10/12/22, 1:37 PM Blank Page

Incoterms®

Doing business internationally poses many challenges, one of which is

ensuring that everyone understands their obligations under the
contract. A shipping term in Canada may mean something different in
Mexico, and again something completely different in China. The trading
world needs a common language that clearly defines who is
responsible, and when they became responsible.

In 1936 the International Chamber of Commerce (ICC) created Incoterms®, which stands for International Commercial Terms. The most recent
version of the rules are Incoterms® 2020.

Incoterms®
International Commercial Terms are a list of commercial trading terms, or rules, used in the carriage of goods between the buyer and
the seller which define the responsibilities of each party.

There are two important issues that Incoterms® help to address:

1. They aid in determining the point in time when the risk of ownership passes to the buyer from the seller; and
2. They aid in determining the point in time when the payment for freight and any other charges passes from the seller to the buyer.

There are seven Incoterms® that apply to any mode of transportation and four Incoterms® which apply specifically to sea and inland waterway
transport.

Incoterms® for Any Mode of Transportation

Select each item to learn more.

Close All Panels

 EXW

Ex Works (…named place of delivery). "Ex Works" means that the seller delivers when it places the goods at the disposal of the buyer at
the seller’s premises or at another named place (i.e., works factory, warehouse, etc.). The seller does not need to load the goods on any
collecting vehicle, nor does he need to clear the goods for export, where such clearance is applicable.

 FCA

Free Carrier (…named place of delivery). "Free Carrier" means that the seller delivers the goods to the carrier or another person
nominated by the buyer at the seller’s premises or another named place. The parties are well advised to specify as clearly as possible the
point within the named place of delivery, as the risk passes to the buyer at that point.

 CPT

Carriage Paid To (…named place of destination). "Carriage Paid To" means that the seller delivers the goods to the carrier or another
person nominated by the seller at an agreed place (if any such place is agreed between the parties) and that the seller must contract for
https://cscb.brightspace.com/d2l/le/enhancedSequenceViewer/6689?url=https%3A%2F%2Fsiteproxy.ruqli.workers.dev%3A443%2Fhttps%2F97ca2d5b-b76d-4994-9687-e45832d0195c.sequences.api.brightspace.com%2F6689%2Factivity%2F4286%3FfilterOnDate… 1/4
10/12/22, 1:37 PM Blank Page
person nominated by the seller at an agreed place (if any such place is agreed between the parties) and that the seller must contract for
and pay the costs of carriage necessary to bring the goods to the named place of destination.

 CIP

Carriage and Insurance Paid To (…named place of destination). "Carriage and Insurance Paid to" means that the seller delivers the goods to
the carrier or another person nominated by the seller at an agreed place (if any such place is agreed upon between the parties) and that
the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination. The seller also
contracts for insurance cover against the buyer’s risk of loss or damage to the goods during the carriage.

 DPU

Delivered at Place Unloaded (…named place of destination unloaded). “Delivered At Place Unloaded” means that the seller delivers when
the goods, and transfers the risk to the buyer once the goods, are unloaded at the agreed upon place or destination. The import customs
clearance and related costs remain the responsibility of the buyer. Incoterms 2020 DPU is basically DAP with unloading. Previous
Incoterms referenced the “Terminal” (which includes any place, whether covered or not, such as a quay, warehouse, container yard or
road, rail or air cargo terminal), the removal of terminal was done to make the term more general.

 DAP

Delivered At Place (…named place of destination) “Delivered At Place” means that the seller delivers when the goods are placed at the
disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. The seller bears all risks
involved in bringing the goods to the named place.

 DDP

Delivered Duty Paid (…named at place of destination) “Delivered Duty Paid” means that the seller delivers the goods when the goods are
placed at the disposal of the buyer, cleared of import on the arriving means of transport ready for unloading at the named place of
destination. The seller bears all the costs and risks involved in bringing the goods to the place of destination and has an obligation to clear
the goods not only for export but also for import, to pay any duty for both export and import and to carry out all customs formalities. DDP
represents the maximum obligation for the seller.

Incoterms® for Sea and Inland Waterway Transport

Select each item to learn more.

Open All Panels

 FAS

Free Alongside Ship (…named port of shipment) “Free Alongside Ship” means that the seller delivers when the goods are placed alongside
the vessel (e.g. on a quay or a barge) nominated by the buyer at the named port of shipment. The risk of loss of or damage to the goods
passes when the goods are alongside the ship, and the buyer bears all costs from that moment onwards.

 FOB

Free On Board (…named port of shipment) “Free On Board” means that the seller delivers the goods on board the vessel nominated by the
buyer at the named port of shipment or procures the goods already so delivered. The risk of loss of or damage to the goods passes when
h d b d h l d h b b ll f h d FOB i ll df i
https://cscb.brightspace.com/d2l/le/enhancedSequenceViewer/6689?url=https%3A%2F%2Fsiteproxy.ruqli.workers.dev%3A443%2Fhttps%2F97ca2d5b-b76d-4994-9687-e45832d0195c.sequences.api.brightspace.com%2F6689%2Factivity%2F4286%3FfilterOnDate… 2/4
10/12/22, 1:37 PM Blank Page
the goods are on board the vessel, and the buyer bears all costs from that moment onwards. FOB is generally used for non-container
shipments.

 CFR

Cost and Freight (…named port of destination) “Cost and Freight” means that the seller delivers the goods on board the vessel or procures
the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel. The seller must
contract for and pay the costs and freight necessary to bring the goods to the named port of destination.

 CIF

Cost, Insurance, and Freight (…named port of destination) “Cost, Insurance and Freight” means that the seller delivers the goods on board
the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the
vessel. The seller must contract for and pay the costs, insurance and freight necessary to bring the goods to the named port of destination.

You may have noticed that each of the Incoterms® includes a place for a name of a destination or delivery place. The “named place” must be precise.
Without a specific named place, the parties involved in the movement of the goods will be uncertain as to where or when costs and risks transfer.

The correct expression of Incoterms® 2020 requires two component parts:

• the three letter abbreviation of the Incoterm®; and

• the naming of the exact physical point or place where the risk transfer takes place.

Example

CIP Windsor Canada

Is this specific enough?

Show Answer

First, let's look at what this means: Carriage and Insurance Paid to Windsor, Canada.

This is not specific enough. Did the vendor mean Windsor, Nova Scotia or Windsor, Ontario?

A properly completed Incoterm® will include a detailed place, i.e.:

CIP Joe’s Hardware Store 124 Main Street Windsor, Ontario, Canada.

Incoterms® Chart
Following is a chart of the current Incoterms®.

https://cscb.brightspace.com/d2l/le/enhancedSequenceViewer/6689?url=https%3A%2F%2Fsiteproxy.ruqli.workers.dev%3A443%2Fhttps%2F97ca2d5b-b76d-4994-9687-e45832d0195c.sequences.api.brightspace.com%2F6689%2Factivity%2F4286%3FfilterOnDate… 3/4
10/12/22, 1:37 PM Blank Page

Click here to enlarge the image. 

https://cscb.brightspace.com/d2l/le/enhancedSequenceViewer/6689?url=https%3A%2F%2Fsiteproxy.ruqli.workers.dev%3A443%2Fhttps%2F97ca2d5b-b76d-4994-9687-e45832d0195c.sequences.api.brightspace.com%2F6689%2Factivity%2F4286%3FfilterOnDate… 4/4