What are Incoterms, and what do they not cover?
Incoterms are standard rules published by the International Chamber of Commerce (ICC) that define the delivery obligations of the seller and the buyer. Incoterms® is a registered trademark of the ICC. The current version is Incoterms 2020, which took effect on 1 January 2020. Each rule answers four practical questions:
- Where the risk passes: the point after which loss or damage to the goods is the buyer’s problem
- Who pays which costs: loading, main carriage, unloading and terminal charges
- Who handles customs: the export declaration in the country of departure and the import clearance in the country of destination
- Who arranges insurance: only CIP and CIF oblige the seller to insure the goods
Incoterms do not decide:
- When ownership passes. Title to the goods is agreed in the sales contract, for example with a retention of title clause.
- Payment. Price, currency, payment terms and letters of credit are separate matters.
- Customs law. The commodity code, duty rate, VAT, origin and licence rules come from customs legislation, not from the delivery term. An Incoterm only says which party takes care of them.
- What happens if the contract is broken. Remedies, liability limits and the applicable law belong in the contract.
Which Incoterms 2020 rules are there?
There are 11 rules in two groups:
- Any mode of transport, including multimodal: EXW, FCA, CPT, CIP, DAP, DPU and DDP. Use these for air freight, road freight, rail and containers.
- Sea and inland waterway only: FAS, FOB, CFR and CIF. They are designed for cargo loaded directly onto the vessel by the seller, such as bulk cargo or heavy machinery handled at the quay.
The letter tells you roughly how far the seller’s obligations extend: E (goods made available at the seller’s premises), F (main carriage not paid by the seller), C (main carriage paid by the seller, but risk passes at departure) and D (seller bears risk and cost to the destination).
How do the 11 Incoterms differ? Comparison table
| Term | Where the risk passes to the buyer | Main carriage paid by | Export clearance | Import clearance | Insurance |
|---|---|---|---|---|---|
| EXW Ex Works | When the goods are made available at the seller’s premises, not loaded | Buyer | Buyer | Buyer | No obligation |
| FCA Free Carrier | When the goods are handed to the buyer’s carrier at the named place (loaded, if at the seller’s premises) | Buyer | Seller | Buyer | No obligation |
| CPT Carriage Paid To | When the goods are handed to the first carrier | Seller | Seller | Buyer | No obligation |
| CIP Carriage and Insurance Paid To | When the goods are handed to the first carrier | Seller | Seller | Buyer | Seller, minimum ICC (A) cover, 110% of the contract value |
| DAP Delivered at Place | At the named destination, ready for unloading | Seller | Seller | Buyer | No obligation |
| DPU Delivered at Place Unloaded | At the named destination, once unloaded | Seller | Seller | Buyer | No obligation |
| DDP Delivered Duty Paid | At the named destination, ready for unloading | Seller | Seller | Seller, including duty and import VAT | No obligation |
| FAS Free Alongside Ship | When the goods are placed alongside the vessel at the port of shipment | Buyer | Seller | Buyer | No obligation |
| FOB Free On Board | When the goods are on board the vessel at the port of shipment | Buyer | Seller | Buyer | No obligation |
| CFR Cost and Freight | When the goods are on board the vessel at the port of shipment | Seller | Seller | Buyer | No obligation |
| CIF Cost, Insurance and Freight | When the goods are on board the vessel at the port of shipment | Seller | Seller | Buyer | Seller, minimum ICC (C) cover, 110% of the contract value |
“No obligation” means neither party must insure the goods towards the other, but the party carrying the risk should consider cargo insurance. A carrier’s liability is limited by law and rarely covers the full value of the goods.
Why is EXW a trap for exports from the EU?
Under EXW the buyer is responsible for the export declaration. That sounds easy for the seller, but it causes two problems for a Finnish exporter:
- No proof for 0% VAT. A sale of goods transported outside the EU is zero-rated only if you can prove the export. When the buyer’s forwarder files the declaration, the export confirmation goes to them, and you may never receive it. Without it, you may have to charge Finnish VAT.
- The buyer often cannot be the exporter. EU customs rules generally require the exporter to be established in the EU, so a buyer in China or the USA cannot simply file the declaration in Finland. In practice the seller ends up involved anyway, without the term saying so.
EXW also says the seller does not have to load the goods. If your forklift loads the truck and something breaks, the question of who bears the risk becomes unclear.
Our advice: use FCA at your premises instead. You load the goods and file the export declaration, so you receive the export confirmation. The buyer still books and pays the transport. See export customs clearance in Finland for what the declaration needs.
EXW can work for purchases within the EU, where there is no export declaration, or when you buy from outside the EU and your own forwarder handles everything from the supplier’s door.
When should you use FCA, CPT or CIP?
These three are the workhorses for air freight, road freight and containers:
- FCA: the seller clears the export and hands the goods to the buyer’s carrier, either at the seller’s premises or at a named terminal. The buyer chooses the forwarder and controls the transport. Since Incoterms 2020 the parties can agree that the buyer instructs its carrier to issue an on-board bill of lading to the seller, which helps when a bank requires one under a letter of credit.
- CPT: the seller books and pays the transport to the named destination, but the risk passes as soon as the goods are handed to the first carrier. If the goods are damaged on the way, the buyer claims, even though the seller paid the freight.
- CIP: like CPT, but the seller must also insure the goods. Incoterms 2020 raised the minimum to ICC (A), all-risks cover, for 110% of the contract value.
Why are FOB, CFR and CIF not suitable for containers or air freight?
FOB, CFR and CIF pass the risk when the goods are on board the vessel. A container, however, is handed to the carrier at the container terminal, often days before it is loaded. If the container is damaged at the terminal, the seller still bears the risk although it has no control over the goods. For air freight there is no vessel at all, so the rules simply do not fit.
