Incoterms — International Commercial Terms — are a set of standardised trade terms published by the International Chamber of Commerce (ICC) that define the responsibilities of buyers and sellers in international trade transactions. The current version, Incoterms 2020, contains 11 terms and is recognised and enforceable in courts across the world.

Despite their universal importance, many Indian exporters use Incoterms incorrectly — either choosing a term that exposes them to unnecessary risk, or failing to specify Incoterms in their contracts altogether. This guide explains each term in plain language and helps you choose the right one for your situation.

The 11 Incoterms 2020 at a Glance

For Any Mode of Transport

  • EXW (Ex Works) — Maximum risk for the buyer. The seller makes goods available at their premises. The buyer arranges and pays for all transport, insurance, and customs. Rarely practical for international trade.
  • FCA (Free Carrier) — Seller delivers goods to a named carrier at a named place. Risk transfers to buyer upon handover to carrier. Most suitable for containerised shipments. Updated in 2020 to allow on-board bill of lading for Letter of Credit transactions.
  • CPT (Carriage Paid To) — Seller pays for carriage to the named destination, but risk transfers to buyer once goods are with the first carrier.
  • CIP (Carriage and Insurance Paid To) — Same as CPT but seller also procures insurance. Incoterms 2020 upgraded the minimum insurance requirement to Institute Cargo Clauses (A) — the highest level.
  • DAP (Delivered at Place) — Seller delivers goods to the named destination, unloaded from the transport vehicle. Buyer handles import clearance and duties.
  • DPU (Delivered at Place Unloaded) — New in 2020, replaces DAT. Seller delivers and unloads goods at the destination. Seller bears risk until unloading is complete.
  • DDP (Delivered Duty Paid) — Maximum obligation for the seller. Seller handles everything including import duties at the buyer's country. High risk — only use if you have a strong presence in the buyer's country.

For Sea and Inland Waterway Only

  • FAS (Free Alongside Ship) — Seller delivers goods alongside the vessel at the named port. Rarely used in practice.
  • FOB (Free on Board) — Most commonly used term for Indian exporters. Risk transfers when goods are loaded on board the vessel. Seller handles export clearance.
  • CFR (Cost and Freight) — Seller pays freight to destination port but risk transfers once goods are on board at origin.
  • CIF (Cost, Insurance and Freight) — Same as CFR but seller provides minimum insurance. Very commonly used — but note that risk still transfers at the origin port, not destination.

Which Incoterm Should You Use?

For most Indian exporters shipping by sea, FOB or CIF are the most practical and most commonly demanded by international buyers. For containerised cargo, FCA is technically more appropriate than FOB.

The right choice depends on your negotiating position, your buyer's preferences, and your ability to arrange freight and insurance competitively. If your buyer is a large importer with established freight contracts, they may prefer FOB so they can use their own logistics. If you want greater control and revenue from the logistics chain, CFR or CIF may be preferable.

Common Mistakes to Avoid

  • Using FOB for containerised cargo — technically, risk transfers when goods cross the ship's rail, but containers are typically handed to the carrier before loading.
  • Not specifying the named port or place alongside the Incoterm — "FOB" alone is incomplete. It must be "FOB Mumbai Port" or similar.
  • Confusing CIF with delivery at destination — under CIF, your responsibility ends at the port of origin, not when the goods arrive at the buyer's warehouse.

If you need guidance on Incoterms selection for a specific transaction, reach out to the United Exporters Forum — our member network includes experienced logistics professionals and export consultants who can advise you.