# Incoterms

> Source: https://netray.co/glossary/incoterms
> Publisher: Netray (netray.co), AI and integration engineering for ERP and manufacturing systems.
> Section: Glossary

## Short answer

Incoterms are standard trade terms published by the International Chamber of Commerce that define who arranges and pays for transport, insurance and customs, and where risk passes from seller to buyer. Examples are EXW, FOB, CIF, DAP and DDP.

## Aliases

- Incoterms 2020
- international commercial terms
- FOB
- EXW
- DAP

## Category

compliance

## Full Definition

Each Incoterm is a three-letter code with a named place, for example FCA Chicago or DAP Rotterdam. The code answers three questions: who contracts and pays for carriage, who handles export and import clearance, and at which point risk of loss passes.

Incoterms 2020 has eleven rules. Some apply to any mode (EXW, FCA, CPT, CIP, DAP, DPU, DDP) while others are for sea and inland waterway only (FAS, FOB, CFR, CIF). Using FOB for containerized goods is a classic mistake, because FCA fits better when the seller hands over at a terminal.

ERPs store the Incoterm on the sales order, purchase order and shipment, together with a named place. SyteLine has terms and ship-via fields on orders, Infor LN carries delivery terms on orders, and NetSuite offers an Incoterm field on transactions. The value flows to documents such as the commercial invoice and BOL, and to landed cost calculations.

Incoterms do not transfer title, set payment terms or replace a contract. They are only part of the sales terms.

## Why It Matters

- Wrong terms cause disputes over damage claims, freight cost and customs liability.
- Landed cost and margin depend on which party pays freight and duty.
- Export documents and filings require correct terms and named place.
- Insurance coverage depends on who bears risk at each leg.

## In Practice

An exporter sells at EXW factory. The buyer arranges pickup and bears risk from the dock, but the seller may still need to supply export data. If the same seller moves to DDP, it now pays freight, clears import and pays duty, so the quote must include those costs or margin turns negative.

## Faq

### How many Incoterms are there?

**Answer:** The 2020 edition has eleven rules, grouped by mode of transport. Always state the edition and the named place in the contract.

### What is the difference between FOB and FCA?

**Answer:** FOB applies to sea transport and passes risk when goods are on board the vessel. FCA passes risk when goods are handed to the buyer's carrier at a named place, which suits containers.

### Do Incoterms say who owns the goods?

**Answer:** No. They cover delivery, costs and risk. Ownership transfer and payment are governed by the contract and applicable law.

## Search terms

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