Our advice: for containers and air freight use FCA instead of FOB, CPT instead of CFR, and CIP instead of CIF. The cost split stays almost the same, but the risk passes at a point that matches reality.
Note also that CIF requires only ICC (C) cover, the most limited level, which covers major casualties such as fire, sinking or collision but not, for example, theft or handling damage. If you buy on CIF terms, check what the seller’s policy actually covers.
FAS and FOB remain useful for bulk cargo and for heavy or oversized pieces that the seller delivers to the quay or loads directly onto the vessel.
DAP or DPU: which suits deliveries to distant markets?
DAP is the most common choice when the seller wants to offer a delivered price but does not want to deal with customs and taxes in the destination country. The seller pays the transport to the named place, for example the buyer’s warehouse or an airport, and the buyer clears the import and pays duty and import VAT. For distant markets with complex import rules, such as Brazil, DAP is usually the sensible option: the local importer knows its own customs system and tax registrations.
DPU, which replaced DAT in Incoterms 2020, is the only rule where the seller must unload the goods at the destination. Use it only if the seller can really arrange the unloading, for example with a tail-lift truck or a crane booked at the site.
Why is DDP risky for the seller?
Under DDP the seller clears the import and pays the duty and import VAT in the destination country. In practice this means:
- The seller often has to be registered for VAT or as an importer in the destination country, or use a fiscal representative.
- The seller may be unable to recover the import VAT it paid, which makes the sale more expensive than planned.
- Duty, VAT and local fees are hard to estimate in advance, and the seller carries any surprises, such as a different commodity code chosen by the destination customs.
- Some countries do not allow a foreign company to act as importer at all.
DDP can work within established trade lanes where the seller has a local entity or representative. Otherwise agree DAP and let the buyer handle the import. If you buy on DDP terms into Finland, check that the seller’s arrangement is in order, because the goods can be held at customs if it is not.
How do you write an Incoterm correctly in a contract?
Always name three things: the rule, the exact place and the version. For example:
- Good: “FCA Vantaa, Tikkurilantie 10, Incoterms® 2020”
- Too vague: “FCA Finland” or “FOB Helsinki” with no terminal
The place matters because it decides where the risk and costs pass. “FCA Finland” leaves open whether the goods are delivered at your warehouse, at our terminal or at the airport, and who pays the transport in between. Use the same term in the offer, the order confirmation, the invoice and the transport booking.
How do Incoterms affect the freight quote and who books the transport?
The Incoterm decides who our customer is and what the quote includes:
| Situation | Who books with us | What we quote |
|---|---|---|
| You import on EXW or FCA, for example from China | You, as the buyer | The whole chain: pickup from the supplier (EXW) or handover point (FCA), main carriage, import clearance in Finland and delivery |
| You import on FOB | You, as the buyer | Main carriage from the port of shipment, import clearance and delivery. The seller pays the costs up to loading. |
| You import on CFR, CIF, CPT or CIP | The seller’s forwarder books the main carriage | Destination charges, import clearance and delivery in Finland. Note that terminal and handling charges at the destination are often yours even on C terms. |
| You import on DAP | The seller | Usually only the import clearance in Finland, unless you ask us to do the delivery as well |
| You export on CPT, CIP, DAP or DPU | You, as the seller | Transport to the named place, export declaration and, for CIP, the insurance |
| You export on EXW or FCA | The buyer’s forwarder | Often only the export declaration, if you ask us to file it |
When importing from China, an EXW or FCA purchase means we arrange the whole transport for you. This gives you control over the routing, the transit time and the costs, and you see every cost element in one quote. See import from China: customs and duty for the import side.
The Incoterm also affects the customs value: in the EU, import duty is calculated on the value of the goods including transport and insurance costs up to the EU border, whatever term the parties have agreed. Import VAT is then calculated on that value plus the duty and the transport costs to the destination in Finland.
What are the most common Incoterms mistakes?
- Using EXW for exports outside the EU and then missing the export confirmation needed for 0% VAT
- Using FOB, CFR or CIF for containers or air freight, where the goods leave the seller’s control long before they are on board
- Naming only a country or a city, such as “DAP Germany”, instead of an exact address or terminal
- Leaving out the version, so it is unclear whether Incoterms 2010 or 2020 applies
- Assuming a C term moves the risk to the destination. Under CPT, CIP, CFR and CIF the seller pays the freight, but the risk passes at departure.
- Agreeing DDP without knowing the import VAT, duty and registration rules in the destination country
- Assuming CIF insurance is all-risks, when the minimum is ICC (C)
- Forgetting the destination charges: on CFR or CIF terms the buyer usually still pays terminal handling, delivery order and customs fees at the port of discharge
- Using a different term in the offer, the invoice and the transport booking
How do we help with Incoterms?
- We check the term in your supplier’s offer or your sales contract before you sign, and tell you what it means for your costs, risk and paperwork.
- We quote for the agreed term, so the quote covers exactly the part of the transport that is yours, with every cost element shown separately.
- We file the export and import declarations and make sure the export confirmation reaches you when you are the exporter.
- We arrange cargo insurance when the term leaves the risk with you during transport.
Our team is present every working day at the Helsinki Airport cargo area and Vuosaari Harbour, and we handle air, sea and road freight. Our advice is practical, based on daily work with shipments; we do not give legal advice. For contract questions, consult a lawyer specialising in trade. We do not arrange shipments to, from or through Russia or Belarus. For broader planning, see foreign trade consulting.
Updated 14 October 2026 · Reviewed by Artem Tchervonni, Managing Director