What Incoterms do — and do not — cover
Incoterms are standard trade terms published by the International Chamber of Commerce and revised roughly every decade. The 2020 edition is the current one. They answer four questions:
- Who arranges carriage and to what point.
- Who bears the cost of each stage of the journey.
- Where risk transfers from seller to buyer — which is not necessarily where cost transfers.
- Who handles export and import formalities, including customs clearance and any licences.
They do not deal with the price, payment terms, transfer of title, governing law, product warranties or what happens in a dispute. Those belong in the contract of sale. An Incoterm on its own is not a contract.
Always name the place. "FCA" is incomplete; "FCA Karachi Port Qasim Terminal, Incoterms 2020" is a term you can enforce. The named place is what fixes the point of delivery, and vague places are the single most common source of Incoterms disputes.
The eleven rules at a glance
| Term | Mode | Export clearance |
Main carriage |
Insurance | Import clearance |
Duty & tax |
Risk passes at |
|---|---|---|---|---|---|---|---|
| EXW | Any | Buyer | Buyer | Neither | Buyer | Buyer | Seller's premises |
| FCA | Any | Seller | Buyer | Neither | Buyer | Buyer | Handover to buyer's carrier |
| CPT | Any | Seller | Seller | Neither | Buyer | Buyer | Handover to first carrier |
| CIP | Any | Seller | Seller | Seller (ICC A) | Buyer | Buyer | Handover to first carrier |
| DAP | Any | Seller | Seller | Neither | Buyer | Buyer | Named destination, on vehicle |
| DPU | Any | Seller | Seller | Neither | Buyer | Buyer | Named destination, unloaded |
| DDP | Any | Seller | Seller | Neither | Seller | Seller | Named destination, on vehicle |
| FAS | Sea | Seller | Buyer | Neither | Buyer | Buyer | Alongside the vessel |
| FOB | Sea | Seller | Buyer | Neither | Buyer | Buyer | On board the vessel |
| CFR | Sea | Seller | Seller | Neither | Buyer | Buyer | On board the vessel |
| CIF | Sea | Seller | Seller | Seller (ICC C) | Buyer | Buyer | On board the vessel |
"Sea" means sea and inland waterway transport only. "Neither" under insurance means no party is obliged to insure — which does not mean nobody should. Whoever bears the risk at a given moment should be the one insured, and under seven of the eleven terms that obligation is left entirely to commercial judgement.
Each term in detail
EXW — Ex Works Any mode
The seller makes the goods available at their own premises. They are not obliged to load them onto the collecting vehicle, and not obliged to clear them for export. Everything from that point is the buyer's problem.
FCA — Free Carrier Any mode
The seller delivers to a carrier nominated by the buyer, at a named place. If that place is the seller's premises, the seller loads. If it is anywhere else, the seller delivers the goods ready for unloading. Export clearance is the seller's responsibility.
Incoterms 2020 added an option allowing the parties to agree that the buyer instructs the carrier to issue an on-board bill of lading to the seller — which resolves the long-standing problem of FCA being incompatible with letters of credit requiring an on-board document.
CPT — Carriage Paid To Any mode
The seller contracts and pays for carriage to the named destination, but risk transfers much earlier — as soon as the goods are handed to the first carrier. If the cargo is damaged mid-voyage, the buyer bears the loss even though the seller paid the freight.
CIP — Carriage and Insurance Paid To Any mode
Identical to CPT, with the addition that the seller must insure the cargo for the buyer's benefit. Since Incoterms 2020 the default level of cover is Institute Cargo Clauses (A) — all risks — at 110 percent of the contract value, a significant strengthening of the previous minimum.
DAP — Delivered at Place Any mode
The seller bears all cost and risk to the named destination. The goods are placed at the buyer's disposal on the arriving vehicle, ready to be unloaded — unloading itself is the buyer's job. Import clearance, duty and taxes remain with the buyer.
DPU — Delivered at Place Unloaded Any mode
The only rule that requires the seller to unload the goods at destination. Previously DAT and restricted to terminals, DPU can now name any place. The seller must be confident it can actually arrange unloading at the named point — which is not always the case at a private warehouse.
DDP — Delivered Duty Paid Any mode
The seller delivers to the buyer's door with everything paid: carriage, import clearance, duty and taxes. Attractive to buyers, and frequently a trap for sellers, who must register for tax and act as importer of record in a jurisdiction where they may have no presence.
FAS — Free Alongside Ship Sea & inland waterway
The seller delivers when the goods are placed alongside the vessel — on the quay or on a barge — at the named port. Risk passes at that moment, before loading. Export clearance is the seller's responsibility.
FOB — Free On Board Sea & inland waterway
Risk passes when the goods are on board the vessel at the named port of shipment. The buyer arranges and pays the main carriage from there.
The problem is that FOB is written for cargo the seller loads directly onto a ship. A container is handed to the terminal days before loading, and under a strict reading the seller remains at risk throughout that period despite having no access to or control over the goods. The ICC recommends FCA instead for containerised cargo — advice which is widely ignored, largely because banks and buyers are used to seeing FOB.
CFR — Cost and Freight Sea & inland waterway
The seller contracts and pays for carriage to the named destination port, but risk passes once the goods are on board at origin. As with CPT, cost and risk part company — the buyer owns the risk of a voyage arranged by someone else.
CIF — Cost, Insurance and Freight Sea & inland waterway
The seller pays freight to the destination port and must insure the cargo for the buyer's benefit. Unlike CIP, the default cover under CIF remains Institute Cargo Clauses (C) — a restricted named-perils policy that does not respond to many common causes of loss.
What changed in Incoterms 2020
- DAT became DPU. Delivered at Terminal was renamed Delivered at Place Unloaded, and is no longer restricted to terminals.
- CIP insurance was upgraded. The default moved from Institute Cargo Clauses (C) to (A). CIF was deliberately left at (C) to suit commodity trading practice.
- FCA gained the on-board bill of lading option. Parties may agree that the buyer instructs its carrier to issue an on-board B/L to the seller, making FCA workable under letters of credit.
- Own-transport is recognised. FCA, DAP, DPU and DDP now acknowledge that a party may carry the goods in its own vehicles rather than contracting a third-party carrier.
- Security obligations were made explicit. Security-related clearance requirements and their costs are now allocated within each rule.
- Cost allocation was consolidated. Each rule now lists all costs in one article, so both parties can see the full allocation without cross-referencing.
Incoterms 2010 remains valid if the contract specifies it. Always state the edition: "CIF Karachi, Incoterms 2020".
Choosing a term
Two questions settle most cases:
- Who is better placed to control the main carriage? Whoever has the volume, the relationships and the local knowledge on that lane should arrange it. For Pakistani importers buying from Asia, controlling the freight yourself under FCA or FOB usually beats accepting the supplier's CIF rate, because the supplier's margin on freight is invisible to you.
- Who can actually complete the customs formalities? Never accept a term that requires you to clear customs in a country where you have no legal presence. That single rule eliminates EXW for most buyers and DDP for most sellers.
A note on CIF into Pakistan. A CIF quote looks convenient but leaves destination terminal handling, delivery order fees, clearance and delivery outside the price. Those are billed locally, after arrival, when you have no leverage. Run any CIF offer through the cost estimator with realistic destination charges before comparing it with an FOB alternative.
This guide is general information about a widely used commercial standard, not legal advice. The authoritative text is the ICC's own publication, and contract wording should be reviewed by your own legal advisers before signing.