What are Incoterms? Incoterms 2020 explained for brand owners
The three letters after a factory price change what that price includes and when the goods become your risk.
Definition
IncotermsIncoterms are standard trade terms published by the International Chamber of Commerce (ICC) that define the obligations of buyer and seller in delivering goods: where delivery takes place, when risk passes, and who arranges and pays for transport, insurance and customs clearance. The current edition, Incoterms 2020, contains eleven rules identified by three-letter codes.
How Incoterms 2020 work in a supply contract
Incoterms 2020 has eleven rules. Seven can be used for any mode of transport: EXW, FCA, CPT, CIP, DAP, DPU and DDP. Four are for sea and inland waterway transport: FAS, FOB, CFR and CIF. Each rule is written with a named place, for example FOB Ningbo or DAP your warehouse, and the place matters as much as the code.
The rules cover delivery, risk transfer and the split of costs and formalities. They do not cover when ownership of goods passes, payment terms, or what happens if the goods are defective. Those belong in the sales contract. A quote that says only “FOB” without a port or edition leaves room for dispute. Make sure the forwarder and the insurance policy follow the same rule as the sales contract.
For brand owners importing from factories, the practical choice is usually between EXW, FCA, FOB and DDP. ICC guidance notes that FCA often suits containerised goods better than FOB, because the seller hands containers to the carrier at a terminal before they are loaded. DDP looks simple but places import clearance on the seller, which is not always possible or wise. Whichever rule you use, name the exact place.
This is a general summary; the ICC publishes the official rules text. Incoterms feed directly into landed cost and are part of logistics planning in our manufacturing stage.
EXW, FOB and DDP: who handles what
| EXW | FOB | DDP | |
|---|---|---|---|
| Where the seller delivers | At its premises or another named place | On board the vessel at the named port of shipment | At the named destination, ready for unloading |
| Export clearance | Buyer | Seller | Seller |
| Main carriage | Buyer | Buyer | Seller |
| Import clearance and duties | Buyer | Buyer | Seller |
| Risk passes to buyer | When goods are made available | When goods are on board | At destination |
| Transport mode | Any | Sea and inland waterway | Any |
Simplified from the ICC Incoterms 2020 rules. Insurance, loading and unloading details vary; read the rule and the contract.
Related terms
EXW (Ex Works)
The seller makes goods available at its premises; the buyer arranges and pays for the rest.
FOB (Free on Board)
The seller delivers goods on board the vessel at the port of shipment; the buyer handles the rest.
DDP (Delivered Duty Paid)
The seller delivers to the named destination, cleared for import with duties paid.
Landed cost
The full cost of a product once it reaches your warehouse, including freight, duties and fees.
Frequently asked questions
What is the latest version of Incoterms?
Incoterms 2020, published by the ICC. Contracts should name the edition, for example “FOB Shanghai Incoterms 2020”, because earlier editions remain in use.
Do Incoterms say when I own the goods?
No. Incoterms cover delivery, risk and the split of costs and formalities. Transfer of ownership and payment terms must be set in the sales contract.
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