What Incoterms do — and what they don’t
Incoterms® rules are short three-letter terms published by the International Chamber of Commerce (ICC). Written into a sales contract — for example “FOB Nhava Sheva, Incoterms® 2020” — they decide two things: which costs the seller pays and where the risk of loss or damage moves to the buyer. They do not decide the price, when ownership passes, or how payment is made.
The 11 rules in one line each
- EXW — buyer collects from the seller’s premises and handles everything, even export clearance.
- FCA — seller clears export and hands goods to the buyer’s carrier at a named place.
- CPT / CIP — seller pays carriage to the destination; risk passes when goods are handed to the first carrier. CIP adds insurance (from 2020, at the higher “all risks” level, Institute Cargo Clauses A).
- DAP — seller delivers to the named destination, ready for unloading.
- DPU — like DAP, but the seller also unloads (this replaced DAT in 2020).
- DDP — seller delivers, pays import duties and taxes, and clears import. The most work for the seller.
- FAS / FOB — sea only; seller delivers alongside or on board the ship at the port of loading.
- CFR / CIF — sea only; seller pays ocean freight to the destination port, but risk passes once goods are on board at loading. CIF adds minimum insurance (Institute Cargo Clauses C).
FOB vs CIF for Indian importers
Under CIF, the overseas seller books the ship and the insurance, which is convenient but means you have little control over the freight rate, the shipping line or local charges at the Indian port. Under FOB, you (or your freight forwarder) choose the line and insurance. Many Indian importers buy FOB once their volumes are regular. Customs in India values imports on a CIF basis either way: if freight or insurance aren’t known, the assessable value adds them using the rules in the Customs Valuation Rules.
Common mistakes
- Using FOB or CIF for containers handed over at an inland container depot — FCA or CIP describe that hand-over better.
- Agreeing DDP without checking whether the seller can actually act as the importer and pay GST and duties in the buyer’s country.
- Forgetting to name the place: “FOB” alone is incomplete; it must be “FOB [port], Incoterms® 2020”.
Questions people ask
Which Incoterm is cheapest for the buyer?
Is DAT still valid?
Who pays terminal handling charges?
Do Incoterms decide when I own the goods?
Sources
- International Chamber of Commerce — Incoterms® rules
- Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 — CBIC
Incoterms® is a registered trademark of the International Chamber of Commerce. This page is a plain-language summary; the official rules text is available from the ICC. Last reviewed: November 2026.