Key Takeaways

• Incoterms are trade rules that define the responsibilities, costs, and point at which risk transfers from the Seller to the Buyer in international sales.
• Incoterms 2020 contains 11 Rules: 7 can be used with multiple modes of transport, while the other 4 are intended for Sea / Inland Waterway Transport.
• The party paying freight to the destination does not necessarily bear the risk until the destination. For example, under CFR, CIF, CPT, and CIP, risk transfers before the point to which the Seller pays for transportation.
• FOB and CIF are not suitable for Air Freight and should not be used for every shipment simply because they are familiar terms.
• Before agreeing on a price, specify the Incoterms Rule, Named Place / Port, and version, for example, FCA Bangkok, Thailand – Incoterms 2020.

What Are Incoterms?

Incoterms stands for International Commercial Terms. They are international trade rules developed by the International Chamber of Commerce (ICC) to help Buyers and Sellers understand each party's responsibilities in delivering goods.

Incoterms help define important matters such as:

• Who arranges Pickup
• Who handles Export Clearance
• Who pays the Main Freight
• Who arranges Insurance under the applicable Rule
• Who handles Import Clearance
• Who pays Import Duty under the agreed terms
• At what point Risk transfers from the Seller to the Buyer

For example, a Supplier may offer a price of:

USD 20,000 FOB Shanghai

and

USD 20,000 DAP Bangkok

Although the quoted amounts look the same, the scope of the Seller's responsibilities differs.

Therefore, when comparing Suppliers, do not look only at the Product Price. You should also consider the Incoterms stated in the quotation.

How Many Incoterms 2020 Rules Are There?

Incoterms 2020 contains 11 Rules.

They can be divided into two main groups.

Incoterms for Any Mode or Modes of Transport

These include:

• EXW – Ex Works
• FCA – Free Carrier
• CPT – Carriage Paid To
• CIP – Carriage and Insurance Paid To
• DAP – Delivered at Place
• DPU – Delivered at Place Unloaded
• DDP – Delivered Duty Paid

They can be used with multiple transportation modes, such as:

• Road
• Air
• Rail
• Sea
• Multimodal

depending on the shipment.

Incoterms for Sea and Inland Waterway Transport

These include:

• FAS – Free Alongside Ship
• FOB – Free On Board
• CFR – Cost and Freight
• CIF – Cost, Insurance and Freight

These Rules are designed for sea or inland waterway transport.

Therefore, FOB and CIF should not be used for Air Freight simply because they are familiar terms.

What Do Incoterms Define?

Incoterms help divide responsibilities between the Seller and the Buyer in several areas.

Transportation

They specify which party arranges transportation for each stage.

Cost

They define which party is responsible for costs within the scope of the applicable Rule.

Risk

They specify the point at which the risk of loss of or damage to the goods transfers from the Seller to the Buyer.

Customs

They define responsibility for:

• Export Clearance
• Import Clearance

according to each Rule.

Insurance

Only certain Rules require the Seller to arrange insurance, including:

• CIF
• CIP

However, the insurance requirements under these two Rules are not exactly the same.

What Do Incoterms Not Define?

Incoterms do not replace the entire Sales Contract.

In general, Incoterms do not fully define matters such as:

• Transfer of ownership of the goods
• Payment Terms
• Payment Methods
• Quality Requirements
• Warranty
• Penalties
• Breach of Contract
• Governing Law

Therefore, other Commercial Terms must be specified separately in the Purchase Order or Sales Contract.

For example:

Incoterms = CIF Hamburg

does not specify whether the Buyer must pay by:

• Advance Payment
• T/T
• Letter of Credit
• Open Account

The Payment Terms must be agreed separately.

Suggested Internal Link: What Is a Letter of Credit (L/C)? A Payment Method Importers and Exporters Should Know

What Is EXW?

EXW, or Ex Works, is a Rule under which the Seller has relatively limited responsibilities.

