Holo·Cargo

Incoterms Explained — Who Pays What

What are Incoterms?

Incoterms (International Commercial Terms) are a set of 11 standardised trade terms published by the International Chamber of Commerce. They define exactly where the seller's cost and risk obligations end and the buyer's begin on an international shipment. Using the wrong Incoterm — or misunderstanding one — means unexpected costs, disputes, and clearance delays.

This guide groups all 11 terms by handoff point and explains in plain English what each one means for buyers and sellers.

Group 1: Seller's obligations end at the origin

These terms put most of the freight cost and risk on the buyer. The seller delivers cargo to a named origin point; the buyer arranges and pays for everything from there.

  1. Origin
  2. Origin port
  3. Destination port
  4. Door

EXW — Ex Works The seller makes goods available at their premises (factory, warehouse). The buyer bears all costs and risks from that point — loading, export clearance, freight, import clearance, delivery. Maximum obligation on the buyer. Often used in domestic trades; creates complications for the buyer on export customs.

  1. Origin
  2. Origin port
  3. Destination port
  4. Door

FCA — Free Carrier The seller delivers cargo to a named carrier or place nominated by the buyer — typically the seller's premises, a freight forwarder's CFS, or an inland container depot. Export clearance is on the seller. Risk transfers when the carrier takes possession. Most versatile term for containerised cargo.

  1. Origin
  2. Origin port
  3. Destination port
  4. Door

FOB — Free On Board The seller clears for export and loads the goods onto the nominated vessel at the origin port. Risk transfers once cargo is on board. Widely used for ocean shipments — but note that FOB is ocean-only; use FCA for containerised cargo where the container is handed to a carrier before it's on the vessel.

Group 2: Seller's obligations end at the destination port

These terms put main freight and insurance costs on the seller, but the buyer handles destination port, customs clearance, and inland delivery.

  1. Origin
  2. Origin port
  3. Destination port
  4. Door

CFR — Cost and Freight Seller pays ocean freight to the named destination port. Risk transfers when cargo is loaded on board at origin (same as FOB). The buyer bears the risk during the ocean voyage despite the seller paying for it — which is why CIF (below) is preferred.

  1. Origin
  2. Origin port
  3. Destination port
  4. Door

CIF — Cost, Insurance and Freight Same as CFR but the seller must also provide minimum cargo insurance (Institute Cargo Clauses C). Risk still transfers at the origin port. The seller pays the insurance premium, but the buyer bears the ocean risk — so buyers often prefer to arrange their own broader cover.

  1. Origin
  2. Origin port
  3. Destination port
  4. Door

CPT — Carriage Paid To Seller pays freight to the named destination (can be a port or inland point). Risk transfers when cargo is handed to the first carrier at origin. Works for all modes, including air and multimodal.

  1. Origin
  2. Origin port
  3. Destination port
  4. Door

CIP — Carriage and Insurance Paid To Same as CPT but the seller must provide all-risk cargo insurance (Institute Cargo Clauses A — broader than CIF's minimum). The preferred term for air freight and multimodal moves where comprehensive cover is expected.

Group 3: Seller's obligations extend to the destination door

These terms put the full delivery cost and risk on the seller, all the way to the consignee's premises. The seller arranges freight, customs clearance, and inland delivery.

  1. Origin
  2. Origin port
  3. Destination port
  4. Door

DAP — Delivered At Place Seller delivers cargo to a named destination location, ready for unloading. The buyer handles import customs clearance and pays import duties. The seller bears risk until the cargo is available for unloading at destination.

  1. Origin
  2. Origin port
  3. Destination port
  4. Door

DDP — Delivered Duty Paid Maximum obligation on the seller. The seller handles everything — export clearance, freight, import customs clearance, duty and tax payment — and delivers to the named place. The buyer simply takes possession. Note: if the seller is not VAT-registered in the destination country, DDP can create compliance problems.

DDU — Delivered Duty Unpaid (informal term) Effectively DAP: seller delivers to door, buyer pays import duties. DDU is not an official ICC Incoterm in the 2020 edition, but it's still widely used in contracts. Treat it as DAP.

Which Incoterm should you use?

SituationRecommended term
Seller wants minimum responsibilityEXW or FCA
Standard ocean FCL/LCL exportFOB or FCA
Air freight or multimodalFCA or CIP
Buyer wants freight included in purchase priceCFR or CIF (ocean) / CPT or CIP (any mode)
Seller handles full delivery to doorDAP or DDP
DDP but buyer handles import dutyDAP

Incoterms and move types

The Incoterm determines which move type makes sense for your Holo booking. A FOB or FCA seller typically books a port-to-door or port-to-port shipment with Holo; a DDP seller books door-to-door. See how it works for a walkthrough of the four move types.