IncotermsInternational Commercial Terms

Incoterms — short for International Commercial Terms — are the standardised three-letter codes that define the responsibilities of buyer and seller in an international shipment. Published by the International Chamber of Commerce (ICC), the current version is Incoterms 2020.

Each term answers three questions:

1. Who arranges and pays for transport?
2. Who carries the risk at each stage of the journey?
3. Where does title transfer?

For brands buying from overseas suppliers, the Incoterm on the PO is one of the most operationally important details — it determines what's actually included in your "lead time", what your true landed cost is, and whose problem a delayed container is.

The 11 Incoterms 2020

Grouped by transport mode:

Any mode of transport (7 terms):

• EXW — Ex Works. Buyer collects from supplier's premises. Buyer responsible for everything from the door of the factory.
• FCA — Free Carrier. Seller delivers to a named carrier or place. Risk transfers there.
• CPT — Carriage Paid To. Seller pays freight to a named destination but risk transfers when goods are handed to the first carrier.
• CIP — Carriage and Insurance Paid To. Same as CPT but seller also arranges insurance.
• DAP — Delivered at Place. Seller delivers to the buyer's named place; buyer handles import duties.
• DPU — Delivered at Place Unloaded. Like DAP but seller also unloads. (Replaced DAT in 2020.)
• DDP — Delivered Duty Paid. Seller delivers and pays all duties. The most "all in" option.

Sea / inland waterway only (4 terms):

• FAS — Free Alongside Ship. Seller delivers to the dockside; buyer takes over from there.
• FOB — Free on Board. Seller delivers onto the vessel; risk transfers once goods are on board the vessel.
• CFR — Cost and Freight. Seller pays freight to destination port; risk transfers at origin port.
• CIF — Cost, Insurance and Freight. Like CFR plus insurance.

What changed in 2020

The major update from Incoterms 2010:

• DAT renamed to DPU (Delivered at Place Unloaded), with explicit responsibility for unloading
• FCA updated to address bill of lading issues with letters of credit
• CIP insurance level raised to "all risks" cover; CIF stayed at minimum cover
• Clarified security-related obligations
• Clarified own-vehicle transport options under FCA / DAP / DPU / DDP

The 2010 terms remain valid if specified explicitly — but new contracts should default to 2020.

Why this matters operationally

Three concrete planning impacts:

• Lead time meaning. A "12-week lead time" under FOB means 12 weeks to vessel loading. Under DAP it means 12 weeks to your warehouse door. Different definitions hide weeks of pipeline.
• Landed cost calculation. Under EXW or FOB, you're paying for freight, insurance, duty, and clearance separately. Under DDP, all of that is bundled in the supplier's price. Comparing supplier quotes without normalising for Incoterm produces apples-to-oranges results.
• Title transfer for accounting. In-transit inventory sits on your balance sheet from the moment title transfers — at the factory door under EXW, once goods are on board the vessel under FOB, at delivery under DAP/DDP.

Most common terms for consumer brands

In practice, scaling consumer brands sourcing from overseas mostly use:

• FOB — most common for ocean-freight consumer goods. Title transfers at port of origin. You arrange freight (often via a freight forwarder) and pay duty on import.
• DDP — increasingly common for smaller orders or when supplier has good logistics. All-in price; supplier handles everything to your door including duty.
• EXW — when you have a freight forwarder you trust and want maximum control over routing. Riskier because you're picking up risk at the supplier's loading dock.

The right choice depends on your freight expertise, order size, supplier sophistication, and how much risk you want to carry vs delegate.

Common pitfalls

• Assuming the supplier's quoted price is comparable across Incoterms. Always normalise to a common landed cost basis.
• Treating Incoterms as a freight choice rather than a risk allocation. They're both — and the risk side often matters more in disputes.
• Using outdated 2010 terms in new contracts. The 2020 changes resolved real ambiguities; new agreements should reference 2020 explicitly.
• Confusing similar codes. CFR vs CIF (insurance), DAP vs DDP (duty), FOB vs FCA (transport mode). The differences are small in name and large in consequence.

Where to confirm the details

Incoterms are a published standard — the authoritative reference is the ICC's Incoterms 2020 publication. Most freight forwarders and customs brokers will help you choose the right term for a given route and supplier; if you're scaling international buying, the time spent choosing the right Incoterm pays back in fewer disputes and cleaner cost comparisons.