Incoterms: The Alphabet Soup That Keeps Global Trade From Becoming a Food Fight

Remember that time you ordered a couch online and the delivery guy dumped it at your curb in the pouring rain, claiming “delivery complete”? Welcome to why Incoterms exist; except with container ships, international borders, and lawyers who bill by the hour.

Incoterms — short for International Commercial Terms, because apparently “Who Pays for What and When Things Become Your Problem” was too long — are the referees of global trade. Created by the International Chamber of Commerce back in 1936 (yes, before your grandparents discovered rock ’n’ roll), these three-letter codes tell buyers and sellers exactly where their responsibilities begin and end.

Think of them as the ultimate relationship contract, but for cargo instead of couples.

The current version, Incoterms® 2020, has eleven terms split into four groups. Let’s break them down with examples that don’t require a law degree.

What it means: The seller makes goods available at their location — factory, warehouse, or that sketchy storage unit behind the shopping center. That’s it. They don’t even have to load it.

Seller’s obligations: Place goods at buyer’s disposal at the agreed location. That’s literally it.

Buyer’s obligations: Everything else. Loading, export clearance, transport, import clearance, delivery, risk from pickup onwards, all costs.

Real-life example: Picture buying a vintage motorcycle from a seller in rural Thailand. EXW means the bike is yours the moment the seller says “it’s in my garage, come get it.” Loading it onto a truck? Your problem. Export paperwork? Your headache. Getting it past Thai customs while speaking zero Thai? Good luck, friend.

This is like buying furniture from IKEA but IKEA is located in another country and you need to arrange the flatbed truck, customs broker, and international shipping yourself. Most experienced importers avoid EXW like food poisoning because it’s a logistical nightmare.

What it means: Seller delivers goods to a carrier or person nominated by the buyer, either at the seller’s premises or another agreed location.

Seller’s obligations: Deliver goods to carrier, handle export clearance, bear costs and risk until handover to carrier.

Buyer’s obligations: Arrange main carriage, bear all costs and risk from carrier handover onwards, handle import clearance.

Real-life example: You’re importing artisan coffee from Colombia. FCA Bogotá means the Colombian seller loads your beans onto the shipping company you hired, handles Colombian export paperwork, and boom — your responsibility begins. If those beans fall off a truck in Panama, that’s your insurance claim, not theirs.

This is reasonable, practical, and the most commonly used term in real life. It’s the “we’ll each handle our own side of this” approach.

What it means: Seller places goods alongside the vessel at the named port of shipment. Used only for sea or inland waterway transport.

Seller’s obligations: Deliver goods alongside the ship, handle export clearance, bear costs and risk until goods are alongside vessel.

Buyer’s obligations: Load goods onto vessel, arrange and pay for main carriage, bear all risk from when goods are alongside ship, handle import clearance.

Real-life example: You’re buying bulk grain from Argentina. FAS Buenos Aires Port means the Argentine seller trucks the grain to the dock and dumps it alongside your chartered ship. Actually loading it onto the vessel? That’s on you, along with everything that happens after.

This term is old-school and mainly used for bulk commodities. Think of it as the seller getting your cargo to the ship’s parking spot, but you have to actually put it in the vehicle.

What it means: Seller delivers when goods are loaded on board the vessel at the port of shipment. Only for sea or inland waterway transport.

Seller’s obligations: Load goods onto the vessel, handle export clearance, bear all costs and risk until goods cross the ship’s rail.

Buyer’s obligations: Arrange and pay for sea freight, bear risk from the moment goods are on board, handle import clearance and onward delivery.

Real-life example: You’re buying electronics from Shenzhen. FOB Shenzhen Port means the Chinese supplier loads those gadgets onto the vessel and handles Chinese export paperwork. Once that cargo crosses the ship’s rail, it’s yours. If a typhoon hits the ship mid-Pacific, you’re the one frantically calling your insurance company.

FOB has been around since wooden ships and still works today. It’s like a relay race where the baton pass happens as cargo crosses onto the ship.

Here’s where it gets spicy. The seller pays for transport but doesn’t take the risk during transport. It’s like paying for your friend’s Uber but not being responsible if the driver takes a wrong turn into a lake.