The Seller must make the goods available at the specified location, for example:

EXW Supplier Factory, Guangzhou, China – Incoterms 2020

The Buyer then handles transportation and subsequent processes from that point, according to the Rule.

These may include:

• Pickup
• Export Process
• Main Freight
• Import Clearance
• Duty
• Delivery

Who Is EXW Suitable For?

It may suit Buyers who can manage logistics effectively from the origin, such as those who:

• Have a Freight Forwarder at origin
• Have an overseas network
• Want to control freight themselves
• Buy from multiple Suppliers and want to consolidate shipments

EXW Considerations

In actual international trade, the Buyer may face limitations when handling Export Clearance in the Seller's country.

Therefore, in many cases, FCA may be more suitable than EXW for cross-border trade because the Seller handles Export Clearance under FCA.

Before choosing EXW, check whether the logistics provider can manage all origin processes.

What Is FCA?

FCA, or Free Carrier, means the Seller delivers the goods to the Carrier or another person nominated by the Buyer at the agreed Named Place.

The Seller is responsible for Export Clearance.

The delivery point may be:

• The Seller's Factory
• A Warehouse
• A Terminal
• Another specified location

The Named Place must therefore be stated clearly.

Example:

FCA Bangkok, Thailand – Incoterms 2020

Which Types of Transportation Is FCA Suitable For?

FCA can be used with multiple modes, including:

• Air Freight
• Road Freight
• Containerized Sea Freight
• Multimodal Transport

It is often more suitable than FOB for container shipments when the Seller hands the container over to the Carrier at the terminal before the goods are loaded onto the vessel.

What Is CPT?

CPT, or Carriage Paid To, means the Seller arranges and pays for transportation to the agreed Named Destination.

However, beginners often misunderstand one important point:

The Seller paying freight to the destination does not mean the Seller bears the risk until the destination.

Under CPT, risk transfers when the Seller delivers the goods to the Carrier in accordance with the Rule.

Therefore, the cost transfer point and the risk transfer point can be different.

What Is CIP?

CIP, or Carriage and Insurance Paid To, has a structure similar to CPT.

The Seller:

• Arranges the Main Carriage
• Pays freight to the Named Destination
• Arranges insurance as required by the Rule

However, risk still transfers at the point of delivery to the Carrier under the Rule, rather than when the goods arrive at the destination.

How Does CIP Differ from CIF?

Both Rules require the Seller to arrange insurance, but there are important differences.

CIP

• Can be used with multiple transportation modes
• Under Incoterms 2020, generally requires a higher level of insurance cover than CIF

CIF

• Is used for Sea / Inland Waterway Transport
• Generally requires minimum insurance cover under the Rule, unless the parties agree otherwise

Businesses should always review the actual insurance policy. The presence of the term CIP or CIF does not mean that every risk is covered.

What Is DAP?

DAP, or Delivered at Place, means the Seller arranges transportation to the agreed Named Place and bears the risk until the goods arrive, ready for unloading from the arriving means of transport.

The Buyer is generally responsible for:

• Unloading
• Import Clearance
• Import Duty / Tax

in accordance with the Rule.

Example:

DAP Customer Warehouse, Bangkok, Thailand – Incoterms 2020

What Is DAP Suitable For?

DAP is suitable for transactions in which the Seller arranges transportation close to or all the way to the Buyer's location but does not want to take responsibility for Import Clearance and Duty as under DDP.

DAP is therefore commonly encountered in door-to-door international freight services.

What Is DPU?

DPU, or Delivered at Place Unloaded, is a Rule under which the Seller arranges transportation to the Named Place and must unload the goods from the arriving means of transport.

The key point is that DPU is the only Incoterms 2020 Rule that requires the Seller to be responsible for unloading at the destination under the Rule.

How Does DPU Differ from DAP?

The key difference is:

DAP

The Seller brings the goods to the destination, ready for the Buyer to unload.

DPU

The Seller is also responsible for unloading the goods.

