Incoterms Explained in Simple Terms

If you're importing a vehicle from Japan, buying machinery from China, or shipping goods internationally, you've probably come across terms like FOB, CIF, or EXW.

These are called Incoterms (International Commercial Terms).

Published by the International Chamber of Commerce (ICC), Incoterms are internationally accepted rules that define who pays for what, who arranges transport, and exactly when the risk transfers from the seller to the buyer.

Instead of arguing over damaged cargo or unexpected shipping costs, both parties simply agree on an Incoterm before the shipment begins.

The current version is Incoterms 2020, which contains 11 official rules divided into four groups: E, F, C, and D.

 

TLDR(Too Long Didnt Read)

Group Main Rule Who Has More Responsibility?
E Group EXW Buyer handles almost everything after pickup
F Group FCA, FAS, FOB Seller assists with export; buyer arranges and pays for the main transport
C Group CFR, CIF, CPT, CIP Seller pays transport, but risk transfers to the buyer during transit
D Group DAP, DPU, DDP Seller manages most or all of the transport to the destination

Group E – Seller Does the Least (EXW)

EXW (Ex Works)

This is the Incoterm where the seller has the least responsibility.

The seller simply prepares the goods and makes them available at their factory, warehouse, or business premises.

From that point onward, the buyer is responsible for almost everything, including:

  • Loading the goods
  • Inland transportation
  • Export customs clearance
  • Ocean or air freight
  • Insurance
  • Import duties
  • Delivery to the final destination

Think of EXW as:

"Come and collect your goods."

It offers maximum flexibility to experienced buyers but also places the highest level of responsibility and risk on them.

Group F – Seller Assists, Buyer Takes Over

In the F Group, the seller helps get the goods to a transport point, but the buyer pays for the main international transport.

These include:

FCA (Free Carrier)

The seller delivers the goods to a carrier chosen by the buyer.

The buyer then handles the rest of the journey.

FAS (Free Alongside Ship)

Used mainly for sea freight.

The seller places the cargo alongside the buyer's vessel at the port.

Once the goods are beside the ship, responsibility shifts to the buyer.

FOB (Free On Board)

Probably the most common Incoterm for vehicle imports.

The seller is responsible until the goods are loaded onto the ship.

Once the cargo is safely onboard, the risk transfers to the buyer, even if the seller paid certain handling charges beforehand.

Many Japanese vehicle exporters use FOB pricing.

Group C – Seller Pays for Transport, Buyer Bears the Risk

This group often confuses beginners.

Although the seller pays for the main transportation, the buyer assumes the risk much earlier—once the goods are handed to the carrier or loaded for shipment, depending on the specific rule.

The four C-group Incoterms are:

CFR (Cost and Freight)

The seller pays the ocean freight to the destination port.

However, once the goods are loaded onto the vessel, any damage or loss becomes the buyer's responsibility.

CIF (Cost, Insurance and Freight)

Very similar to CFR.

The difference is that the seller also purchases minimum marine insurance for the buyer.

This is one of the most common terms for importing cars, machinery, and containers.

CPT (Carriage Paid To)

The seller pays transportation to the agreed destination.

Risk transfers much earlier—when the goods are handed to the first carrier.

Often used for road, rail, or air transport.

CIP (Carriage and Insurance Paid To)

This works like CPT but also requires the seller to provide a higher level of insurance during transport.

Group D – Seller Handles Almost Everything

Group D places the greatest responsibility on the seller.

The seller arranges transport almost all the way to the buyer's destination.

DAP (Delivered At Place)

The seller delivers the goods to an agreed destination.

The buyer is responsible only for import customs clearance and import taxes.

DPU (Delivered at Place Unloaded)

The seller not only transports the goods but also unloads them at the destination.

This is the only Incoterm where unloading is the seller's responsibility.

DDP (Delivered Duty Paid)

This is the easiest option for buyers.

The seller takes responsibility for nearly everything:

  • Export procedures
  • Freight
  • Insurance (if agreed)
  • Import clearance
  • Taxes
  • Customs duties
  • Delivery to the buyer's location

The buyer simply receives the goods.

DDP is convenient but often comes with a higher purchase price because the seller builds these costs into the deal.

Which Incoterm Is Best?

There is no single "best" Incoterm—it depends on your experience and the transaction.

  • EXW is suitable for experienced buyers with their own logistics network.
  • FOB is popular for importing used vehicles from Japan because the buyer controls the shipping.
  • CIF is ideal if you want the seller to arrange freight and basic insurance.
  • DDP is the most convenient for buyers who want a door-to-door solution with minimal involvement.