How Do Key Incoterms Differ?

The key Incoterms differ mainly in where delivery takes place, who arranges the main carriage, when risk transfers, and who handles insurance and customs formalities. The easiest way to compare them is to look at the delivery point and the responsibilities each rule assigns to the buyer and seller.

1. EXW vs FCA

EXW places fewer obligations on the seller, while FCA gives the seller a clearer role in delivering the goods and completing export clearance.

With EXW (Ex Works), the seller makes the goods available at the named place, such as a warehouse. The buyer generally handles collection, loading the goods onto the collecting vehicle, and export clearance.

With FCA (Free Carrier), the seller delivers the goods to the buyer's nominated carrier or another person at the agreed delivery point. If the delivery point is the seller's premises, the seller loads the goods onto the buyer-arranged transport. The seller also handles export clearance where required.

Think of it this way:

• EXW: Seller makes the goods available → buyer takes over collection, loading and export formalities.

• FCA: Seller completes the agreed handover → buyer arranges the main carriage.

The practical question is who can realistically handle collection, loading, and export formalities.

2. FCA vs FOB

FCA can be used for any mode of transport, while FOB (Free On Board) is limited to sea or inland waterway transport and requires the seller to deliver the goods on board the vessel.

The key difference is the point at which delivery and risk transfer:

• FCA: Risk transfers at the agreed delivery point when the seller delivers the goods to the carrier or nominated person.

• FOB: Risk transfers when the goods are on board the vessel at the named port of shipment.

• Container shipments: If the seller hands the containers to a carrier at a terminal before they are loaded onto the vessel, FCA may better match the actual delivery point. This does not mean FOB is always unsuitable for container shipments.

3. CPT vs CIP

CPT and CIP work in a similar way for risk transfer, but CIP also requires the seller to arrange insurance. Both rules can be used for any mode of transport.

• CPT (Carriage Paid To): The seller pays for carriage to the named destination, but risk passes to the buyer when the goods are handed to the carrier.

• CIP (Carriage and Insurance Paid To): The seller pays for carriage and arranges the insurance required under the rule. Risk still passes to the buyer when the goods are handed to the carrier.

The key point is that the seller may pay for transport after risk has already transferred to the buyer.

4. CFR vs CIF

CFR and CIF are both used for sea or inland waterway transport. Under both rules, risk transfers to the buyer when the goods are loaded onto the vessel. The main difference is that CIF also requires the seller to arrange insurance.

• CFR (Cost and Freight): The seller pays the freight to the named port of destination but does not have to arrange insurance for the buyer.

• CIF (Cost, Insurance, and Freight): The seller pays the freight to the named port of destination and also arranges the insurance required under the rule.

5. DAP vs DPU vs DDP

DAP, DPU, and DDP all involve delivery at the destination. The main differences are who unloads the goods and who handles import clearance, duties, and taxes.

• DAP (Delivered at Place): The seller delivers the goods to the named destination, ready for unloading. The buyer unloads the goods and handles import clearance, duties, and taxes.

• DPU (Delivered at Place Unloaded): The seller delivers and unloads the goods at the named destination. The buyer handles import clearance, duties, and taxes.

• DDP (Delivered Duty Paid): The seller delivers the goods to the named destination and handles import clearance, duties, and taxes. The buyer unloads the goods.

What Do Incoterms Not Cover?

Incoterms define the buyer's and seller's responsibilities for delivery, certain costs, and risk transfer. They do not replace the sales contract or cover terms such as price, payment, ownership, or dispute resolution.

Incoterms do not determine:

• Product price: Incoterms do not determine the price the buyer pays for the goods.

• Payment terms: Incoterms do not specify the payment method, timing, currency, or other payment conditions.

• Transfer of ownership: Incoterms determine delivery obligations and when risk transfers, but they do not determine when ownership of the goods passes to the buyer.

• Contractual remedies: Incoterms do not determine the remedies available if either party breaches the sales contract.

• Dispute resolution: The parties must separately agree on the applicable dispute resolution process, venue, and governing law where required.

• Product specifications: Requirements relating to the goods, such as specifications, quantity, quality, and warranties, must be agreed separately in the sales contract.

• All customs requirements: Incoterms assign certain responsibilities for export and import clearance, documentation, and related formalities, but they do not determine every document or regulatory requirement imposed by the relevant authorities.

Incoterms vs Payment Terms

Incoterms and payment terms cover different parts of a sales transaction. Incoterms define delivery responsibilities, certain costs, and risk, while payment terms define when, how, and under what conditions the buyer pays.

For example, a sales contract could state: CIF Hamburg, Incoterms® 2020 + 50% advance / 50% against agreed shipping documents.

What Changed in Incoterms 2020?