Therefore, DPU may not be suitable if the destination lacks the necessary equipment or the Seller cannot arrange unloading.

What Is DDP?

DDP, or Delivered Duty Paid, is a Rule under which the Seller assumes a high level of responsibility.

In general, the Seller is responsible for delivering the goods to the Named Destination, including:

• Transportation
• Export Clearance
• Import Clearance
• Import Duty
• Relevant Taxes, as required by the Rule

The goods are delivered at the agreed point, ready for unloading.

What Are the Benefits of DDP for the Buyer?

For the Buyer, one advantage is that the Seller provides a relatively comprehensive cost and process scope.

The Buyer does not have to arrange international freight and Import Clearance separately within the scope covered by the term.

However, the Seller must first ensure that it can actually handle the import process in the destination country.

Why Does DDP Require Special Attention?

Countries have different requirements regarding:

• Importer of Record
• Tax Registration
• Customs Registration
• Import License
• VAT / GST
• Local Representation

A foreign Seller may not be able to act as the Importer or pay certain taxes easily in every country.

Therefore, do not quote DDP simply because the Buyer wants an “all-inclusive, delivered-to-the-door price” without first checking the applicable Import Regulations.

What Is FAS?

FAS, or Free Alongside Ship, means the Seller delivers the goods when they are placed alongside the vessel at the specified Port of Shipment.

The Buyer assumes the main responsibilities after that point, according to the Rule.

FAS is often used for goods suited to delivery alongside a vessel, such as:

• Bulk Cargo
• Project Cargo
• Certain Commodities

It is used only for Sea / Inland Waterway Transport.

What Is FOB?

FOB, or Free On Board, means the Seller is responsible until the goods are loaded on board the vessel at the Named Port of Shipment.

This includes Export Clearance under the Rule.

Once the goods are on board the vessel, the risk transfers to the Buyer.

Example:

FOB Laem Chabang Port, Thailand – Incoterms 2020

Who Pays the Ocean Freight Under FOB?

In general, the Buyer arranges and pays the Main Ocean Freight under FOB.

The Seller is responsible up to delivery of the goods on board the vessel, in accordance with the Rule.

Can FOB Be Used for Air Freight?

It should not be used.

FOB is designed for Sea and Inland Waterway Transport.

If the shipment is transported by:

• Air Freight
• Road Freight
• Multimodal Transport

consider a Rule that can be used with any mode, such as FCA, depending on the transaction structure.

Should FOB Always Be Used for Container Shipments?

No.

For container shipments, goods are often handed over to the Carrier at the container terminal before the vessel is loaded.

Therefore, FCA may better reflect the actual delivery point than FOB in many cases.

Consider where the actual delivery of the goods takes place.

What Is CFR?

CFR, or Cost and Freight, means the Seller is responsible for:

• Export Clearance
• Delivering the goods on board the vessel
• Paying ocean freight to the agreed Port of Destination

However, risk transfers to the Buyer when the goods are on board the vessel at the origin.

This is an important point:

The Seller pays freight to the destination, but the risk does not remain with the Seller until the destination.

How Does CFR Differ from FOB?

FOB

The Buyer arranges the Main Ocean Freight.

CFR

The Seller arranges and pays for ocean freight to the Destination Port.

Under both Rules, however, risk transfers at the origin when the goods are on board the vessel.

What Is CIF?

CIF, or Cost, Insurance and Freight, has a structure similar to CFR, but the Seller must also arrange marine insurance as required by the Rule.

The Seller pays for:

• Export-related Costs under the Rule
• Ocean Freight
• Insurance as required

to the Named Port of Destination.

However, risk transfers when the goods are on board the vessel at the origin.

It does not transfer when the goods arrive at the Destination Port.

Does CIF Include Import Duties?

Not automatically.

The Buyer is generally still responsible for Import Clearance, Import Duty, and Tax under the Rule.

Therefore:

CIF ≠ DDP

This is one of the most common misunderstandings among first-time importers.

