What Incoterms decide – and what they do not
| Incoterms decide | Incoterms do not decide |
|---|---|
| Where the seller delivers the goods | Who owns the goods, or when ownership passes |
| Who arranges and pays for each transport leg | The price or payment terms |
| Who handles export and import clearance | Which party may legally act as importer or declarant |
| Where risk of loss or damage passes | Insurance, except under CIF and CIP |
The eleven rules in Incoterms 2020
| For any mode of transport | For sea and inland waterway only |
|---|---|
| EXW – Ex Works | FAS – Free Alongside Ship |
| FCA – Free Carrier | FOB – Free On Board |
| CPT – Carriage Paid To | CFR – Cost and Freight |
| CIP – Carriage and Insurance Paid To | CIF – Cost, Insurance and Freight |
| DAP – Delivered at Place | |
| DPU – Delivered at Place Unloaded | |
| DDP – Delivered Duty Paid |
The rules range from EXW, where the buyer takes on almost everything from the seller's premises, to DDP, where the seller carries cost and risk all the way to the named place, including import clearance.
The rules you will meet most often
- EXW (Ex Works): the seller makes the goods available at its own premises. The buyer arranges collection, export clearance, freight and import. Simple for the seller, demanding for the buyer – export formalities in the seller's country can be hard for a foreign buyer to handle.
- FOB (Free On Board): the seller delivers the goods on board the vessel at the named port of shipment. From there the buyer pays the sea freight and carries the risk. For container shipments, FCA is often recommended instead, because containers are handed over at a terminal before loading.
- CIF (Cost, Insurance and Freight): the seller pays sea freight and minimum insurance to the destination port, but risk passes when the goods are on board at the port of shipment.
- DAP (Delivered at Place): the seller delivers to the named place – for example the 3PL warehouse – ready for unloading. The buyer handles import clearance and pays duties and import VAT.
- DDP (Delivered Duty Paid): like DAP, but the seller also clears the goods for import and pays duties and taxes. This requires the seller to be able to act as importer in the destination country, which is not always possible for a non-EU company.
Why the Incoterm matters for delivery to a 3PL
The Incoterm decides who books the final leg to the warehouse, who has the delivery details and who is responsible if goods arrive damaged. Agree in advance:
- Which party books the delivery to the warehouse and sends the advance notice.
- Whether the goods are already customs-cleared when they arrive – a 3PL warehouse normally receives released goods into its regular flow. See importing goods from outside the EU.
- Who handles claims if the delivery is damaged or incomplete at receiving. See goods receiving.
Karlholm Logistics is the warehouse operator, not a customs broker or freight forwarder. We receive goods after the handover agreed between you, your supplier and your freight and customs partners.
Source and full rules: ICC – Incoterms® rules.
Frequently asked questions
Which Incoterms edition applies?
The edition named in the contract. Incoterms 2020 is the edition in use at the time of writing; always write the edition in the contract, for example "FCA Shanghai Incoterms 2020", and check the ICC for the latest version.
Does the Incoterm decide who pays import VAT?
It decides which party is responsible for import clearance and duties under the contract (for example the seller under DDP). Who can actually act as importer and how VAT is handled must still be set up with your customs broker and tax adviser.
Can a 3PL be named as the delivery place?
Yes. Under rules such as DAP or DDP the named place can be the warehouse address. The warehouse should then receive the delivery details in advance so receiving can be planned.
Short definitions in the glossary: Incoterms – International Commercial Terms · DDP – Delivered Duty Paid · DAP – Delivered At Place · EXW – Ex Works · FOB – Free On Board · CIF – Cost, Insurance and Freight
This page gives general information about logistics terms. It is not legal, customs or tax advice, and it does not describe the terms of any specific agreement with Karlholm Logistics.