Incoterms® 2020 kept the same 11 rules but introduced several changes to delivery, insurance, transport, security, and cost allocation. The changes include a new FCA option for on-board bills of lading, different default insurance coverage under CIP and CIF, and clearer provisions for own transport and security obligations.

Here are the changes that matter most:

• DAT became DPU: The former Delivered at Terminal (DAT) rule was renamed Delivered at Place Unloaded (DPU). The destination can now be any agreed place, not only a terminal. DPU remains the only Incoterms® rule that requires the seller to unload the goods at the destination.

• FCA and on-board bills of lading: Incoterms® 2020 added an option for FCA transactions involving sea transport. If agreed in the contract, the buyer can instruct its carrier to issue an on-board bill of lading to the seller after loading. The seller can then provide it to the buyer, including through banks, when required for documentary or financing purposes.

• CIP and CIF insurance: Both CIP and CIF require the seller to arrange insurance, but the level of coverage is different. Under Incoterms® 2020, CIP requires broader insurance coverage, while CIF provides more limited coverage. The buyer and seller can agree to different coverage where permitted.

• Own transport clarified: Incoterms® 2020 expressly addresses situations where the buyer or seller uses its own means of transport instead of relying on a third-party carrier under FCA, DAP, DPU, or DDP.

• Security obligations clarified: The rules provide clearer security-related obligations connected with carriage and export or import clearance, along with related costs.

• Costs consolidated: Incoterms® 2020 places the costs associated with each rule in the A9/B9 articles, making it easier to identify the costs assigned to the seller and buyer.

How Do You Choose and Specify the Right Incoterm?

Choose an Incoterm based on how the goods will be transported, where delivery and risk will transfer, and which party will handle transport, insurance, and customs. The chosen rule should match the actual transaction and the responsibilities each party will take on.

Choose an Incoterm Based on the Transport Mode

Start with the way the goods will be transported.

• Air, road, rail or multimodal: Use an any-mode rule such as FCA, CPT, CIP, DAP, DPU or DDP.

• Sea or inland waterway: Use FAS, FOB, CFR or CIF when the delivery arrangement matches the rule.

• Container shipments: If the seller hands the goods to a carrier at a container terminal before they are loaded on board the vessel, FCA can match the actual delivery point more closely than FOB.

Match the Incoterm to the Delivery and Risk Point

The right Incoterm depends on where delivery happens, when risk transfers, and who handles transport, insurance, and customs. Start with these questions before choosing a rule:

• Delivery: Where will the seller deliver or hand over the goods?

• Risk: At what point does the risk of loss or damage transfer to the buyer?

• Carriage: Who will arrange and pay for the main transport?

• Insurance: Does the rule require the seller to arrange insurance?

• Customs: Who will handle export and import formalities, duties, and taxes?

Once you know the delivery arrangement, you can narrow down the Incoterms:

• Seller delivers the goods to a carrier: Consider FCA when the buyer arranges the main carriage. Choose CPT or CIP when the seller arranges and pays for carriage, but risk transfers when the goods are handed over to the carrier. CIP also requires the seller to arrange insurance.

• Seller pays for carriage, but risk transfers before the goods reach the destination: Use CPT or CIP for any mode of transport. For sea or inland waterway transport, compare CFR and CIF. In both groups, the seller pays for the main carriage, but the buyer takes on the risk earlier. CIF, like CIP, requires the seller to arrange insurance.

• Seller delivers the goods alongside or on board a vessel: Compare FAS and FOB based on where delivery takes place. With FAS, delivery occurs alongside the vessel. With FOB, delivery occurs when the goods are loaded on board the vessel.

• Seller delivers at the destination: Compare DAP, DPU, and DDP based on unloading and import responsibilities. DAP means the seller delivers to the destination, but the buyer handles unloading and import clearance. DPU means the seller also unloads the goods at the destination, while the buyer handles import clearance. DDP places the import clearance, duties, and taxes on the seller.

The key is to match the Incoterm to the actual delivery arrangement, rather than choosing a rule based only on who pays for shipping.

Do not choose an Incoterm only because one party wants to pay for the freight. The freight obligation and risk-transfer point can occur at different stages.

Specify the Incoterm Clearly in the Contract

State the Incoterm, precise named place or point, and applicable edition in the sales contract.

Use this format:

[Incoterm] [Precise Named Place/Point], Incoterms® 2020

For example:

FCA Seller's Warehouse, Mumbai, India, Incoterms® 2020

A precise named point helps the parties identify where delivery occurs and, under the selected rule, where risk transfers.

Keep payment terms separate from the Incoterm. For example, the contract can specify an Incoterm alongside terms such as advance payment or payment against agreed trade documents.

