r/alibaba
📦 Demystifying Incoterms: Who pays for what? (A quick, no-nonsense cheat sheet)
A quick guide explaining International Commercial Terms (Incoterms) and the division of costs and risks between buyers and sellers.
Hey everyone,
Incoterms (International Commercial Terms) can feel like a confusing soup of three-letter acronyms. But if you get them wrong, you might end up paying thousands in unexpected freight or insurance costs.
Let’s break them down by Mode of Transport so you never get tripped up again.
- The "Any Mode of Transport" Crew (Road, Rail, Air, Sea, or Multimodal)
These 7 terms apply no matter how your goods travel. Whether they are on a plane, a train, or in a truck, these are your go-to codes:
EXW (Ex Works): The "Buyer does everything" term. The seller just puts the boxes on their own factory floor. Buyer handles the pickup, export clearance, shipping, and delivery.
FCA (Free Carrier): Seller delivers goods to a named place (like a forwarder's warehouse) and clears them for export.
CPT (Carriage Paid To): Seller pays for the main freight to the destination port/airport, but risk transfers to the buyer as soon as the goods hit the first carrier.
CIP (Carriage & Insurance Paid To): Same as CPT, but the seller must buy high-level insurance covering the buyer's risk.
DAP (Delivered at Place): Seller delivers the goods right to the buyer’s door (or named place), but the buyer handles unloading and import duties.
DPU (Delivered at Place Unloaded): The only term where the seller is responsible for unloading the goods at the destination.
DDP (Delivered Duty Paid): The "Seller does everything" term. Seller handles freight, insurance, unloading, and pays all import duties/taxes.
- The "Sea & Inland Waterway Only" Club
Stop using these for air freight! These 4 terms only apply when goods are transported strictly by water (port-to-port).
FAS (Free Alongside Ship): Seller delivers goods right next to the vessel at the port. Buyer pays to lift them onto the ship.
FOB (Free on Board): The absolute classic. Seller bears all costs until the goods are safely loaded onto the ship. Once it crosses the ship's rail, it’s the buyer's baby.
CFR (Cost and Freight): Seller pays for the ocean freight to the destination port, but risk transfers to the buyer the moment the goods are on the ship.
CIF (Cost, Insurance & Freight): Same as CFR, but the seller pays for baseline marine insurance.