What are Incoterms?

What Incoterms decide, and what they leave out

Incoterms answer four questions for an international shipment: who arranges and pays for each leg of carriage, where risk of loss or damage transfers from seller to buyer, who clears export and import customs, and who is obligated to insure the goods.

Each term is a three-letter code plus a named place. "FOB Shanghai" and "DAP Chicago" are complete Incoterms; the code without the place is not.

The named place is where the term's risk transfer and cost split actually happen, so precision matters: "FCA Shenzhen warehouse" and "FCA Yantian port terminal" put the handoff in two different places.

Just as important is what Incoterms do not decide. They do not transfer title: ownership passes per the sales contract, not the Incoterm.

They do not set payment terms, currency, or remedies for breach.

And they do not apply of their own force: a contract has to invoke them, which is why purchase orders reference the edition explicitly, like "FOB Shanghai, Incoterms 2020."

The ICC has published Incoterms since 1936 and revises them roughly every decade. Incoterms 2020 remains the edition in force on most contracts today.

The ICC published a new edition in 2026, and adoption is gradual, so contracts will reference Incoterms 2020 for years to come. Whatever edition a contract names is the one that governs it.

The 11 Incoterms 2020 at a glance

Seven terms work for any transport mode, including air and road. Four apply only to sea and inland waterway transport, because their risk transfer point is defined by the vessel itself.

Two insurance notes worth the detail: CIF obligates the seller to buy only minimum cover (Institute Cargo Clauses C), while CIP under Incoterms 2020 requires all-risk cover (Clauses A). Importers relying on a seller's CIF policy are often carrying far less protection than they assume.

Incoterms FOB vs domestic FOB

FOB is the term that causes the most confusion, because it exists in two unrelated legal frameworks that share a name.

Incoterms FOB (Free On Board) applies only to sea and inland waterway transport.

The seller clears export and loads the goods on the vessel at the named origin port; risk transfers when the goods are on board.

Using Incoterms FOB for air freight or a containerized door-to-door move is technically wrong: FCA is the correct term when the handoff happens before the vessel, which is almost always the case with containers delivered to a terminal.

Domestic US FOB is a Uniform Commercial Code concept with two settings: FOB Origin (buyer owns the freight from the seller's dock) and FOB Destination (seller owns it until the buyer's dock).

It applies to any mode of domestic transport, and unlike the Incoterm, it directly addresses which party files a freight claim.

A purchase order that says only "FOB" with no place, no Origin or Destination, and no Incoterms reference is ambiguous on the exact questions that matter when freight is damaged.

State the framework explicitly: "FOB Shanghai, Incoterms 2020" for the ocean leg, "FOB Origin, Freight Collect" for the domestic leg.

The full breakdown of the domestic terms lives in our FOB shipping guide.

The four terms importers actually use

Most US import volume moves on four Incoterms, and the choice between them is a control decision.

FOB (origin port) is the workhorse for ocean freight.

The supplier handles export clearance and gets the container on the vessel; the importer controls the ocean carrier, the insurance, the destination drayage, and every cost after loading.

Importers with steady volume prefer it because freight they control is freight they can price, consolidate, and audit.

FCA (named place) is the same control split for air and multimodal moves, with risk transferring when the goods are handed to the importer's carrier rather than loaded on a vessel.

CIF (destination port) bundles ocean freight and minimum insurance into the supplier's price.

It looks convenient and often quotes lower than importers expect, but the importer gives up carrier choice, accepts Clauses C insurance, and inherits whatever routing the supplier bought.

Many importers start with CIF and migrate to FOB as their volume grows.

DDP (buyer's door) puts everything on the seller, including import clearance and duties.

It is the simplest term for the buyer and the most opaque: freight, duty, and a margin on both are inside the unit price.

It also requires the seller to act as importer of record, which many foreign sellers cannot cleanly do in the US.

The pattern across all four: the more legs you control, the more cost you can see. That logic does not stop at the port.

It is exactly why high-volume importers also take control of the domestic leg with FOB Origin purchase orders and their own carrier network.

After your container lands: the domestic handoff

Every Incoterm expires somewhere.

Once your container clears US customs, the international framework has done its job, and the freight in front of you is a domestic distribution problem governed by domestic terms.

That handoff is where imported freight loses time and money. A cleared container sitting at a port warehouse earns storage fees.

Palletized import freight moving to distributed customers needs deconsolidation, and every extra touch between the port and the final dock adds days.

Warp's job starts at that handoff.

Cleared import freight flows into the cross-dock network for domestic distribution: pallets move at one all-inclusive per-pallet rate with no fuel surcharges and no accessorial fees, with digital proof of delivery at every handoff.

For importers distributing to retailers or regional customers, that means the ocean leg's Incoterm can end at the port while the domestic leg runs on clean UCC terms, priced before the container ships.

Warp coordinates with customs brokers so cleared goods flow directly into first-mile domestic movement instead of aging at the port.

Importers running the India and China corridors use this pattern deliberately: buy the ocean leg FOB origin port, control the US distribution leg end to end, and quote the domestic per-pallet cost at PO time so the landed cost model is complete before the goods exist.

Common Incoterms mistakes

Using FOB for air or containerized freight. Incoterms FOB is a vessel term. For air freight and for containers handed to a terminal, FCA is correct.

The practical risk of the wrong term is an undefined gap between the handover and the vessel, exactly where terminal handling damage happens.

Buying EXW without understanding export clearance.

Under EXW the buyer is responsible for export formalities in the seller's country, something a foreign buyer often cannot legally do without a local agent.

FCA moves that obligation to the seller and costs little more.

Assuming CIF insurance is real coverage. CIF requires only Institute Cargo Clauses C: named perils, roughly stranding, sinking, fire, and collision.

Theft, water damage, and rough handling are not covered. Importers with cargo worth insuring should buy their own all-risk policy or contract CIP.

Taking DDP from a seller who cannot clear US customs. DDP makes the seller the importer of record.

When a foreign seller without a US entity offers DDP, clearance often runs through gray-channel brokers, and the importer finds out during an exam or an audit.

Stopping the cost model at the port. An importer who negotiates the ocean leg carefully and then accepts whatever the domestic leg costs has modeled half the landed cost.

The domestic per-pallet rate from the port or deconsolidation point to the final docks is quotable in about 10 seconds, before the PO is cut. Model both legs, then sign.