Direct answer. Incoterms (International Commercial Terms) are a set of international trade rules published by the International Chamber of Commerce, updated in 2020, that define how costs, risks and transport formalities are allocated between seller and buyer in an international sales contract. Each Incoterm is identified by a three-letter code: EXW, FOB, DAP, DDP.
A common framework for allocating costs and risks
Incoterms define neither the price nor the transfer of ownership of the goods: their role is to specify precisely at what point and place the risk of loss or damage passes from seller to buyer, who organizes and pays for the main transport, and who handles customs formalities on export as well as on import. They are grouped into four families based on the seller's level of obligation, from the lightest to the heaviest: E (departure), F (main transport not paid by the seller), C (main transport paid by the seller) and D (arrival).
EXW (Ex Works) is the minimum obligation for the seller: they make the goods available at their own premises, and the buyer organizes and bears everything else, including loading and export. FOB (Free On Board), reserved for sea and inland waterway transport, transfers risk to the buyer once the goods are loaded aboard the vessel at the port of departure. DAP (Delivered At Place) commits the seller to deliver the goods to the agreed place at the buyer's premises, transport included, but without import duties and taxes, which are borne by the buyer. DDP (Delivered Duty Paid) goes the furthest: the seller bears everything — transport, formalities and import customs duties included — through to final delivery.
The choice of Incoterm appears in the commercial contract or invoice, and directly shapes how transport is organized — by chartering, groupage or parcel/express delivery depending on volume — as well as the documents to be produced, such as the CMR consignment note for international road transport.
FAQ
What is the difference between FOB and DAP?
Under FOB, risk passes to the buyer only once the goods are loaded aboard the ship: the buyer organizes and pays for the main transport. Under DAP, the seller covers transport to the agreed place of delivery, but leaves import duties and taxes to the buyer.
What does the DDP Incoterm mean?
DDP (Delivered Duty Paid) means the seller covers the entire transport, formalities and import customs duties through to final delivery at the buyer's premises. It is the Incoterm that places the highest level of obligation on the seller, the exact opposite of EXW.
Who chooses the Incoterm in an international sale?
The Incoterm is negotiated between seller and buyer and written into the sales contract or invoice. The choice depends on the commercial balance of power, each party's ability to organize international transport, and their familiarity with customs formalities.
Related terms
Freight · Chartering · Freight forwarder / transport broker · CMR consignment note · 3PL / 4PL · Transport plan · Demurrage.
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