Incoterms® are the three-letter trade terms published by the International Chamber of Commerce (ICC), such as FOB, CIF and DAP. Written into a sales contract, a rule sets out where the seller hands the goods over, who books and pays for the main transport, who clears customs, and at what point the risk of loss or damage moves from seller to buyer.
The current edition is Incoterms® 2020. It has 11 rules.
The rules at a glance
| Rule | Seller hands over the goods | Main transport booked by | Export clearance |
|---|---|---|---|
| EXW Ex Works | At its own premises, not loaded | Buyer | Buyer |
| FCA Free Carrier | To the buyer’s carrier at a named place | Buyer | Seller |
| CPT Carriage Paid To | To the first carrier | Seller | Seller |
| CIP Carriage and Insurance Paid To | To the first carrier, insured | Seller | Seller |
| DAP Delivered at Place | At the named destination, ready to unload | Seller | Seller |
| DPU Delivered at Place Unloaded | At the named destination, unloaded | Seller | Seller |
| DDP Delivered Duty Paid | At destination, import duties paid | Seller | Seller |
| FAS Free Alongside Ship | Alongside the vessel at the port of loading | Buyer | Seller |
| FOB Free on Board | On board the vessel at the port of loading | Buyer | Seller |
| CFR Cost and Freight | On board the vessel at the port of loading | Seller | Seller |
| CIF Cost, Insurance and Freight | On board, insured | Seller | Seller |
Under every rule except DDP, the buyer handles import clearance and pays import duties.
Which rule fits a full container?
FAS, FOB, CFR and CIF are meant for sea and inland waterway transport, and risk passes when the goods are alongside or on board the vessel. A full container usually leaves your control much earlier: it’s loaded at your dock, trucked to a terminal or rail ramp, and handed to the carrier days before it’s lifted onto a ship.
For that reason the ICC suggests the “any mode” equivalents for containerised cargo:
- FCA instead of FOB
- CPT instead of CFR
- CIP instead of CIF
FOB and CIF are still common in container trade, often because a buyer or a letter of credit asks for them. If you use them, be aware that the risk stays with you while the loaded container sits at the terminal.
What changed in the 2020 edition
- FCA and on-board bills of lading. Buyer and seller can agree that the buyer will tell its carrier to issue the seller an on-board bill of lading. This helps sellers who are paid by letter of credit and need that document.
- More insurance under CIP. CIP now requires cover on Institute Cargo Clauses (A), the broadest “all risks” level. CIF still only requires the minimum cover, Clauses (C).
- DAT became DPU. Delivered at Terminal was renamed Delivered at Place Unloaded, because the destination doesn’t have to be a terminal.
- Your own trucks count. The rules now allow for the buyer (under FCA) or seller (under DAP, DPU and DDP) to move the goods with its own transport instead of hiring a carrier.
- Security costs are spelled out. Each rule now says who handles security-related requirements and who pays for them.
- All costs in one place. Each rule now lists who pays which costs in a single section.
A checklist before you sign
- Name the place precisely. “FCA Brantford, Ontario, seller’s dock” is far clearer than “FCA Canada”.
- Say “Incoterms® 2020”. Older editions are still used, and the rules differ.
- Match your letter of credit. The term in the contract, the L/C and the bill of lading should all agree.
- Check the insurance level. Under CIF the minimum cover may not suit your cargo. Ask for Clauses (A) if you need it.
- Remember what Incoterms don’t cover. They don’t set the price, the payment terms or when ownership passes. Those belong in the sales contract.
Shipping a full container out of Canada or the US?
Send us the lane and we’ll come back with a clear quote.