Suggested Internal Link: What Is Customs Value? Understanding the CIF Method for Customs Valuation

What Is the Difference Between FOB and CIF?

The key differences concern Main Freight and Insurance.

FOB

The Seller delivers the goods on board the vessel.

The Buyer arranges the Ocean Freight after that point.

CIF

The Seller also delivers the goods on board the vessel, but the Seller arranges:

• Ocean Freight
• Insurance as required

to the Destination Port.

However, under both FOB and CIF, risk transfers at the origin, not at the destination.

How Does EXW Differ from FOB?

The main difference is the scope of the Seller's responsibilities.

EXW

The Seller makes the goods available at the Named Place.

The Buyer takes on more responsibility for origin processes.

FOB

The Seller must handle Export Clearance and deliver the goods on board the vessel at the Port of Shipment.

FOB therefore places significantly more responsibility on the Seller than EXW.

How Does CIF Differ from DAP?

These two terms have significantly different scopes.

CIF

• Used only for Sea / Inland Waterway Transport
• The Seller pays freight and insurance to the Destination Port
• Risk transfers at the origin when the goods are on board the vessel
• The Buyer handles the import process under the Rule

DAP

• Can be used with any mode
• The Seller arranges transportation to the Named Destination
• The Seller bears risk until the goods arrive at the delivery point
• The Buyer handles Import Clearance and Duty / Tax

Therefore, you should not choose a term based on price alone.

How Does DAP Differ from DDP?

The main difference is Import Responsibility.

DAP

The Buyer is responsible for:

• Import Clearance
• Import Duty
• Tax

DDP

The Seller is responsible for the import process and Duty / Tax under the Rule.

Therefore, a Seller offering DDP must be capable of handling the import formalities in the destination country.

Who Bears the Risk While Goods Are in Transit?

It depends on the Incoterms Rule.

The key point is that the party paying freight is not necessarily the party bearing the risk throughout the entire journey.

For example:

CIF

The Seller pays Ocean Freight to the Destination Port.

However, risk transfers to the Buyer once the goods are on board the vessel at the origin.

CPT

The Seller pays for carriage to the destination.

However, risk transfers to the Buyer when the goods are delivered to the Carrier under the Rule.

This is why businesses should consider both:

Cost Point + Risk Transfer Point

rather than looking only at who pays the freight.

How Are Incoterms Related to Cargo Insurance?

Only certain Rules require the Seller to arrange insurance:

• CIP
• CIF

The other Rules do not require either party to arrange insurance under Incoterms, even though one party may still bear the risk.

Therefore, businesses can also consider additional Cargo Insurance for shipments under terms such as:

• EXW
• FCA
• FOB
• CFR
• DAP

Incoterms should not replace an assessment of insurance requirements.

Are Incoterms the Same as Door-to-Door Service?

No, they are not the same.

Door to Door

Describes the scope of a logistics service.

Incoterms

Are trade rules that allocate responsibilities between the Seller and the Buyer.

For example, a shipment can be transported door to door while the sale is agreed under:

• DAP
• DDP
• CPT
• CIP

or another term, depending on the transaction structure.

Therefore, do not automatically assume:

Door to Door = DDP

Suggested Internal Link: What Is the Difference Between Door to Door, Door to Port, and Port to Port? Which Shipping Service Should You Choose?

How Should Incoterms Be Matched to the Freight Mode?

A common mistake is choosing a term out of habit rather than considering the actual transportation method.

For Air Freight

Consider Rules that can be used with any mode, such as:

• EXW
• FCA
• CPT
• CIP
• DAP
• DPU
• DDP

Do not use FOB, CFR, or CIF as the Rule for an air shipment.

For Containerized Sea Freight

Although FOB and CIF are commonly used, if the Seller hands the container over to the Carrier before loading, consider whether one of the following better matches the actual delivery point:

• FCA
• CPT
• CIP

For Road Freight

Use Rules designed for any mode, such as:

• FCA
• CPT
• CIP
• DAP
• DPU
• DDP

For Bulk / Breakbulk Sea Freight

Rules such as:

• FAS
• FOB
• CFR
• CIF

may align more closely with the operation.