Most Common Incoterms Mistakes to Avoid

Most Incoterms mistakes happen when businesses choose a rule that does not match the actual delivery process, misunderstand when risk transfers, or leave the delivery point unclear. Before agreeing to an Incoterm, check the following:

1. Confusing Freight Costs With Risk

The party that pays for the main transport does not always carry the risk until the goods reach the destination. Under CPT, CIP, CFR, and CIF, the seller may pay for transport while the risk transfers to the buyer earlier.

Always check two things separately: who pays for transport and when the risk transfers.

2. Choosing an Incoterm That Does Not Match the Delivery Process

The Incoterm should match how the goods are actually delivered. Before choosing a rule, check where the goods are handed over, which transport method is used, and what each party is responsible for.

3. Choosing EXW Without Checking Export Responsibilities

EXW gives the seller fewer delivery responsibilities. Before using it, confirm who will collect and load the goods and who will handle the required export procedures.

If the seller needs to handle export clearance and hand the goods over to the buyer's carrier at an agreed location, FCA may better match the transaction.

4. Leaving the Named Place or Point Unclear

A broad location may not identify the exact point where delivery takes place. State the warehouse, terminal, port, or other agreed point as precisely as practical.

For example: FCA Seller's Warehouse, Mumbai, India, Incoterms® 2020

5. Assuming Every Incoterm Includes Seller-Arranged Insurance

Not every Incoterm requires the seller to arrange insurance. CIP and CIF include a seller insurance obligation, while other rules do not.

Check the insurance obligation under the specific rule and agree separately on any additional insurance requirements.

6. Using DDP Without Checking Import Responsibilities

Before choosing DDP, confirm that the seller can handle the import clearance process and applicable duties and taxes in the destination country.

DDP assigns extensive destination responsibilities to the seller, so both parties should confirm that the seller can legally and practically perform them.

How Do Incoterms Work With International Payments?

Incoterms and payment terms cover different parts of an international sale. Incoterms define the buyer’s and seller’s responsibilities for delivery, costs and risk, while payment terms determine when and how the buyer pays. Once both are agreed, the exporter needs a reliable way to receive, convert and settle the payment.

The process typically works as follows:

• Sales contract: The buyer and seller agree on the Incoterm and separate payment terms.

• Payment: The buyer makes the payment according to the agreed terms.

• International receipt: The exporter receives the funds through the agreed payment channel.

• Conversion and settlement: The received funds are converted and settled into the exporter’s Indian bank account, depending on the payment arrangement.

• Documentation: Relevant payment documents, such as FIRA, may be issued as part of the remittance process.

For Indian exporters, Infinity supports the payment process with international payment receipt, currency conversion, INR settlement, transaction tracking, and payment documentation such as FIRA.

In simple terms, the Incoterm determines how the goods are delivered, while the payment terms determine how and when the buyer pays. Infinity helps you manage the payment after it is sent, from international receipt through INR settlement.

Once you have agreed on your Incoterm and payment terms, use Infinity to receive and manage your international payments.

Frequently Asked Questions About Incoterms

1. Are Incoterms legally required?

No. Incoterms are not legally required for every sale. They are standard rules created by the ICC that buyers and sellers can include in a sales contract to define delivery responsibilities, certain costs, and risk. If you use an Incoterm, clearly state the rule, named place or point, and applicable version, such as FCA Mumbai, Incoterms® 2020.

2. Can I still use Incoterms 2010?

Yes. Buyers and sellers can agree to use an earlier edition, including Incoterms® 2010. However, the contract should clearly state which version applies because different editions can allocate certain responsibilities differently. Incoterms® 2020 is the current ICC edition.

3. Can I use Incoterms on a proforma invoice?

Yes. You can include an Incoterm on a proforma invoice, quotation, or sales contract to show who is responsible for delivery. Clearly mention the Incoterm, the named place or location, and the Incoterms version, such as FOB Nhava Sheva, Incoterms® 2020. If the Incoterm is agreed as part of the sales contract, use the same wording across all related documents.

4. What is the difference between Incoterms and payment terms?

Incoterms explain how the buyer and seller share delivery responsibilities, costs, and risk. Payment terms explain when, how, and under what conditions the buyer pays for the goods.

For example, a contract can state CIF Hamburg, Incoterms® 2020, as the delivery term, along with payment terms such as 50% in advance and 50% against agreed shipping documents.

5. Who pays import customs duty under Incoterms?

Under Incoterms® 2020, the seller is responsible for import clearance and applicable import duties and taxes under DDP. Under the other Incoterms rules, the buyer is generally responsible for import clearance and import duties and taxes. The actual duty rate and amount are determined by the customs rules applicable in the destination country.