How to Choose the Right Incoterm: 11 Rules, Transport Modes and Common Mistakes

The delivery term in a trade contract matters as much as the price: it decides who pays which costs, where risk changes hands and who handles customs. A poorly chosen rule can lead to disputes over who should have insured damaged cargo, or to duties the buyer never expected. This guide explains how to choose the right Incoterm, what the 11 rules mean and which mistakes come up most often, with practical examples.

What are Incoterms and which version applies?

Incoterms® are standard rules published by the International Chamber of Commerce (ICC) that define the delivery obligations of seller and buyer. As of October 2026, the current version is Incoterms® 2020, in force since 1 January 2020. Trade press reports that ICC has begun preparatory work on the next edition, but until a new version is published and takes effect, Incoterms® 2020 remains the one to use. Older versions can still be used if the parties say so explicitly, which is why the version should always appear in the contract.

Incoterms cover where delivery takes place, when risk transfers, who bears which costs, and who handles export and import clearance. They do not cover transfer of ownership, payment terms or remedies for breach; those belong in the sales contract.

The 11 rules fall into two groups

Seven rules for any mode of transport

EXW (Ex Works): The seller makes the goods available at its premises; loading, export clearance and transport are the buyer’s responsibility.
FCA (Free Carrier): The seller clears the goods for export and hands them to the buyer’s carrier at the named place.
CPT (Carriage Paid To): The seller pays main carriage to the destination, but risk passes when the goods are handed to the first carrier.
CIP (Carriage and Insurance Paid To): As CPT, plus the seller insures the goods; Incoterms® 2020 requires broad cover, at the level of ICC Institute Cargo Clauses (A).
DAP (Delivered at Place): The seller delivers at the destination, on the arriving vehicle ready for unloading; import clearance is the buyer’s.
DPU (Delivered at Place Unloaded): The seller delivers the goods unloaded at the destination.
DDP (Delivered Duty Paid): The seller takes on everything, including import clearance and duties.

Four rules for sea and inland waterway only

FAS (Free Alongside Ship): Goods are delivered alongside the vessel at the port of loading.
FOB (Free on Board): Goods are delivered once loaded on board at the port of loading.
CFR (Cost and Freight): The seller pays freight to the destination port; risk passes on loading.
CIF (Cost, Insurance and Freight): As CFR, plus the seller buys minimum cover, at the level of ICC Institute Cargo Clauses (C).

To compare the rules side by side, use our Incoterms selection tool.

Choosing the right Incoterm by transport mode

Choosing the right Incoterm starts with the mode of transport, then with which party is better placed to do each job.

Containerised sea freight (FCL/LCL): Containers are usually handed to the carrier at the terminal or depot days before they are loaded. FCA, CPT or CIP fit better than FOB, CFR or CIF. See our sea freight page for more.
Bulk and conventional cargo: Where goods are loaded directly onto the vessel, FAS, FOB, CFR and CIF do what they were designed for.
Road and air freight: Don’t use the sea rules (FOB, CIF); choose FCA, CPT, CIP, DAP or DPU.
Door-to-door deliveries: DAP if the buyer will handle import clearance; DDP only if the seller can reliably manage import formalities in the destination country.

Control is another factor. If you want to choose the carrier and manage freight yourself, a C or D rule may suit you; if you want to work with the buyer’s carrier, FCA may be the answer.

Common Incoterm mistakes

Using FOB for container cargo

Under FOB, risk passes when the goods are on board. But a container leaves the seller’s control at the terminal before it is loaded. If damage happens in between, the risk still sits with the seller, who no longer has access to the box. FCA (at the container terminal or the seller’s warehouse, for example) closes that gap.

The export declaration problem with EXW

Under EXW, export clearance is formally the buyer’s job. In exports from Turkey, however, the Turkish seller generally has to appear as exporter on the declaration, and the VAT exemption and the recording of the export depend on it. In practice, a foreign buyer can rarely file a Turkish export declaration. That is why FCA is often a better choice than EXW for exports. Confirm the tax consequences with your accountant.

Underestimating VAT and import duties under DDP

Under DDP, the seller takes on all import obligations at destination, including duty and VAT. In many countries it is not easy for a foreign seller to register as importer, pay VAT and recover it, so the VAT can become a straight cost. Before offering DDP, clarify the obligations at destination with a customs broker or tax adviser; in many cases DAP is safer.

Vague named places

“CIF Germany” does not say which port or address is meant. The more precise the named place, the fewer the disputes.

Assuming insurance cover

The insurance a seller must buy under CIF is minimum cover. If you want broader protection, write it into the contract or arrange a separate cargo insurance policy.

How to write the Incoterm in a contract

A correct entry has three parts: rule + as precise a place as possible + version.

“FCA [full address of seller’s warehouse], Istanbul, Turkey Incoterms® 2020”
“CIP Hamburg Container Terminal, Germany Incoterms® 2020”
“DAP [full address of buyer’s warehouse], Warsaw, Poland Incoterms® 2020”

Use exactly the same wording on the proforma invoice, the commercial invoice, the letter of credit and the shipping instructions. Differences between documents can cause discrepancies at the bank and valuation questions at customs.

It is also good practice to spell out in the contract what Incoterms leave open: who loads or unloads at the named place, how port and terminal charges (such as THC) are shared, and the level of insurance cover. Payment terms should fit the delivery term too; under a letter of credit, for instance, the transport document the bank will ask for depends on the rule you choose.

Frequently asked questions

Is Incoterms 2020 still valid?

Yes. As of October 2026, Incoterms® 2020 is ICC’s current edition. Even after a new edition appears, parties can keep using the older one by naming it in the contract.

Does using FOB for a container make my contract invalid?

No, but the allocation of risk and responsibility won’t match what actually happens, which raises the chance of disputes over damage or delay. ICC itself recommends FCA for container cargo.

What is the difference between DAP and DPU?

Under DAP, goods are delivered on the arriving vehicle ready for unloading, and unloading is the buyer’s job. Under DPU, the seller unloads the goods and carries the unloading risk.

Does the Incoterm affect the freight price?

It doesn’t change the freight rate, but it decides who pays it. Telling your forwarder the Incoterm when you ask for a quote lets them include the right costs (port, customs, final delivery).

If you are unsure which rule suits you at the quoting stage, the Medius team can review the delivery term alongside your transport plan. For container choice, read our FCL or LCL guide, or contact us through our quote form.