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Incoterms explained: the 11 rules and what they mean for customs

Incoterms are standard trade terms, published by the International Chamber of Commerce (ICC), that say who arranges and pays for transport, insurance and clearance, and where risk passes from seller to buyer. Incoterms 2020 is the current edition and has eleven rules. The term on your invoice also decides how much freight and insurance you must add to reach the CIF customs value.

What Incoterms do and do not do

Incoterms belong in the sales contract. They set the split of costs, risk and duties between buyer and seller at the point of delivery. They do not transfer ownership of the goods, they do not replace the contract's payment terms, and they do not override customs law. Which party is the declarant, and who is liable for duty, is decided by the law of the importing country.

Write the rule with a named place, such as FOB Tema or DAP Nairobi, so that the point of delivery is clear.

Seven rules for any mode of transport

  • EXW (Ex Works): the seller makes the goods available at its own premises. The buyer arranges everything from there, including export clearance.
  • FCA (Free Carrier): the seller delivers the goods, cleared for export, to the carrier the buyer names.
  • CPT (Carriage Paid To): the seller pays carriage to the named destination. Risk passes when the goods are handed to the first carrier.
  • CIP (Carriage and Insurance Paid To): as CPT, and the seller also buys insurance for the buyer's benefit. Incoterms 2020 requires the wider Institute Cargo Clauses (A) cover for CIP.
  • DAP (Delivered at Place): the seller delivers the goods to the named place, ready for unloading, and bears risk until then. The buyer clears import.
  • DPU (Delivered at Place Unloaded): as DAP, but the seller also unloads at the named place. DPU replaced DAT in Incoterms 2020.
  • DDP (Delivered Duty Paid): the seller delivers to the named place and also clears import and pays import duty and taxes.

Four rules for sea and inland waterway only

Do not use these four for containerised cargo handed to a carrier at a terminal. FCA, CPT or CIP fit that case better because the goods do not pass the ship's rail at the seller's port.

  • FAS (Free Alongside Ship): the seller delivers the goods alongside the vessel at the named port of shipment.
  • FOB (Free On Board): the seller delivers the goods on board the vessel at the named port of shipment. Risk passes on board.
  • CFR (Cost and Freight): the seller pays freight to the named port of destination. Risk still passes on board at the port of shipment.
  • CIF (Cost, Insurance and Freight): as CFR, and the seller also buys insurance for the buyer. Incoterms 2020 requires the minimum Institute Cargo Clauses (C) cover for CIF.

How the Incoterm changes your customs value

Where the destination values goods on a CIF basis, the customs value is the price of the goods plus international freight and insurance to the port of importation. Under CIF, CIP and CFR-type terms, part of that is usually already in the invoice price. Under EXW, FCA, FAS or FOB, the buyer pays freight and insurance separately, so you add them to the invoice value.

Under DAP, DPU and DDP, the invoice price may include costs after arrival, such as unloading and delivery inland. Where the destination allows it, show these separately on the invoice so they are not counted in the customs value. Check the destination's own valuation rules before you rely on this. Customs Declare does not guess here: for DAP, DPU and DDP invoices it adds no freight or insurance and flags the shipment for manual review.

Under DDP, the seller must clear import in the destination, which usually needs someone registered and licensed there. Under EXW, the buyer must clear export, which can be hard for a foreign buyer without local presence.

Worked example (illustrative numbers)

A seller quotes 10,000 USD FOB, freight is 800 USD and insurance is 100 USD. The same deal quoted CIF is 10,900 USD. The customs value on a CIF basis is 10,900 USD either way, but the invoice total and who pays each part differ. Quote from the wrong term and the declared value can be off by the freight and insurance.

Frequently asked questions

Which Incoterm is best for an exporter in Africa?

There is no single best term. FCA or FOB keeps the seller's responsibility short. CIF or CIP suits buyers who want the seller to arrange insurance. DAP or DDP suits selling into a market where you have a local partner who can clear import. The choice should follow who can manage each step at the lowest risk and cost.

Do Incoterms decide who pays customs duty?

Only DDP puts import duty on the seller as a contract term. Under every other rule, the buyer bears import clearance and duty. Customs law still decides who the declarant is.

Is Incoterms 2020 still current?

The ICC states that Incoterms 2020 entered into force on 1 January 2020 and describes it as the most recent version.

Sources

Last verified: 2026-09-29

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