Incoterms explained: EXW, FCA, FOB, DAP and DDP for small importers
Incoterms decide who pays for shipping, who carries the risk, and who clears customs. Pick the wrong one and you pay costs you did not budget for.
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- 2 min read
A supplier quotes "USD 12,000 FOB Ningbo" and another quotes "USD 13,400 DDP Lagos". The second looks more expensive. It may be cheaper once freight, insurance, customs and duties are added to the first. Incoterms are how you compare them.
What Incoterms are
Standard trade terms published by the International Chamber of Commerce. Each is a three-letter code that says who pays for transport and insurance, who handles export and import customs, and where the risk of loss passes from seller to buyer. The current edition is Incoterms 2020.
The 11 rules
| Rule | Name | Transport | In short |
|---|---|---|---|
| EXW | Ex Works | Any | Buyer collects from the seller's premises and does everything else |
| FCA | Free Carrier | Any | Seller hands export-cleared goods to the buyer's carrier |
| CPT | Carriage Paid To | Any | Seller pays carriage to destination; risk passes at handover to first carrier |
| CIP | Carriage and Insurance Paid To | Any | As CPT, plus seller insures |
| DAP | Delivered at Place | Any | Seller delivers to the named place; buyer pays import duties |
| DPU | Delivered at Place Unloaded | Any | As DAP, plus seller unloads |
| DDP | Delivered Duty Paid | Any | Seller delivers and pays import duties and taxes |
| FAS | Free Alongside Ship | Sea | Seller places goods alongside the ship |
| FOB | Free on Board | Sea | Seller loads goods on the ship; risk passes on board |
| CFR | Cost and Freight | Sea | Seller pays freight to destination port; risk passes on board |
| CIF | Cost, Insurance and Freight | Sea | As CFR, plus seller insures |
The ones small importers meet most
- EXW looks cheapest and often is not: you handle export clearance in a foreign country.
- FOB is common for sea freight from Asia. For containers, the ICC recommends FCA instead, because containers are handed over at a terminal, not loaded by the seller.
- CIF includes minimum insurance only. Check whether it covers your goods.
- DDP is simplest for the buyer but requires the seller to act as importer in your country, which many cannot do properly.
How to choose
- If you have a freight forwarder, use FCA or FOB and let them handle the rest.
- If you do not, DAP gets goods to your door while you keep control of customs.
- Compare quotes on the same rule, adding the costs each leaves to you.
- Write the place and edition precisely: "FCA Shenzhen warehouse, Incoterms 2020".
What Incoterms do not cover
When you pay, how you pay, and who owns the goods. Those belong in the contract. See how to pay suppliers in China and letters of credit.
Where Rivet fits
Rivet pays suppliers, freight forwarders and customs brokers abroad from your USD, EUR or GBP balance, with the cost of each payment shown before you confirm. See Payouts.
Questions people ask
What does Incoterms mean?
International Commercial Terms: a set of three-letter rules published by the International Chamber of Commerce that define the responsibilities of buyer and seller for delivery, costs and risk in international trade.
What is the difference between DAP and DDP?
Under DAP (Delivered at Place), the seller delivers to the named place ready for unloading, and the buyer clears import customs and pays duties. Under DDP (Delivered Duty Paid), the seller also clears import customs and pays duties and taxes.
What does FCA mean?
Free Carrier: the seller hands the goods, cleared for export, to the carrier the buyer nominates at a named place. Risk passes to the buyer at that point. It works for any mode of transport, including containers and air.
Are Incoterms 2020 still current?
Yes. Incoterms 2020 is the edition in use; the ICC revises the rules roughly every ten years. Always write the edition in the contract, for example 'FCA Shenzhen Incoterms 2020'.
Sources
William covers what happens once a company starts moving money: getting the business verified, paying contractors and suppliers abroad, and keeping card spend under control. William writes for the founder or finance lead who has to make it work this week, and links every rule cited to the text it comes from.
More from William Sunjo M. →This article is general information, not legal, tax or financial advice. Rules and fees change; check the sources above and the provider’s current terms before you act on them.
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