Incoterms explained: EXW, FCA, FOB, CFR, CIF and DAP

When you compare quotes for an export order, a price only means something together with its Incoterm. Incoterms® are standard trade terms published by the International Chamber of Commerce (ICC); the current edition is Incoterms 2020. Each term is a three-letter code followed by a named place, for example “FOB” followed by the port where the goods are loaded. A term sets out three things:

• Who arranges and pays for each part of the journey: export clearance, the main transport, insurance and import clearance.
• Where the risk passes from the seller to the buyer: the point after which loss of or damage to the goods is the buyer's concern.
• Which documents the seller provides.

Incoterms do not decide when ownership passes, or how and when you pay. Those points are set in the sales contract.

EXW: Ex Works

The seller makes the goods available at its own premises, for example its mill or warehouse. The buyer arranges and pays for everything from there: loading, export clearance, transport, insurance and import. The risk passes when the goods are made available. EXW gives the buyer the most control and the most work, and export clearance in the seller's country can be hard for a foreign buyer to arrange.

FCA: Free Carrier

The seller clears the goods for export and hands them to the carrier the buyer has named, at an agreed place: the seller's premises or a terminal. The risk passes at that hand-over, and the buyer pays the main transport. FCA works for every mode of transport, which is why the ICC recommends it rather than FOB for goods shipped in containers.

FOB: Free On Board

For sea and inland waterway transport only. The seller clears the goods for export and loads them on board the vessel the buyer has nominated, at the named port of shipment. The risk passes once the goods are on board. The buyer pays the sea freight, the insurance and everything after.

CFR: Cost and Freight

For sea and inland waterway transport only. The seller pays the sea freight to the named port of destination. The risk, however, passes to the buyer when the goods are on board at the port of shipment, just as with FOB, so a buyer on CFR terms should consider cargo insurance. CFR is also written C&F or CNF.

CIF: Cost, Insurance and Freight

As CFR, plus the seller takes out cargo insurance for the buyer's benefit up to the port of destination. Under Incoterms 2020 the minimum cover for CIF is Institute Cargo Clauses (C), a limited cover; ask for wider cover if you need it. The risk still passes when the goods are on board at the port of shipment.

DAP: Delivered at Place

The seller arranges and pays for transport to the named place of destination, for example the buyer's warehouse, and bears the risk until the goods arrive there, ready for unloading. The buyer unloads the goods, clears them for import and pays the import duties and taxes.

Comparing and choosing terms

• Compare like with like. A FOB price and a DAP price for the same fabric are different prices, because they include different costs.
• Name the place precisely. “FCA” on its own is incomplete: the named place decides where costs and risk change hands.
• Check the insurance. Under EXW, FCA, FOB and CFR, insuring the goods is up to the buyer. CIF includes the minimum cover only.
• Know your import costs. Under all six terms above, import clearance, duties and taxes in the destination country are the buyer's.
• Match the term to the transport. FOB, CFR and CIF are meant for goods loaded on board a vessel; for containers, trucks and air freight, FCA, CPT, CIP and DAP are the usual equivalents.

Incoterms in our quotes

The delivery term of an order is agreed in its quote and confirmed per order, together with the price. When you ask us for prices, tell us your destination and the term you would like. More in Export and shipping and Prices and quotes.