Understand the Language of Global Trade – And Ship Smarter
In international freight forwarding, clarity matters. Misunderstandings in shipping responsibilities, risks, or costs can lead to delays, disputes, or unexpected charges. That’s where Incoterms® come in – a set of standardized trade terms that remove ambiguity and ensure buyers and sellers are on the same page.
Whether you’re new to international logistics or want a refresher on Incoterms 2020, this guide will help you confidently interpret, choose, and apply them in real-world shipping scenarios.
What Are Incoterms?
Incoterms, short for International Commercial Terms, are a set of 11 globally recognized rules published by the International Chamber of Commerce (ICC). They define who is responsible for:
- The costs involved in transporting goods
- The risk of loss or damage during transport
- The customs duties and paperwork required for exports and imports
Incoterms are typically written as three-letter acronyms (like FOB, CIF, or DAP) and are used in contracts for the sale of goods across borders. They apply to physical goods in transit, not services or intangible products.
Why Incoterms Matter in Freight Forwarding
Imagine shipping 5 containers of electronics from Greece to the United States. Who pays the ocean freight? Who handles customs at destination? What if the goods are damaged in transit?
Without Incoterms, you’d need to spell all that out manually. With Incoterms, you can just agree on a term – say, CFR (Cost and Freight) – and instantly define these roles.
For freight forwarders like Marinair Cargo Services, using Incoterms reduces miscommunication, manages liability, and ensures smooth collaboration between shippers, consignees, and agents. They also help in:
- Avoiding shipment delays
- Preventing invoice disputes
- Streamlining insurance decisions
What Changed in Incoterms® 2020?
The 2020 revision of Incoterms brought several updates aimed at better reflecting modern trade practices:
- DAT renamed to DPU:
Delivered at Terminal (DAT) was renamed to Delivered at Place Unloaded (DPU) to clarify that goods can be delivered to any place – not just a terminal – as long as they’re unloaded. - FCA now allows on-board BL notation:
Under FCA (Free Carrier), the buyer and seller can agree to issue a Bill of Lading with an “on board” notation, which is often needed for bank payments under Letters of Credit. - Security obligations highlighted:
Security-related requirements (e.g. inspections, documentation) are now more clearly assigned under each term. - Increased insurance transparency for CIP and CIF:
- Under CIP (Carriage and Insurance Paid To), the seller must provide higher-level (Clause A) insurance.
- Under CIF (Cost, Insurance and Freight), the lower Clause C level remains unless otherwise agreed.
The 11 Incoterms of 2020, Explained Simply
Incoterms are split into two main groups based on the mode of transport:
A. For All Modes of Transport
| Incoterm | Responsibility Summary |
|---|---|
| EXW (Ex Works) | Buyer takes everything from the seller’s premises – transport, risk, costs. |
| FCA (Free Carrier) | Seller delivers goods to a carrier nominated by the buyer. |
| CPT (Carriage Paid To) | Seller pays for carriage but risk transfers when goods are handed to carrier. |
| CIP (Carriage & Insurance Paid To) | Same as CPT, but seller also provides insurance. |
| DAP (Delivered at Place) | Seller delivers to buyer’s location – buyer handles import clearance. |
| DPU (Delivered at Place Unloaded) | Seller delivers and unloads goods at destination. |
| DDP (Delivered Duty Paid) | Seller handles everything – including import clearance and duties. |
B. For Sea and Inland Waterway Transport Only
| Incoterm | Responsibility Summary |
| FAS (Free Alongside Ship) | Seller delivers goods alongside the ship at port. |
| FOB (Free On Board) | Seller loads goods onto ship – risk transfers at that point. |
| CFR (Cost and Freight) | Seller pays freight but risk passes when goods are onboard. |
| CIF (Cost, Insurance & Freight) | Same as CFR, but seller provides insurance. |
How to Choose the Right Incoterm
When selecting an Incoterm, consider the following:
- Control: Do you want to control the freight provider and costs (use buyer-favored terms like EXW or FCA), or offer full service (use DDP or CIF)?
- Customs Capabilities: Are you or your partners comfortable handling export/import clearance?
- Cargo Type: Is the cargo fragile, valuable, or perishable? Terms with insurance coverage (CIF, CIP) might be preferable.
- Transport Mode: Some Incoterms only apply to ocean freight (e.g., FOB, CIF). Others are for any mode (e.g., DAP, CIP).
Choosing the right term requires alignment between the exporter and importer – and understanding each other’s logistics capabilities and preferences.
Real-World Examples
EXW (Ex Works) Example
An electronics importer in Germany buys from a factory in Shenzhen under EXW.
The buyer arranges pickup from the factory, inland transport to the port, export customs, ocean freight, and import clearance. All risks transfer at the factory gate.
DDP (Delivered Duty Paid) Example
A textile seller in Italy ships to a boutique in New York using DDP.
The seller arranges everything from transport, export clearance, import duties, and final delivery. The buyer receives goods at their store without lifting a finger.
FCA (Free Carrier) with Letter of Credit
A Greek machinery exporter uses FCA to ship to Dubai.
To satisfy the buyer’s bank, the exporter gets a Bill of Lading marked “on board” even though responsibility transferred earlier. This is now explicitly allowed under FCA in Incoterms 2020.
Mistakes to Avoid with Incoterms
- Using sea-only terms for air freight: Don’t use FOB, CFR, or CIF for air shipments – choose FCA, CPT, or CIPinstead.
- Misunderstanding risk transfer: Just because the seller pays for freight doesn’t mean they bear the risk (e.g., under CPT, risk passes early).
- Forgetting about insurance: Some terms don’t require the seller to insure the goods – always clarify who arranges insurance.
- Ignoring customs obligations: If using DDP, ensure the seller is able to clear customs in the buyer’s country – it’s not always practical.
- Overlooking delivery locations: For DPU, the place must be capable of unloading – which isn’t the case for all destinations.
Incoterms and Marinair Cargo Services
At Marinair, we help clients choose the right Incoterms for their shipments – whether they’re new exporters or experienced traders. Our team offers:
- Consulting on Incoterm selection for specific trade lanes
- Support with export and import documentation
- Insurance options and risk management
- Flexible handling across FCA, CPT, DAP, DPU, and other terms
By understanding and applying Incoterms correctly, our clients avoid costly mistakes, ensure smoother shipping, and build more trust with their partners.
Master the Language of Logistics
Incoterms 2020 are more than legal jargon – they are essential tools for clear communication and smart shipping. Whether you’re sending a single pallet or coordinating global supply chains, understanding these rules helps protect your business, control costs, and streamline your logistics.
Want help choosing the best Incoterm for your next shipment?
Contact Marinair Cargo Services – your partner in intelligent international freight.