How Do Incoterms Affect a Freight Quote?

They directly affect the service scope that a Freight Forwarder needs to quote.

For example, if a Buyer says:

Purchase under EXW Shanghai

the Forwarder may need to calculate:

• Pickup from the Supplier
• Origin Handling
• Export Clearance
• Main Freight
• Destination Process
• Import Clearance, depending on the service
• Delivery

But if the purchase term is:

CIF Laem Chabang

the Seller is responsible for arranging the Main Freight under the term.

The Buyer may need a quote for the destination scope onward, for example.

Therefore, always provide the Incoterms when sending shipment details to a Forwarder.

How Should Incoterms Be Specified in Documents?

Do not write only:

FOB

or

DAP

Specify the:

Incoterms Rule + Named Place / Port + Version

Examples:

FCA Bangkok, Thailand – Incoterms 2020

FOB Laem Chabang Port, Thailand – Incoterms 2020

CIF Hamburg Port, Germany – Incoterms 2020

DAP Customer Warehouse, Berlin, Germany – Incoterms 2020

The more clearly the location is specified, the lower the risk of disputes about where each party's responsibility ends.

How Do Incoterms Affect Product Prices?

A Supplier's quotation may change depending on the term.

Hypothetical examples:

EXW

USD 10,000

FOB

USD 10,600

CIF

USD 11,500

This does not necessarily mean the Supplier is increasing its profit.

The difference may reflect additional costs the Supplier is responsible for, such as:

• Inland Transport
• Export Handling
• Customs
• Ocean Freight
• Insurance

Therefore, make sure the scope is comparable before comparing Suppliers.

Why Can a Low EXW Price Result in a Higher Landed Cost?

Because the EXW price does not include many logistics costs.

For example:

Supplier A

EXW = USD 9,500

Supplier B

FOB = USD 10,000

At first glance, Supplier A appears to be USD 500 cheaper.

However, if Supplier A's Origin Pickup, Export Process, and Local Charges total USD 800, Supplier A may already be more expensive before Main Freight is added.

Therefore, compare the Total Landed Cost, not just the Product Price shown in the quotation.

Do Incoterms Affect Customs Value?

Incoterms affect the cost components reflected in a commercial transaction, but Customs Value must be calculated according to the customs laws of the importing country.

Therefore, do not use the Incoterms price directly as a tax calculation formula without adjusting the relevant cost components.

In Thailand, customs valuation must follow the applicable laws and valuation methods.

Suggested Internal Link: What Is Customs Value? Understanding the CIF Method for Customs Valuation

Should First-time Importers Choose EXW, FOB, or CIF?

There is no single best term for every business.

EXW May Be Suitable When

• The Buyer has a logistics network at origin
• The Buyer wants to control the shipment
• The Buyer can arrange origin processes

FOB May Be Suitable When

• The shipment is transported by sea and the operation aligns with FOB
• The Buyer wants to choose the Shipping Line / Forwarder

CIF May Be Suitable When

• The Seller can arrange Ocean Freight
• The Buyer wants the Seller to handle freight and insurance costs to the Destination Port under the Rule

However, the Buyer should still check:

• Destination Charges
• Import Clearance
• Duty
• Delivery

When Should Exporters Choose FCA or DAP?

FCA

Suitable when the Seller wants to prepare the goods, complete Export Clearance, and then hand them over to a Carrier nominated by the Buyer.

DAP

Suitable when the Seller wants to control logistics through to the Buyer's destination while leaving Import Clearance and Duty / Tax to the Buyer.

The choice between the two terms depends on which party has the stronger logistics network and bargaining position.

When Should DDP Be Used?

DDP is suitable when the Seller can genuinely manage all of the following:

• Freight
• Destination Process
• Import Clearance
• Duty / Tax
• Local Compliance

It is appropriate when the Buyer wants the Seller to assume a high level of responsibility.

