Incoterms are three-letter rules published by the International Chamber of Commerce that define where a seller's responsibility ends and a buyer's begins. They are the shortest clause in most purchase contracts and the one most often chosen by habit rather than intent.
They settle three questions: who arranges and pays for carriage, who carries the risk of loss or damage at each stage, and who handles export and import formalities. They do not determine when title passes, and they do not replace a contract.
The eleven rules
Seven apply to any mode of transport:
| Rule | Delivery point | Who clears export | Who clears import |
|---|---|---|---|
| EXW | Seller's premises | Buyer | Buyer |
| FCA | Named place | Seller | Buyer |
| CPT | Carrier, carriage paid to destination | Seller | Buyer |
| CIP | As CPT, plus insurance | Seller | Buyer |
| DAP | Destination, not unloaded | Seller | Buyer |
| DPU | Destination, unloaded | Seller | Buyer |
| DDP | Destination, duties paid | Seller | Seller |
Four apply only to sea and inland waterway transport:
| Rule | Delivery point | Risk transfers |
|---|---|---|
| FAS | Alongside the vessel | At the quay |
| FOB | On board the vessel | Once on board |
| CFR | On board, freight paid | Once on board |
| CIF | As CFR, plus insurance | Once on board |
The four that cause most disputes
EXW looks cheap and rarely is. The seller's only obligation is to make the goods available at their own premises. Everything after that — loading, export clearance, carriage, import — is yours. Exporters in many jurisdictions cannot legally complete export declarations on a foreign buyer's behalf, which leaves you needing a local agent you have not appointed. If you want a factory-gate price, FCA does the same job without stranding the export formalities.
FOB is used for containers constantly, and should not be. FOB transfers risk when goods pass onto the vessel. Containerised cargo leaves your supplier days earlier, at a terminal. Between the gate and the ship's rail, nobody has clearly agreed to carry the risk. FCA at the named terminal closes that gap. If a claim ever turns on where damage occurred, this distinction stops being academic.
CIF and CIP do not insure you equally. Under CIF the seller need only buy Institute Cargo Clauses (C) — a narrow, named-perils cover. Under CIP the 2020 revision raised the default to Clauses (A), which is all-risks. Buyers frequently assume CIF means "insured" and discover the gap at claim time. If you want broad cover, either specify CIP or write the required clauses into the contract.
DDP puts your supplier inside your customs relationship. The seller becomes responsible for import clearance and duties in Canada. That means a non-resident importer arrangement, and it means you lose direct visibility of the declaration filed in your name's stead. For most Canadian importers DAP plus your own broker is cleaner and usually cheaper.
What changed in 2020
Three revisions matter in practice:
- DAT became DPU. The delivery point is no longer restricted to a terminal — it can be any named place, provided the seller unloads.
- CIP insurance rose to Clauses (A) while CIF stayed at Clauses (C).
- FCA gained an on-board bill of lading option, which resolved a long-standing problem for sellers needing that document for a letter of credit while delivering under FCA.
Writing the term properly
An Incoterm without a named place is incomplete, and the more precise the place, the fewer the arguments:
FCA Shanghai Yangshan Container Terminal, Incoterms 2020
DAP 87 Caster Ave, Woodbridge ON L4L 5Z2, Incoterms 2020Always state the version. "FOB Shanghai" with no year is ambiguous across four editions of the rules.
A practical default
For most Canadian importers buying containerised goods from Asia, FCA at the origin terminal with your own freight forwarder gives the best combination of cost visibility and control. You see the real freight rate rather than a margin buried in the unit price, and risk transfers at a point both sides can evidence.
That is a default, not a rule. The right term depends on your volume, whether you have forwarder relationships, and how much of the process you want to own.
Choosing the term is the easy part. Making sure the documents, the insurance and the customs declaration all describe the same transaction is where deals actually come unstuck.