Incoterms are rules published by the International Chamber of Commerce (ICC) that split tasks, costs and risks between seller and buyer. Each rule is a three-letter code, such as FOB or DDP, written into the sales contract. It sets where delivery happens, who pays for each stage and when risk passes.
Also known as: International Commercial Terms.
How Incoterms Work
The seller and the buyer choose one rule and a named place, and write both in the contract. A typical line reads FOB Port of Houston, Incoterms 2020. The rule then tells each party who books transport, who clears customs and who bears the loss if the cargo is damaged.
The Incoterms 2020 edition has eleven rules in two groups. Seven work for any mode of transport: EXW, FCA, CPT, CIP, DAP, DPU and DDP. Four are only for sea and inland waterway transport: FAS, FOB, CFR and CIF.
Incoterms do not decide when ownership passes, how the buyer pays or which law applies. These points belong in the sales contract and the payment terms, such as a letter of credit.
Why Incoterms Matter for Heavy Equipment Shipping
The chosen rule decides who arranges the hardest parts of a machine move. These include loading at the seller’s yard, oversize trucking, port handling and customs. A wrong choice can leave a buyer paying for a crane it did not plan for, or a seller carrying uninsured risk at sea.
For RoRo and breakbulk cargo loaded at the ship’s side, FOB and CIF fit well. For units delivered to a terminal or packed in containers, FCA or CIP usually match the handover better. APC’s equipment sourcing and procurement service helps buyers choose a rule that matches the shipping plan.
| Rule | Delivery point | Main carriage paid by |
|---|---|---|
| EXW | Seller’s premises, not loaded | Buyer |
| FCA | Buyer’s carrier at a named place | Buyer |
| FOB | On board the vessel at the port of loading | Buyer |
| CIF | On board the vessel at the port of loading | Seller, with minimum insurance |
| DAP | Named place at destination, not unloaded | Seller |
| DDP | Named place at destination, cleared for import | Seller |
Common Mistakes With Incoterms
- Leaving out the edition year, which can lead to disputes over older versions of the rules.
- Using FOB or CIF for containers handed to the carrier at a terminal.
- Naming a country or a city instead of a precise port, terminal or address.
- Assuming the Incoterms rule also sets the payment terms or the transfer of ownership.
- Choosing DDP without checking import rules and taxes in the buyer’s country.
FAQ
Not sure which Incoterms rule fits your next machine purchase? Get a shipping quote for the route and terms you are comparing.
