| Current Incoterms version | Incoterms® 2020 (International Chamber of Commerce (ICC)) |
| Total number of Incoterms | 11 terms (Incoterms® 2020, ICC) |
| Terms applicable to any transport mode | 7 (EXW, FCA, CPT, CIP, DAP, DPU, DDP) (ICC Incoterms® 2020 classification) |
| Terms for sea and inland waterway only | 4 (FAS, FOB, CFR, CIF) (ICC Incoterms® 2020 classification) |
| First publication year | 1936 (International Chamber of Commerce) |
| Primary governing body | International Chamber of Commerce (ICC) |
What Incoterms Are and Why They Matter
When a US business ships goods internationally, two questions must be answered precisely: who pays for what, and who bears the risk of loss at each stage? Incoterms — short for International Commercial Terms — are the standardized framework that answers both. Published by the International Chamber of Commerce, the current version is Incoterms® 2020, which defines 11 distinct terms organized by mode of transport and degree of seller versus buyer obligation.
Incoterms are not legal requirements, but they are widely referenced in commercial contracts, letters of credit, and insurance policies. Misreading or misapplying a term can expose a business to unexpected freight costs, uninsured cargo loss, or customs delays. For a broader foundation in logistics language, see the Supply Chain Glossary and the Freight Shipping in the US guide.
| Current Incoterms version | Incoterms® 2020 (International Chamber of Commerce (ICC)) |
| Total number of Incoterms | 11 terms (Incoterms® 2020, ICC) |
| Terms applicable to any transport mode | 7 (EXW, FCA, CPT, CIP, DAP, DPU, DDP) (ICC Incoterms® 2020 classification) |
| Terms for sea and inland waterway only | 4 (FAS, FOB, CFR, CIF) (ICC Incoterms® 2020 classification) |
| First publication year | 1936 (International Chamber of Commerce) |
| Primary governing body | International Chamber of Commerce (ICC) |
The Core Incoterms Every US Business Should Know
The 11 terms span a spectrum from maximum seller obligation to maximum buyer obligation. The most commonly used in US international trade are:
- EXW – Ex Works: The seller makes goods available at their premises. The buyer arranges all transport, export clearance, and assumes all risk from pickup. Maximum buyer responsibility.
- FCA – Free Carrier: The seller delivers goods to a named carrier or another nominated party at a specified location. Risk transfers at that handoff. Preferred for containerized freight and multimodal moves.
- FOB – Free on Board: The seller loads goods onto the buyer's nominated vessel at the named port. Risk transfers once goods are aboard. FOB is widely used but applies only to sea or inland waterway transport.
- CIF – Cost, Insurance, and Freight: The seller pays freight and insurance to the named destination port, but risk transfers to the buyer once goods are loaded on the vessel. A common point of confusion: the seller arranges insurance, but the buyer bears risk during transit.
- DAP – Delivered at Place: The seller is responsible for delivering goods to a named destination, ready for unloading. The buyer handles import duties and clearance.
- DDP – Delivered Duty Paid: The seller bears all costs and risks to the buyer's named place, including import duties and customs clearance. Maximum seller responsibility.
For businesses moving goods via rail, truck, or intermodal combinations, intermodal freight considerations should align with term selection — particularly when choosing between FCA and FOB.
Incoterms
A standardized set of international commercial terms published by the International Chamber of Commerce (ICC) that define the responsibilities of buyers and sellers in international trade. They govern risk transfer, cost allocation, and delivery obligations.
Risk Transfer Point
The specific moment in a shipment's journey when liability for loss or damage shifts from the seller to the buyer. Each Incoterm specifies a distinct point at which this transfer occurs.
Named Place
The specific location — such as a port, warehouse, or terminal — designated in the trade contract where delivery, cost, or risk transfer takes place under a given Incoterm.
Customs Clearance
The formal process by which goods are approved by a country's customs authority for import or export. Incoterms specify whether the buyer or seller is responsible for managing and funding this process.
FOB (Free on Board)
An Incoterm under which the seller delivers goods on board a nominated vessel at the named port of shipment. Risk transfers to the buyer once goods are loaded on the ship.
DDP (Delivered Duty Paid)
An Incoterm placing maximum obligation on the seller, who is responsible for all costs including freight, insurance, and import duties until goods are delivered to the buyer's named destination.
Risk, Cost, and Insurance Implications
The most operationally significant feature of any Incoterm is its risk transfer point. Under CIF, for example, the seller procures insurance but the buyer holds risk during ocean transit — meaning a claim typically involves the buyer even though they did not select the insurer or policy terms. Under DDP, the seller carries risk all the way to the destination, which increases their exposure and often their freight costs.
US businesses acting as importers should pay close attention to which party is responsible for customs clearance and duties. DDP places this on the seller; EXW and FCA place it on the buyer. Terms in the middle — DAP, FOB — split these responsibilities and require explicit coordination.
Incoterms Do Not Cover Everything
Incoterms define delivery, risk transfer, and cost allocation — but they do not address payment terms, transfer of title (ownership), or dispute resolution. These must be covered separately in the sales contract. Always consult a qualified trade attorney or licensed customs broker when structuring international agreements.
Cargo insurance interacts closely with Incoterms. The term chosen may affect what coverage is needed, who must procure it, and whose policy responds to a claim. For an overview of insurance concepts relevant to freight operations, see Freight and Trucking Operations: Insurance Concepts. Businesses should also review business insurance coverage types relevant to international cargo exposure.
For US businesses newer to freight terminology more broadly, Freight Terms Decoded offers complementary definitions covering domestic and cross-border freight language.
This article provides general educational information about international trade terms and is not legal, financial, or customs compliance advice. Trade contracts and import/export obligations vary by country, commodity, and business circumstance. Consult a licensed customs broker, freight forwarder, or qualified trade attorney for guidance specific to your situation.