What it means: Seller delivers goods on board the vessel and pays for transport to the destination port, but risk transfers when goods are loaded at origin. Sea/waterway only.

Seller’s obligations: Load goods on vessel, handle export clearance, pay for freight to destination port.

Buyer’s obligations: Bear risk from when goods are loaded at origin, arrange insurance (seller doesn’t provide it), handle import clearance and costs.

Real-life example: You’re importing tiles from Spain. CFR Mombasa means the Spanish seller loads the tiles, books and pays for the ship to Mombasa. But if the ship encounters rough seas and your tiles become fish habitat, that’s technically your loss — because risk transferred when they were loaded in Spain, even though the seller paid for the journey.

This confuses people constantly. The seller is being generous with transport costs but not with risk.

What it means: Like CFR, but seller also arranges minimum insurance coverage during sea transport.

Seller’s obligations: Load goods, handle export clearance, pay for freight to destination, arrange minimum insurance (Institute Cargo Clauses C — basic coverage).

Buyer’s obligations: Bear risk from loading (even though seller arranged insurance), handle import clearance, unload and transport from destination port.

Real-life example: Ordering furniture from Italy. CIF Mombasa means the Italian seller books the ship, pays for basic insurance, and covers freight to Mombasa. But once those Italian leather sofas leave port, if anything happens, you’re filing the insurance claim. The seller bought the insurance, but you’re the beneficiary. And that basic coverage? It’s the maritime equivalent of the cheapest car insurance — covers catastrophic loss but not much else.

Pro tip: Many buyers purchase additional insurance because the minimum CIF coverage has more holes than Swiss cheese.

What it means: Seller delivers goods to the first carrier and pays transport to the named destination, but risk transfers at the first handover.

Seller’s obligations: Deliver to first carrier, handle export clearance, pay for transport to destination.

Buyer’s obligations: Bear risk from delivery to first carrier onwards, arrange insurance (not seller’s job), handle import clearance.

Real-life example: You’re importing wine from France to Nairobi. CPT Nairobi means the French seller pays the trucking/shipping to get it to your warehouse. But if that truck crashes in Germany (at the first leg of the journey), technically it’s your loss, even though the seller paid for transport all the way to Kenya. Plot twist: they didn’t arrange insurance, so you better have.

The disconnect between who pays for transport and who bears risk confuses even veterans.

What it means: Like CPT, but seller must arrange insurance with higher coverage than CIF requires.

Seller’s obligations: Deliver to carrier, handle export clearance, pay for transport to destination, arrange comprehensive insurance (Institute Cargo Clauses A — much better coverage).

Buyer’s obligations: Bear risk from delivery to carrier, handle import clearance and any additional insurance if desired.

Real-life example: Importing medical equipment from Germany. CIP Nairobi means the German seller arranges everything — transport and good insurance coverage all the way to Nairobi. But risk still transfers when they hand it to the first carrier in Frankfurt. If something goes wrong in transit, at least you have decent insurance to claim against (unlike CIF’s basic coverage).

Incoterms 2020 upgraded CIP’s insurance requirements because too many buyers were getting burned by inadequate coverage.

What it means: Seller delivers when goods arrive at the named destination, ready for unloading but not yet unloaded.

Seller’s obligations: Handle export clearance, arrange and pay for transport to destination, bear all risk until goods arrive at destination ready for unloading.

Buyer’s obligations: Unload goods, handle import clearance and duties, bear risk from arrival onwards.

Real-life example: You order machinery from Germany. DAP Nairobi Industrial Area means that German company handles everything — export clearance, shipping, and transport right up until the truck arrives at your gate. You just need to unload it and clear it through Kenyan customs using the procedures outlined by the Kenya Revenue Authority.

Popular because the seller does the heavy lifting but doesn’t get tangled in foreign import regulations.

What it means: Seller delivers when goods are unloaded at the named destination. The only Incoterm where seller unloads.

Seller’s obligations: Handle export clearance, arrange and pay for transport, unload goods at destination, bear all risk until unloaded.

Buyer’s obligations: Handle import clearance and duties from the unloading point, bear risk after unloading.

Real-life example: You’re receiving construction equipment from China. DPU Nairobi Construction Site means the Chinese seller ships the equipment, brings it to your site, and unloads it using their crane or your facilities. After it’s sitting on the ground, it’s yours to clear through customs and take responsibility for.

