Incoterms explained, without the jargon

Three letters that decide who pays for what

A supplier quotes you $4.20 FOB Ningbo. Another quotes $5.10 CIF Miami. A third says $6.40 DDP your warehouse. These are not three prices for the same thing, and comparing them as if they were is how a first import goes wrong before anything has been made.

Incoterms are eleven three-letter rules published by the International Chamber of Commerce. They settle four things: where the goods are delivered, where risk passes from seller to buyer, who pays which costs, and who handles export and import clearance.

What they do not decide

This matters more than the list, and it is the single most common misconception.

Incoterms do not transfer ownership. They say nothing about title. They also say nothing about the price, payment terms, what happens if the goods are defective, which country’s law governs the contract, or how disputes are resolved.

You will find people who insist Incoterms do transfer title, and there is a reason the confusion is so durable. Under US law, if a contract has no express title clause, the Uniform Commercial Code’s default rule passes title “at the time and place at which the seller completes his performance with reference to the physical delivery of the goods”. Choose FOB Ningbo and you have fixed that delivery point — so the UCC then locates title there. Title followed the Incoterm, but the UCC did the work, not the Incoterm.

The four you will actually be quoted

Only two of the eleven rules oblige anyone to buy insurance at all — CIF and CIP. Under every other term, if you do not buy cargo insurance, there is none.

The trap in each one

EXW — you are the exporter, in a country you have never been to

Ex Works looks like the cheapest quote because it is the smallest bundle. It also makes you responsible for export clearance out of the seller’s country — something a foreign buyer frequently cannot legally do. The ICC notes that a seller may end up treated as exporter of record where the buyer is not established locally, and strongly encourages using FCA instead of EXW where goods cross a border.

Risk also passes before loading. If the goods are damaged being lifted onto the truck you sent, that is already yours.

FOB — two traps, and US buyers walk into the second one

First: FOB does not fit containers. The ICC says so plainly. With containerised cargo the seller delivers to the container terminal, not on board, and the box may sit there for days before loading. Under FOB, risk does not pass until the goods are on board — so through that terminal gap the seller has lost control while you have no cover. FCA is the rule that actually matches how containers move.

Second, and this one is specifically an American problem. In US domestic trade, under the Uniform Commercial Code, “FOB place of destination” requires the seller to transport the goods to that place at their own expense and risk. Americans read “FOB” through that habit. Incoterms FOB is always a shipment term — risk passes at origin, every time. A US buyer who reads “FOB” as “the seller carries it to me” has misunderstood the deal by an entire ocean.

CIF — the insurance is nearly worthless

CIF looks reassuring. The seller pays the freight and must insure the cargo. Read the small print.

The seller must insure at a minimum of 110% of the invoice value — but only at the level of Institute Cargo Clauses (C), which is named-perils cover, not all-risks. It excludes a great many ordinary causes of container loss.

Worse, the split. Risk passes to you at the origin port, but the seller chose the carrier and chose the insurer. You carry the entire ocean leg on a policy you did not select, with a company you have no relationship with, and claims are correspondingly difficult.

If you are quoted CIF, buy your own all-risks marine policy anyway. The seller’s minimum cover is a formality, not protection.

DDP — the term your supplier probably cannot actually perform

Delivered Duty Paid is the maximum obligation on a seller: they clear the goods for import, pay all duties and taxes, and deliver. It sounds like everything you wanted.

The problem is that an overseas supplier offering DDP into the United States is offering to be the importer of record here, and often they cannot. A non-resident company filing entry needs a resident agent in the state of the port who can accept service of process, and a bond written by a resident corporate surety — and sureties are reluctant. The ICC itself notes that some countries prohibit foreign entities from carrying out import formalities at all, and advises DAP instead where the seller cannot manage clearance.

What happens in practice is worse than a refusal. Either a US party gets named as importer of record without fully realising it, or the entry goes in on thin declared values that CBP later disputes. Either way CBP comes to whoever is on the entry — and a supplier six thousand miles away is, in the phrase people use afterwards, effectively judgment-proof.

And this is tightening. Executive Order 14411, signed 3 June 2026, directs CBP to require foreign importers of record to hold minimum US assets or bonding, to bar them from informal entries, and to restrict their use of continuous bonds. The rulemaking is still being written. The direction is not in doubt.

Incoterms codes: all eleven rules

Seven work for any mode of transport. Four are for sea and inland waterway only — and are the ones most often misapplied to containers.

DPU is the only rule that requires the seller to unload. It was called DAT until the 2020 revision, renamed to make clear the destination can be anywhere, not only a terminal. DAP and DPU are otherwise the same rule; unloading is the whole difference.

The best Incoterms for importers

If you are importing yourself: FCA at the origin port for containerised cargo, arrange your own freight, buy your own all-risks marine insurance, and act as your own importer of record. It gives you the most control and the fewest surprises. FOB is fine for genuine break-bulk that really is lifted over the ship’s rail.

And treat a DDP quote from an overseas supplier with suspicion. A “duty paid” price is only as good as the entry behind it, and you cannot see the entry.

Questions people ask

What are Incoterms?

Eleven three-letter trade rules published by the International Chamber of Commerce. They settle where the goods are delivered, where risk passes from seller to buyer, who pays which costs, and who handles export and import clearance. They do not transfer ownership or set the price.

What is the difference between FOB and CIF?

Under FOB you book and pay for the ocean freight, and risk passes to you when the goods are loaded on board at origin. Under CIF the seller books the freight and must insure the cargo, but only at minimum cover, Institute Cargo Clauses (C), and risk still passes to you at the origin port.

Does FOB mean the seller delivers to my door?

Not under Incoterms. Incoterms FOB is always a shipment term: risk passes at the origin port, every time. The “FOB destination” habit comes from US domestic law, the Uniform Commercial Code, and does not apply to an Incoterms quote.

Is a DDP quote from an overseas supplier safe?

Treat it with suspicion. DDP makes the seller the importer of record in the United States, which an overseas supplier often cannot properly be; in practice a US party can end up named on the entry, or the entry goes in on values CBP later disputes. A duty-paid price is only as good as the entry behind it.

Which Incoterm should I use to import from China?

If you import yourself, FCA at the origin port for containerised cargo, with your own freight and your own all-risks marine insurance. When you buy from Ocean Transport USA there is no Incoterm between you and the factory: you buy a delivered product at one price.

Checked Incoterms 2020 (ICC), UCC 2-319 and 2-401, and Executive Order 14411 verified on August 27, 2026. Due for review by February 23, 2027.