Incoterms (International Commercial Terms)
A set of standard trade rules from the ICC that define who pays for transport, who bears risk, and who clears customs in a sale.
TL;DR: Incoterms are standard three-letter trade rules published by the International Chamber of Commerce (ICC). They tell the buyer and seller who pays for each part of the journey, where risk passes, and who handles export and import customs.
The current edition is Incoterms 2020. It has 11 rules. Seven can be used for any mode of transport: EXW, FCA, CPT, CIP, DAP, DPU and DDP. Four are only for sea and inland waterway transport: FAS, FOB, CFR and CIF. Each rule is written with a named place, such as “FOB Shanghai” or “DAP Chicago warehouse.”
Incoterms cover delivery, risk, costs and customs duties between buyer and seller. They do not decide when ownership passes, how or when you pay, or what happens if one side breaks the contract. Those points belong in your sales contract and payment terms.
A key idea is that risk and cost do not always move at the same point. Under CFR and CIF, for example, the seller pays freight to your port, but risk passes to you once the goods are loaded on the ship in China.
When you ask a supplier for a quote, always state the Incoterm, the named place, and the edition, for example “FCA Guangzhou, Incoterms 2020.” This avoids confusion about who pays local charges such as THC at each end. Compare the common options in the entries for EXW, FOB, CIF and DDP.