A contract says “FOB Shanghai” or “DAP Baku” — three or four words. Those words settle who pays for what along the way, at which point responsibility passes and who handles clearance.
A term divides three things
The Incoterms 2020 rules separate, between seller and buyer:
- costs — carriage, loading, insurance, terminal charges
- risk — the moment responsibility for loss of or damage to the goods passes
- clearance — who carries the export and import procedures
The rules do not govern the transfer of title or the payment terms; those are separate clauses of the contract.
Seven terms for any mode of transport
- EXW — The seller hands the goods over at its own premises. Everything else, loading included, falls to the buyer.
- FCA — The seller hands the goods to the carrier the buyer has named and clears them for export.
- CPT — The seller pays carriage to the destination; risk passes on handover to the first carrier.
- CIP — As CPT, with insurance taken out by the seller.
- DAP — The goods are delivered at the destination, not unloaded. Import clearance falls to the buyer.
- DPU — Differs from DAP in that the seller delivers the goods unloaded.
- DDP — The seller's obligations at their widest: import clearance and import duties are on the seller too.
Four terms for sea and inland waterway transport only
- FAS — The goods are delivered alongside the vessel.
- FOB — Risk passes when the goods are loaded on board.
- CFR — The seller pays freight to the port of destination; risk passes on loading.
- CIF — As CFR, with insurance at the seller's cost.
In container shipping FOB and CIF are often used loosely: a container is handed over at the port well before the vessel, so FCA and CIP fit such cargo more precisely.
The term shapes the customs value
Bring in the same goods on EXW and on CIF and the customs value is built differently: part of the cost to the border already sits inside the invoice, part has to be supported by separate documents. That makes the term the first figure taken when import costs are worked out.
A practical rule
The term should be stated identically in the contract, the invoice and the transport document, with a specific place beside it: not “DAP”, but “DAP Baku, warehouse address”. Where the named place is vague, that is exactly where the dispute starts.
If the contract is not signed yet, the cheapest moment to discuss the term is while the documents are being prepared. Send us your route and we will compare which term suits you from a logistics point of view.
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