Incoterms

Incoterms (International Commercial Terms) are the eleven ICC trade terms that say who pays for each leg of a shipment and where risk passes. Each three-letter term, published by the International Chamber of Commerce, sets out for an international sale who arranges and pays for transport, where the seller delivers, and when the risk of loss or damage passes from seller to buyer. The current edition is Incoterms 2020, in force since January 1, 2020; there is no "Incoterms 2025". A term is complete only with a named place and the edition, as in "FOB Mundra, Incoterms 2020".

The eleven Incoterms 2020 rules at a glance

Seven rules can be used for any mode of transport; FAS, FOB, CFR and CIF are for sea and inland-waterway carriage only. Under CIF and CIP the insurance is for the buyer's benefit and both are for 110% of the contract value, but the default level differs: Incoterms 2020 left CIF at the Institute Cargo Clauses (C) minimum and raised CIP to Clauses (A). Every rule except DDP leaves import clearance and duty with the buyer. Airlift's Incoterms explainer has a plain-English page for each rule and a three-question picker.

The four groups

• E, departure: EXW alone. The seller makes the goods available at its premises and does nothing else, export clearance included
• F, main carriage unpaid: FCA, FAS and FOB. The seller clears export and delivers to a carrier or point at origin; the buyer books and pays the international leg
• C, main carriage paid: CPT, CIP, CFR and CIF. The seller pays carriage to a named destination but delivery, and risk, still pass at origin, when the goods are on board or handed to the first carrier. Cost and risk part company here, which is where most disputes start
• D, arrival: DAP, DPU and DDP. The seller carries cost and risk to a named place in the buyer's country. DPU adds unloading, DDP adds import clearance and duty

Which Incoterms suit air freight

Air freight uses the any-mode rules. FCA, CPT, CIP, DAP, DPU and DDP all work, and EXW is possible if the buyer has an agent at origin. FOB, CFR, CIF and FAS are sea rules: they define delivery as goods on board, or alongside, a vessel, and the ICC's guidance is that they are not to be used for air, road or rail. A supplier quoting "FOB airport" or "CIF by air" is using shorthand for a rule that does not exist; older editions did have mode-specific free-carrier terms, but the 1990 revision folded them into the single FCA rule. The direct equivalents are:

Two things to watch on air. First, "handed to the first carrier" under CPT and CIP usually means the forwarder's origin warehouse, days before the aircraft leaves, so the buyer carries the risk of the ground handling and the ramp. Second, the air waybill is not a negotiable bill of lading: cargo release at the destination airport follows the consignee named on it, not the surrender of an original, so make sure the AWB names you or your broker. Airlift's air freight team books to and from the airports on our lanes, with 3–5 days airport-to-airport and 5–10 days door-to-door as the working figures.

What Incoterms do not decide

Incoterms rules say nothing about when title passes, about payment terms, about remedies for breach or about governing law; those belong in the sales contract. Nor do they set the customs value, although they shape it: US transaction value is the price actually paid or payable to the seller, exclusive of international freight and insurance (19 CFR 152.102(f)), so a CIF or DAP price has those costs deducted at entry while an FOB or EXW price does not. They also do not move the Importer Security Filing, which under 19 CFR 149.1 belongs to the party causing the goods to arrive in the United States by vessel, in practice the buyer, or its agent, under every rule except DDP, where the seller as importer of record normally has its forwarder file.

Choosing a term for a US import

• If the cargo is containerized, prefer FCA over FOB and CIP over CIF; the sea rules deliver at the vessel, while a container is handed over at the terminal days before loading
• Control the leg you can manage. A buyer with its own NVOCC usually gets better visibility and a cleaner customs value on FOB or FCA terms, which is why those are the usual terms on the China to USA, India to USA and Vietnam to USA lanes; the explainer compares EXW, FOB, CIF, DAP and DDP for India to USA from both sides
• Be careful with DDP on a tariff-exposed lane: the seller becomes importer of record and controls the classification, origin and declared value, and a DDP price that looks too good may rest on an entry that will not survive review
• Whatever the term, the duty is driven by HTS classification, origin and value, not by the Incoterm. Estimate it in the tariff simulator so an FOB offer and a DDP offer compare like for like
• Write the named place in full and the edition: "CIP Chicago O'Hare Airport, Incoterms 2020"

Airlift is an FMC-licensed NVOCC (OTI license 016162) and can quote from any of these delivery points: ocean or air freight, the ISF, customs clearance through our licensed customs-broker network, cargo insurance where the rule leaves you uninsured, and delivery to your door. Price the ocean leg in rate search and the bill of lading is issued in your name.