes there.
- FOB (Free on Board) passes risk once the goods are on board the vessel. The buyer arranges and pays ocean freight and insurance. FOB is the most common term on Indian export contracts, and the value it fixes flows straight onto your certificate of origin and export declaration.
- CFR (Cost and Freight) has the seller pay freight to the destination port, but risk still passes on board at origin.
- CIF (Cost, Insurance and Freight) is CFR plus minimum marine insurance (Clause C) that the seller buys; risk again passes on board at origin.
A quick word of warning that the ICC itself gives: do not use FOB, CFR or CIF for containers or LCL cargo.
A container is usually handed to the carrier at a terminal well before it is "on board," so a sea-only rule mistimes the risk transfer. For containers, use FCA, CPT or CIP instead.
FOB vs CIF: the comparison everyone asks about
FOB and CIF are the two most-quoted sea terms, and the difference is about cost, not risk.
- Risk is identical. Under both, risk passes to the buyer when the goods are on board at the origin port.
- Cost differs. Under FOB the buyer arranges and pays ocean freight and insurance. Under CIF the seller adds freight and minimum insurance to the destination port into its price.
- Neither covers destination duty. Import customs and duty are the buyer's under both.
A worked example makes it concrete. An exporter ships goods worth $10,000 from Nhava Sheva. Under FOB, the invoice is about $10,000 and the buyer books and pays the ocean freight and insurance separately.
Under CIF, the seller adds, say, $800 freight and $100 insurance, so the invoice is about $10,900, but the goods value the exporter actually earns is still $10,000, and that is the figure that belongs on the softex vs shipping bill.
In both cases, if the container is lost after loading, it is the buyer's insurance claim, because risk had already passed. Getting the export payment terms right alongside the Incoterm is what keeps that split clean.
CIF vs CIP: which one to use
Both have the seller pay carriage and insurance to the destination, so they are easy to confuse. The difference is mode and cover.
CIF is sea-only and requires only minimum insurance (Clause C), while CIP works for any transport mode and, under Incoterms 2020, requires higher all-risks cover (Clause A).
For containerised cargo that needs solid insurance, CIP is the better fit; CIF suits bulk sea freight where the buyer accepts minimum cover.
EXW vs DDP: the two extremes
EXW and DDP sit at opposite ends of the responsibility scale.
- EXW is the lightest term for the seller. The buyer does everything from the seller's door, including export clearance, which is often impractical in a foreign country.
- DDP is the heaviest for the seller. The seller carries cost and risk all the way to the buyer's door, clears import and pays the destination duty and taxes.
Most trades settle somewhere in between, which is why FCA, FOB, CIF and DAP are the four terms you see most often.
How do you choose the right Incoterm?
There is no single best rule; the right one depends on how much of the journey you want to control and how experienced each side is.
In practice most world trade runs on a handful of them: FCA, FOB, CIF and DAP are the four most used, with EXW and DDP marking the two extremes. Start from those, then adjust. A few practical guides:
- New exporters often start with FOB or CFR, handing risk to the buyer at the origin port while keeping a familiar process.
- For containers or LCL, use FCA, CPT or CIP, never the sea-only terms, so risk transfers when you actually hand over the box rather than at an ill-fitting "on board" moment.
- If the buyer wants door delivery, DAP or DDP moves more onto you, and you should take DDP only if you can clear import and pay duty in the buyer's country.
- If you want the lightest possible role, EXW leaves everything to the buyer, though expect pushback because the buyer must handle your export clearance.
- When a letter of credit is involved, agree FCA with an on-board bill of lading, or a sea term, so the bank receives the document it needs; the letter of credit guide explains why.
Whichever you pick, write it the same way every time: the rule, the named place, and "Incoterms 2020", for example "CIP Rotterdam, Incoterms 2020".
Spell it out on the export invoice, the proforma invoice you quote, and the sales contract, so there is no room for argument later.
