Reference
Incoterms 2020, no fine print
The eleven International Chamber of Commerce rules that define where the seller delivers, who pays freight and insurance, when risk passes and who handles each customs clearance. Plus what to ask for when importing into Ecuador and what to offer when exporting.
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In short
- There are eleven Incoterms: seven work for any mode of transport and four only for sea and inland waterway transport.
- An Incoterm defines delivery, risk and costs. It does not define ownership of the goods or the payment method.
- Under CIF and CIP the seller buys the insurance, but risk passes to the buyer at origin.
- For imports into Ecuador, FOB or FCA usually give you more control; EXW and DDP create clearance problems.
- Always write the rule, the place and the version: FCA Shenzhen, Incoterms 2020.
What are Incoterms?
They are rules published by the International Chamber of Commerce (ICC) that are written into the sales contract to define where the seller delivers, which costs each party pays, where risk passes and who handles export and import formalities. They only apply if the contract names them, which is why you should write the version: Incoterms 2020.
Comparison table of the 11 Incoterms 2020
The table sums up, for each rule, the mode of transport, the point of delivery and transfer of risk, who pays the main carriage, who must insure, and who handles export and import clearance.
| Rule | Transport | Delivery and risk | Main carriage | Duty to insure | Export clearance | Import clearance |
|---|---|---|---|---|---|---|
| EXW | Any | At the seller's premises, not loaded | Buyer | None | Buyer | Buyer |
| FCA | Any | To the buyer's carrier, at the agreed place | Buyer | None | Seller | Buyer |
| CPT | Any | To the first carrier, at origin | Seller | None | Seller | Buyer |
| CIP | Any | To the first carrier, at origin | Seller | Seller, broad cover | Seller | Buyer |
| DAP | Any | At destination, ready for unloading | Seller | None | Seller | Buyer |
| DPU | Any | At destination, unloaded | Seller | None | Seller | Buyer |
| DDP | Any | At destination, cleared for import | Seller | None | Seller | Seller |
| FAS | Sea | Alongside the ship, at the port of shipment | Buyer | None | Seller | Buyer |
| FOB | Sea | On board the ship, at the port of shipment | Buyer | None | Seller | Buyer |
| CFR | Sea | On board the ship, at the port of shipment | Seller | None | Seller | Buyer |
| CIF | Sea | On board the ship, at the port of shipment | Seller | Seller, minimum cover | Seller | Buyer |
How do the E, F, C and D rules differ?
The letter tells you how far the seller goes. Under E (EXW) the seller delivers at its premises; under F (FCA, FAS and FOB) it delivers to the carrier the buyer hires; under C (CPT, CIP, CFR and CIF) it pays the main carriage but risk passes at origin; and under D (DAP, DPU and DDP) it bears costs and risk to the destination.
The 11 rules, one by one
Each rule in a few lines, with the point where risk passes from seller to buyer. The first seven work for any mode of transport; the last four only for sea and inland waterway transport.
- EXW · Ex Works
- The seller makes the goods available at its premises, not loaded and not cleared for export. The buyer takes on everything from there, including export clearance at origin.
- FCA · Free Carrier
- The seller delivers the goods cleared for export to the carrier the buyer names, at the seller's premises or another agreed place. It is the most versatile rule for air and container cargo.
- CPT · Carriage Paid To
- The seller contracts and pays carriage to the agreed destination, but risk passes to the buyer when the cargo is handed to the first carrier.
- CIP · Carriage and Insurance Paid To
- Like CPT, and the seller also buys insurance to destination. Under the 2020 version the required cover is broad, equivalent to clauses A of the Institute Cargo Clauses.
- DAP · Delivered at Place
- The seller delivers at the agreed destination, on the arriving vehicle and ready for unloading. The buyer unloads, clears the import and pays duties and taxes.
- DPU · Delivered at Place Unloaded
- The seller delivers at destination with the goods already unloaded. It is the only rule in which the seller unloads at destination, and it replaced DAT in the 2020 version.
- DDP · Delivered Duty Paid
- The seller delivers at destination with the import cleared and duties and taxes paid. It requires the seller to be able to act as importer in the destination country.
- FAS · Free Alongside Ship
- The seller delivers the goods alongside the vessel at the port of shipment. It is used mostly for bulk or oversized cargo.
- FOB · Free On Board
- The seller delivers the goods on board the vessel the buyer names at the port of shipment. From then on the buyer pays freight and insurance and bears the risk.
- CFR · Cost and Freight
- The seller pays ocean freight to the destination port, but risk passes to the buyer once the goods are on board at origin.
- CIF · Cost, Insurance and Freight
- Like CFR, and the seller also buys minimum insurance cover to the destination port. Risk also passes to the buyer at origin.
Which Incoterm works best for importing into Ecuador?
FOB for full-container ocean cargo from a known port, or FCA for air, consolidated or factory-loaded container cargo. Both let you choose freight and insurance, compare costs and control timing. Avoid EXW if the supplier will not clear the export, and be wary of DDP: the seller would have to declare the import in Ecuador.
In Ecuador duties are calculated on the customs value, which includes freight and insurance even if you buy FOB or FCA. To compare offers under different Incoterms, bring them all to the same point: the total cost delivered to your warehouse.
Which Incoterm should you offer when exporting from Ecuador?
FOB and FCA are the most common: you deliver the cargo cleared in Ecuador and the buyer handles international freight. If your buyer wants a price delivered to their port, CFR or CIF (or CPT and CIP by air) let you control the freight, but risk still passes at origin. Offer D terms only with a partner at destination.
Which Incoterm mistakes get expensive?
The most frequent are using sea-only rules for air or container cargo, leaving out the exact place of delivery, confusing the Incoterm with the payment method and trusting that the minimum CIF insurance covers every risk. Each one turns into costs nobody budgeted for.
- Using FOB or CIF for air cargo or for containers handed over at a terminal: that is what FCA and CIP are for.
- Leaving out the place: FOB China says nothing; FOB Ningbo, Incoterms 2020, does.
- Believing the Incoterm sets when you pay or who owns the cargo: that belongs in the contract and the payment terms.
- Assuming the minimum CIF cover protects against theft or ordinary damage.
- Asking for DDP from a supplier who cannot act as importer in Ecuador.
What do FOB and CIF mean in an import?
FOB and CIF are Incoterms for sea freight. Under FOB the seller delivers the goods on board the vessel at the port of shipment and the buyer pays freight and insurance from there; under CIF the seller also contracts freight and minimum insurance to the destination port, although risk still passes to the buyer at loading. In Ecuador duties are calculated on the CIF value even if you buy FOB; for air cargo or multimodal containers, the equivalents are FCA and CIP.
Which Incoterm should I use when importing to Ecuador?
For imports into Ecuador, FOB for sea freight or FCA for air and container cargo usually give you the most control, because you choose freight and insurance and compare costs. EXW makes the buyer handle export clearance at origin, which a foreign buyer often cannot do, and DDP rarely works because the seller would have to declare the import in Ecuador. Ask for the quote to state the Incoterm, its 2020 version and the exact place of delivery.
Which Incoterm should I use when exporting from Ecuador?
When exporting from Ecuador, FOB or FCA are the most common: you deliver the goods cleared for export at the port or to the buyer's carrier, and the buyer takes on the main freight. CIF or CIP let you control freight and insurance when the buyer asks for it, although risk still passes to the buyer at origin. Avoid DDP unless you have a partner at destination who can declare the import there.
Negotiate the right Incoterm before you buy
We review your supplier's proforma, the Incoterm and the place of delivery, and tell you what the cargo costs delivered to your warehouse.