What are Incoterms?
Incoterms (International Commercial Terms) are a set of 11 standardized trade terms published by the International Chamber of Commerce (ICC). They define the responsibilities, costs, and risks between buyers and sellers in international trade.
Choosing the right Incoterm is one of the most important decisions in any international transaction. It determines who pays for shipping, who handles customs, who bears the risk of loss or damage, and at what point responsibility transfers.
The four groups
Incoterms 2020 are organized into four groups based on the seller's level of obligation.
Group E — Departure
**EXW (Ex Works)** is the minimum obligation for the seller. The seller simply makes goods available at their premises. The buyer handles everything else — pickup, export clearance, shipping, import clearance, and delivery. While it seems simple, EXW can be risky for buyers who are unfamiliar with export procedures in the seller's country.
Group F — Main carriage unpaid
This group includes FCA, FAS, and FOB. The seller delivers goods to a carrier or port, but the buyer pays for the main carriage. **FOB (Free On Board)** is the most commonly used Incoterm for ocean freight — the seller delivers goods on board the vessel, and risk transfers at that point.
Group C — Main carriage paid
This includes CFR, CIF, CPT, and CIP. The seller pays for main carriage but risk transfers earlier — at the port of shipment or when goods are handed to the first carrier. **CIF (Cost, Insurance and Freight)** is popular because the seller arranges and pays for freight and insurance, simplifying the process for the buyer.
Group D — Arrival
DAP, DPU, and DDP represent the maximum seller obligation. **DDP (Delivered Duty Paid)** means the seller handles everything including import customs and duties — the buyer simply receives the goods. This is the easiest option for buyers but the most expensive for sellers.
Which Incoterm should you use?
The right choice depends on several factors: your experience with international shipping, your relationship with the seller, the trade lane, and your appetite for controlling the logistics process.
If you want maximum control over your supply chain, FOB or FCA gives you the flexibility to choose your own freight forwarder and negotiate rates. If you prefer simplicity and want the seller to handle logistics, CIF or DDP reduces your operational burden.
Use our interactive tool
Try our interactive Incoterms Guide at asrwe.com/tools/incoterms-guide to visualize risk transfer points and compare terms side by side.
