INCOTERMS Delivery Terms explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
INCOTERMS delivery terms are ICC rules that fix, for a sale of goods, where the seller delivers, where risk passes and who pays which cost. Seven apply to any mode of transport — EXW, FCA, CPT, CIP, DAP, DPU, DDP — and four only to sea and inland waterways: FAS, FOB, CFR, CIF.
What INCOTERMS delivery terms are, and what they are not
INCOTERMS are the International Commercial Terms that the buyer and seller agree for their transactions. They are "the set of rules published by the International Chamber of Commerce (ICC) and related to the International Commercial Law", providing "internationally accepted definitions and rules of interpretation for the most common commercial terms used in the contracts of sale of goods."
Read that as a limit as well as a grant. INCOTERMS delivery terms answer three questions and no others: where delivery happens, where risk passes, and how costs are split. They do not decide when title passes, what law governs the contract, what the remedy for breach is, or how payment is made. A contract that names an INCOTERM and stops has answered a third of the questions it needed to.
The seven INCOTERMS delivery terms for any mode of transport
| Term | Seller delivers | Note |
|---|---|---|
| EXW — Ex-Works / Ex-Warehouse | By placing the goods at the buyer's disposal at the seller's premises — works, factory, warehouse | The seller need not load the goods, nor clear them from customs where clearance is required |
| FCA — Free Carrier | To the carrier nominated by the buyer, at the seller's premises or any other place | Risk in the property passes at that point |
| CPT — Carriage Paid To | To the carrier nominated by the seller at an agreed place | Seller must contract for and pay carriage to the named destination |
| CIP — Carriage and Insurance Paid To | To the carrier nominated by the seller | Seller must pay carriage and transit insurance |
| DAP — Delivered at Place | At the buyer's disposal on the arriving means of transport, ready for unloading, at the named destination | Seller bears all risks to that place; buyer unloads and clears customs at destination |
| DPU — Delivered at Place Unloaded | Once unloaded, at the buyer's disposal at the named destination | Seller bears risk of bringing and unloading; buyer clears customs at destination |
| DDP — Delivered Duty Paid | Cleared for import, on the arriving means of transport ready for unloading | Seller bears all duties and costs including customs clearance; final unloading at the buyer's premises is the buyer's cost |
Those seven run from the minimum seller obligation (EXW) to the maximum (DDP). The handbook adds a practical caution twice over: under DAP and DPU, customs clearance at the destination port is the buyer's, "but that may be specifically stated to avoid confusion." Naming an INCOTERM does not excuse the contract from spelling out who files the import declaration.
The four sea and inland waterway INCOTERMS delivery terms
| Term | Delivery point | Risk passes | Costs after |
|---|---|---|---|
| FAS — Free Alongside Ship | Alongside the vessel — a quay or barge — nominated by the buyer at the port of shipment | The moment the goods reach alongside the ship | All borne by the buyer |
| FOB — Free on Board | On board the vessel nominated by the buyer at the port of shipment | The moment the goods are on board | All borne by the buyer |
| CFR — Cost and Freight | On board the vessel | The moment the goods are on board | Seller bears costs and freight to the destination port |
| CIF — Cost, Insurance and Freight | On board the vessel | The moment the goods are on board | Seller pays cost to boarding, insurance to the destination port, and international freight |
The split that causes most disputes
The critical feature of CFR and CIF is that cost and risk part company. The seller keeps paying to the destination port; the buyer carries the risk from the moment the goods cross onto the vessel. A cargo lost mid-ocean on CIF terms is the buyer's loss, insured under a policy the seller bought.
Which is why the handbook singles out the insurance level: "the buyer should note that the seller is duty bound to purchase only the minimum insurance protection (Clauses C). If any further insurance protection is required, the buyer must specify that and thus pay for the extra cost."
Clauses C is the narrowest of the three Institute Cargo Clause grades. It excludes theft and pilferage, malicious damage, water ingress into the container, washing overboard of deck cargo, earthquake and lightning, and the catch-all "any risks of physical loss or damage not specified".
A buyer that agrees CIF and asks no further questions has bought a named-peril policy on cargo whose most likely loss may not be a named peril — and bears the risk itself from the moment of loading. Where the goods are attractive to thieves or vulnerable to wet damage, the buyer should specify ICC A in the contract and expect to pay for it. This is the single most valuable cross-reference in the INCOTERMS delivery terms chapter.
Choosing the right INCOTERMS delivery terms
Four practical considerations, in the order they usually decide the answer:
- Who can clear customs? A seller with no presence in the buyer's country should not agree DDP; a buyer with no presence in the seller's country should not agree EXW. Both terms put an export or import clearance obligation on a party that may not be able to perform it.
- Where does the exporter want risk to end? The F-terms and C-terms end the seller's risk early; the D-terms carry it to destination.
- Who is buying the insurance, and at what grade? Only CIP and CIF oblige the seller to insure, and CIF obliges only minimum cover.
- Does the mode of transport fit? FAS, FOB, CFR and CIF are exclusively for sea and inland waterways. Using FOB for an air or multimodal container shipment — extremely common — leaves the delivery point undefined; FCA is the term that fits.
How INCOTERMS delivery terms feed the rest of the documentation
| Document | What the INCOTERM decides |
|---|---|
| Commercial invoice | Whether freight and insurance are inside or outside the invoice value |
| Insurance certificate | Whether the seller must produce one at all, and at what clause grade |
| Bill of lading | Who contracts with the carrier |
| Shipping bill and bill of entry | Which party clears export and import |
| Letter of credit | Which documents the bank will require, and the latest shipment date measured from the delivery point |
That last row is why INCOTERMS delivery terms and UCP 600 have to be settled together. A credit calling for an on-board bill of lading against a contract on FCA terms sets up a documentary mismatch before a single container is booked.
Common mistakes
- Using FOB for container or air cargo, where FCA is the correct term.
- Assuming CIF means the seller carries risk to the destination port — it does not.
- Accepting minimum (Clauses C) cover under CIF on goods vulnerable to theft or wet damage.
- Agreeing DDP without an import registration in the buyer's country.
- Agreeing EXW when the buyer cannot lawfully effect export clearance from India.
- Naming a term and leaving destination customs clearance unstated, which the handbook expressly warns against for DAP and DPU.