What are Incoterms?

Incoterms are standard delivery rules published by the International Chamber of Commerce (ICC), each with a three-letter code. They set where the goods are delivered, where risk passes from seller to buyer, and who arranges and pays for transport, loading, insurance and customs formalities. A rule is only unambiguous with a named place and a version, for example 'DAP [customer's address] Incoterms 2020'. Transfer of ownership, payment and liability beyond delivery fall outside them.

What does the standard say about Incoterms?

The version in force at the time of writing is Incoterms 2020, with eleven rules: seven for any mode of transport (EXW, FCA, CPT, CIP, DAP, DPU, DDP) and four for sea and inland waterway (FAS, FOB, CFR, CIF). Under EXW you make the goods available at your own premises, not loaded and not cleared for export; the buyer does the rest. Under FCA you deliver to the buyer's carrier and handle export clearance; if the named place is your premises, you load. Under DAP you bring the goods at your cost and risk to the named place, ready for unloading; import is the buyer's responsibility. Under DDP you also clear and pay for import, including duties and taxes. Only CIP and CIF oblige the seller to insure. An earlier version still applies where the contract names it.

How do Incoterms work in practice?

The Incoterm decides which costs belong in your price. Under EXW you price packaging but no transport; under DAP freight and the risk in transit come on top; under DDP to a country outside the EU, such as the United Kingdom or Switzerland, customs clearance and import duties as well. That requires you to act as importer in that country, which can mean a registration or a representative there. Accepting DDP at an EXW price means you pay the difference. Within the EU customs union there is no import declaration, so DDP adds little over DAP there; VAT follows its own rules. Put the Incoterm with place and version on the quote and check it at order confirmation.

What are Incoterms often confused with?

Incoterms are not payment terms: they say nothing about when the customer pays or when ownership passes. They do oblige the seller to package the goods as transport requires, but not how a precision part has to be packed; that requirement is agreed separately.