Incoterms for International Freight Shipping Explained

Incoterms (International Commercial Terms) are standardized three-letter trade terms defining responsibilities for freight costs, risk transfer, and documentation in international transactions. Published by the International Chamber of Commerce, Incoterms 2020 provides the current standard. Understanding Incoterms prevents disputes and ensures clear responsibility allocation. EXW (Ex Works) places minimum responsibility on sellers who make goods available at their facility, with buyers responsible for all transportation, export clearance, import clearance, and risk transfer at seller's door. This favors sellers but burdens buyers with complex logistics. FCA (Free Carrier) has sellers delivering freight to carriers nominated by buyers at specified locations, with sellers handling export clearance and buyers managing transportation and import clearance. Risk transfers when carriers take possession. CPT (Carriage Paid To) requires sellers to pay freight to destination but risk transfers at carrier handoff, creating a split where sellers pay but buyers bear risk during transit. CIP (Carriage and Insurance Paid To) adds insurance requirements with sellers paying freight and insurance to destination, though risk still transfers at carrier handoff. DAP (Delivered at Place) has sellers responsible for delivery to named destinations ready for unloading, paying transportation and export clearance, with buyers handling unloading and import clearance. Risk transfers upon arrival at destination. DDP (Delivered Duty Paid) places maximum responsibility on sellers who deliver to destinations with all duties paid and import clearance completed. Only unloading remains for buyers. FOB (Free on Board) for ocean freight has sellers delivering freight to vessels at loading ports with risk transferring once freight crosses ship rails. CFR (Cost and Freight) requires sellers to pay ocean freight to destination ports but risk transfers at loading, creating the same cost/risk split as CPT. CIF (Cost, Insurance and Freight) adds insurance to CFR with sellers paying insurance though risk still transfers at loading. For Canada-US cross-border truck freight, FCA is most common with delivery to carriers at sellers' facilities, sellers handling Canadian export clearance, and buyers responsible for US import clearance and freight to final destinations. DAP is increasingly popular for e-commerce with sellers managing freight to US destinations and buyers handling only final receipt. Incoterm selection affects total landed cost including freight, insurance, customs duties, and clearance fees. Buyers under EXW or FCA face complex logistics coordination. Sellers under DDP manage all logistics but build costs into pricing. The choice balances control, cost visibility, and administrative convenience.