What Incoterms do not do
This is where more disputes begin than anywhere else, and no rule fixes it for you. Incoterms do not:
- Form the whole contract of sale. They are one clause in it, not the contract itself.
- Transfer ownership or title. They move risk, not legal ownership; title passes under your sale contract and applicable law.
- Set the price or the payment method. How and when you get paid is a separate negotiation.
- Cover product specification, documents or dispute resolution. Those belong in the contract.
So an Incoterm tells you who bears the freight and where risk sits, but your contract still has to say what you are selling, for how much, and how you will be paid.
What changed in Incoterms 2020?
If you are working from an older template, three changes matter:
- DAT became DPU. "Delivered at Terminal" was renamed "Delivered at Place Unloaded" and broadened to any place, not just a terminal.
- CIP insurance was raised. CIP now requires high, all-risks cover (Clause A), while CIF still requires only minimum cover (Clause C).
- FCA gained an on-board bill of lading option. Buyer and seller can agree the carrier issues an on-board bill of lading to the seller, which helps when a letter of credit is involved.
Incoterms for Indian exporters: the value you declare and the money you receive
Here is the part no global guide covers, and it is the one that hits an Indian exporter's bank balance.
The Incoterm you agree decides how the transaction value is split, and that split flows straight into your paperwork and your proceeds.
- It sets the FOB value on your shipping bill. Export declarations separate the goods value from freight and insurance. Under FOB the invoice is essentially the goods value; under CIF the invoice bundles freight and insurance, which must still be shown separately so the FOB value is clear.
- Export incentives are computed on that FOB value. Duty drawback, RoDTEP and, for exports without IGST, the input-tax-credit refund are linked to the shipping-bill FOB value, so mis-stating CIF as FOB overstates your incentive base and invites trouble. Map your export incentives to the value you actually declare.
- It decides what you are really owed. Under CIF, part of what the buyer pays is freight and insurance you pass through, not margin. Your true export earning is the goods value, and that is the figure your certificate of origin and realisation records revolve around.
Whatever term you use, the goods still have to be paid for, and the proceeds have to reach India and complete the realisation of export proceeds on time. That is the step Xflow handles, and the only one.
It does not ship your goods or set your Incoterms.
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Bottom line
Incoterms 2020 are the ICC's 11 three-letter rules that set, for a sale of goods, who pays carriage, who insures, and where risk passes from seller to buyer.
- Read the chart by the last column: under CPT, CIP, CFR and CIF the seller pays freight to the destination, but risk still passes at origin.
- Use the any-mode rules (FCA, CPT, CIP) for containers, and keep FOB, CFR and CIF for bulk sea freight.
- Remember Incoterms move risk, not ownership or payment, and for an Indian exporter the term sets the FOB value that drives your incentives and the proceeds you receive.
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Frequently asked questions
Under Incoterms 2020 they are EXW, FCA, CPT, CIP, DAP, DPU and DDP for any transport mode, and FAS, FOB, CFR and CIF for sea and inland waterway transport.
FOB means the buyer takes over once goods are on board at origin. CIF adds seller-paid freight and minimum insurance to the destination port. DDP means the seller delivers duty-paid to the buyer's destination.
Risk passes at the same point, on board at origin, under both. The difference is cost: under CIF the seller also pays freight and minimum insurance to the destination port, while under FOB the buyer arranges those.
DAP works for any transport mode and has the seller bear risk to the named destination. FOB is sea-only and passes risk to the buyer once the goods are on board at the origin port.
Use FCA, CPT or CIP. The ICC advises against FOB, CFR and CIF for containers, because a container is handed over before it is on board, so a sea-only rule mistimes the risk transfer.
No. Incoterms transfer risk and allocate cost, not legal title. Ownership passes under your contract of sale and the applicable law, not the Incoterm.
No. Incoterms 2020 has been in force since 1 January 2020 and remains current. The ICC updates the rules roughly once a decade.
Only DDP puts destination import duty on the seller. Under FOB, CIF and most other terms, the buyer pays the import customs duty and taxes.