However, the Seller must carefully check local import laws before offering DDP.

This is especially important when the Seller does not have a company or tax registration in the destination country.

Common Incoterms Mistakes

• Writing only FOB without specifying the Port
• Not specifying the version
• Using FOB for Air Freight
• Assuming CIF includes Import Duty
• Assuming that the Seller who pays freight always bears the risk until the destination
• Assuming Door to Door means DDP
• Purchasing under EXW without checking the origin Export Process
• Offering DDP without checking Importer Requirements
• Not checking which party is responsible for Loading / Unloading
• Omitting Incoterms from the Purchase Order or Sales Contract
• The Buyer and Seller using the same term but interpreting the Named Place differently

Checklist Before Agreeing on Incoterms with a Trading Partner

Before confirming the Purchase Order, make sure you can answer all of the following:

• Which mode of transport will be used?
• Who arranges Pickup?
• Who handles Export Clearance?
• Who arranges Main Freight?
• Who selects the Carrier?
• Who arranges Insurance?
• Where does Risk Transfer take place?
• Who handles Import Clearance?
• Who pays Import Duty / Tax?
• Who arranges Delivery?
• Who unloads the goods?
• What is the Named Place / Port?
• Which Incoterms version applies?
• Does the Freight Quote cover the same scope as the Incoterms?

If any of these points remain unclear, confirm them with the Buyer, Seller, and Freight Forwarder before shipment.

Frequently Asked Questions About Incoterms (FAQ)

What Are Incoterms?

Incoterms are rules that allocate responsibilities, costs, and risk between the Seller and Buyer when delivering goods internationally.

How Many Incoterms 2020 Rules Are There?

There are 11 Rules: 7 for any mode or modes of transport and 4 for Sea / Inland Waterway Transport.

Can FOB Be Used for Air Freight?

FOB should not be used for Air Freight because it is a Rule for Sea and Inland Waterway Transport. Consider FCA or another Rule suitable for any mode, depending on the transaction.

Does CIF Include Import Duties?

Not automatically. The Buyer is generally still responsible for Import Clearance and Duty / Tax under the Rule.

What Is the Difference Between DAP and DDP?

Under DAP, the Buyer is responsible for Import Clearance and Import Duty / Tax. Under DDP, the Seller is responsible for these under the Rule.

What Is the Difference Between EXW and FCA?

Under EXW, the Buyer takes on more responsibility at origin. Under FCA, the Seller handles Export Clearance and delivers the goods to the Carrier at the agreed Named Place.

Do Incoterms Determine Who Owns the Goods?

Incoterms do not directly determine the transfer of ownership. Ownership should be specified separately in the Sales Contract.

Who Should Choose the Incoterms?

The Buyer and Seller should agree together, taking into account the transportation mode, logistics capabilities, risk, cost, and the rules of the origin and destination countries.

Incoterms-Based Freight Services with CPL INTER

CPL INTER provides international shipping services, including:

• Air Courier
• Air Cargo
• Sea Freight
• Road Freight
• Cross-border Transportation

Related services include:

• Pickup
• Packing
• Warehousing
• Shipping Documents
• Customs Clearance
• Delivery

Services are provided according to the shipment's service scope and Incoterms.

If you receive a Supplier quotation under EXW, FCA, FOB, CIF, DAP, or DDP and are unsure which logistics responsibilities you must handle, you can provide the following information:

• Incoterms and Named Place / Port
• Product Name
• Number of Packages
• Dimensions
• Gross Weight
• Origin
• Destination
• Cargo Ready Date

The CPL INTER team can help assess the transportation scope and related costs before booking.

Tel: 02-519-4426 / 091-519-4426
LINE: @cplinter

Written by: CPL Inter Logistics Operations Team, specialists in international freight transportation and customs clearance, with more than 15 years of experience and an internationally recognized ISO 9001:2015 quality management system.