This replaced the old DAT (Delivered at Terminal) term and is useful when the destination has good unloading facilities.

What it means: Seller delivers goods cleared for import at the named destination, ready for unloading. Maximum seller obligation.

Seller’s obligations: Everything. Export clearance, transport, import clearance, duties and taxes, risk all the way to buyer’s door.

Buyer’s obligations: Unload goods (that’s it). Bear risk only after arrival.

Real-life example: You order specialized lab equipment from the US. DDP Nairobi University means the American company handles absolutely everything — US export docs, shipping, Kenyan import clearance, KRA duties and taxes, transport to your lab. They deliver it to your door, cleared and ready to unload. You literally just accept delivery.

This is like having someone not only gift-wrap your present but also hand-deliver it to your exact desk, fill out all the paperwork, and pay any fees along the way. Naturally, this costs more. Many sellers avoid DDP because navigating foreign import regulations is risky business.

Because getting this wrong costs money. Real money.

Let’s say you agreed to EXW for a shipment from rural India, thinking you got a great price. Congratulations — you now need to arrange pickup from a village with no street address, hire a customs broker you’ve never met, navigate Indian export regulations, and coordinate international shipping. That “great price” just became an expensive education.

Or imagine you thought FOB meant “delivered to your door” (it doesn’t), so you never arranged insurance. When that container falls off the ship in the Indian Ocean, you learn a $50,000 lesson about reading the fine print.

For businesses operating within the East African Community, understanding these terms alongside regional customs procedures is essential. The East African Community Customs Management Act (EACCMA) provides the legal framework for customs operations across EAC partner states, and knowing how Incoterms interact with these regulations can save significant time and money.

Here’s something that trips people up: under most Incoterms, nobody is required to buy insurance. The exceptions are CIF and CIP — and even then, CIF only requires basic coverage (the maritime equivalent of third-party car insurance).

CIP, updated in Incoterms 2020, requires better coverage. But for terms like EXW, FCA, FAS, FOB, CFR, DAP, DPU, or DDP? Insurance is optional, which is like skydiving without checking if someone packed your parachute.

Smart traders buy insurance regardless. Ocean containers go overboard. Trucks crash. Warehouses flood. Customs officials get creative. Insurance is cheap compared to explaining to your boss why $100,000 worth of inventory is now fish food. The World Trade Organization emphasizes that proper risk management, including insurance, is fundamental to international trade facilitation.

Minimum seller responsibility: EXW (just make it available)

Balanced responsibility: FCA (each party handles their side)

Seller pays transport, buyer bears risk: CFR, CIF, CPT, CIP

Maximum seller responsibility: DDP (deliver it cleared and ready)

Sea/waterway only: FAS, FOB, CFR, CIF

Any transport mode: EXW, FCA, CPT, CIP, DAP, DPU, DDP

Incoterms aren’t just bureaucratic alphabet soup — they’re the difference between a smooth transaction and an international incident involving lawyers, insurance adjusters, and angry phone calls at 3 AM.

Choose wisely. Read carefully. Know exactly where responsibility shifts from seller to buyer. And maybe buy that insurance.

For detailed guidance on selecting the right Incoterm for your shipment and navigating customs procedures, the World Customs Organization offers comprehensive resources on international trade compliance. Additionally, freight forwarders and customs brokers — like those you’ll find through FIATA (International Federation of Freight Forwarders Associations) — can provide invaluable expertise in matching Incoterms to your specific shipping needs.

Because in international trade, “I thought you were handling that” is the six-word horror story nobody wants to star in.

This article is brought to you by Univar Logistics — your partner in navigating the complexities of international trade.

Incoterms® is a registered trademark of the International Chamber of Commerce. They update these rules occasionally, so the 2020 version might eventually be replaced by Incoterms 2030, at which point we’ll all need to learn new acronyms. Such is life in global trade.

• Official Incoterms® Information: ICC Incoterms® 2020
• Kenya Revenue Authority: Customs & Border Control
• EAC Customs: East African Community Customs Management Act
• World Trade Organization: Trade Facilitation
• World Customs Organization: International Trade Compliance
• FIATA: Freight Forwarding Standards