📑 Export knowledge • Incoterms 2020 • Since 1998

Incoterms explained
What the three letters actually mean — and what we quote on

Incoterms decide three things: when risk passes, who pays what, and who handles the paperwork. They don’t set prices and they aren’t a contract. This guide covers all eleven rules of Incoterms 2020, which ones suit air freight, the term almost everybody uses wrongly — and, plainly, the terms we trade on ourselves.

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📑11 rules — 7 any mode, 4 sea only
⚠️FOB is usually wrong for air freight
🗻Our standard: door to arrival airport
📅Quoting export terms since 1998

The basics

What an Incoterm actually decides

Incoterms are three-letter rules published by the International Chamber of Commerce. They are not prices, and they are not a contract on their own. Each one answers the same three questions, and that is genuinely all they do.

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When does risk pass from seller to buyer? This is the one people overlook, and it is the one that matters when something is damaged.

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Who pays which costs — carriage, insurance, handling, clearance, duty.

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Who handles which paperwork, including export and import formalities.

The current edition is Incoterms 2020, in force since 1 January 2020. The rules are revised roughly every ten years, so contracts should still reference the 2020 edition.

The eleven rules

Seven for any transport, four for sea only

Group 1 — any mode of transport. Use these for air freight, road, rail, courier and containerised sea.

Term	Name	In short
EXW	Ex Works	Buyer does almost everything from the seller’s door onward. Minimal seller obligation.
FCA	Free Carrier	Seller delivers to a named place and clears for export. ICC recommends this for containers and air.
CPT	Carriage Paid To	Seller pays carriage to a named destination. Risk passes earlier, when goods are handed to the first carrier.
CIP	Carriage and Insurance Paid To	As CPT, plus the seller buys insurance — at the higher all-risks level under the 2020 rules.
DAP	Delivered at Place	Seller delivers to the named destination ready for unloading. Buyer handles import clearance and duty.
DPU	Delivered at Place Unloaded	As DAP, but the seller must also unload. This replaced DAT in the 2020 edition.
DDP	Delivered Duty Paid	Seller handles everything including import duty and taxes. Maximum seller obligation.

Group 2 — sea and inland waterway only. These assume goods crossing a ship’s rail, so they do not suit containers or air.

Term	Name	In short
FAS	Free Alongside Ship	Seller delivers alongside the vessel at the named port of loading.
FOB	Free on Board	Risk passes once goods are on board at the named port of loading.
CFR	Cost and Freight	Seller pays freight to the destination port; risk passes at loading.
CIF	Cost, Insurance and Freight	As CFR plus insurance — at the basic level, unlike CIP.

Our terms

What we quote on

Rather than leave you to guess, here is how we actually trade.

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Luggage and personal cargo — door to arrival airport. This is our standard. We collect from your address anywhere in the UK and carry the shipment through to the destination airport. Import clearance, any duty or taxes, and collection or onward delivery from that airport are the receiver’s responsibility. In Incoterms language this sits closest to CPT — carriage paid to the named destination.

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This is exactly why destination charges sit outside our quote. Our service ends at the arrival airport, so duty, local handling and any onward delivery are set by the destination country and its agents, not by us. It is also why we quote what we control and tell you plainly what we don’t — rather than presenting a figure that looks complete and isn’t.

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Commercial cargo — most terms available. For business shipments we can quote on most Incoterms, including door-to-door arrangements where we handle the destination side. Tell us what your buyer or supplier has asked for and we will price it on those terms.

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If you are not sure which term you need, describe the deal rather than guessing at a code. Who is paying for what, and where does the other party expect to take over? We will tell you which rule fits.

The classic error

Why “FOB” is usually the wrong word

This is the single most common mistake we see, and it comes straight from the wider problem — people repeating terms they have seen without knowing what they mean.

⚠️

FOB and CIF are for sea and inland waterway transport only. They are written around goods being loaded on board a vessel. Yet they get used constantly for air freight and for containers, where there is no meaningful moment of “loading on board” that matches the rule.

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For air freight and containers, use the any-mode group. The ICC specifically recommends FCA for containerised cargo, and FCA, CPT, CIP, DAP, DPU or DDP for air and multimodal shipments.

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Why it matters practically: under FOB on a container shipment, risk technically passes at a point that may never happen as described. If something is damaged in the terminal beforehand, the question of who carries that loss becomes an argument — exactly when nobody wants one.

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Always name the place. An Incoterm without a named place is incomplete: “CPT” means little, “CPT Nairobi Airport, Incoterms 2020” is a usable term.

Choosing

A rough guide to which term suits what

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You want to do as little as possible: EXW puts almost everything on the buyer — though in practice it can be awkward, since the buyer may struggle to complete UK export formalities.

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Air freight or containers, seller arranges carriage: FCA, CPT or CIP.

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You want it delivered to their premises: DAP, or DPU if you are also unloading.

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You want the receiver to have nothing to pay on arrival: DDP — but be careful. You are then liable for import duty and taxes in a country whose rules you may not know, and in some places a foreign seller cannot easily act as importer of record.

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Bulk cargo on a conventional vessel: the sea-only group (FAS, FOB, CFR, CIF) is genuinely appropriate here — this is what those rules were written for.

The limits

What Incoterms don’t do

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They don’t transfer ownership. Incoterms deal with risk, cost and paperwork. Title passes according to your sales contract, which is a separate matter.

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They aren’t a contract. They are a shorthand you incorporate into a contract. They also don’t cover payment terms, breach, or what happens if goods are rejected.

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They don’t override transport rules. Agreeing DDP doesn’t make a prohibited item shippable, and no Incoterm changes what dangerous goods regulations require.

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They don’t decide your HS code or your customs value. Those still have to be right on the commercial invoice regardless of the term you trade on.

Common questions

Your questions answered

What are Incoterms? +

Three-letter rules published by the International Chamber of Commerce that define when risk passes from seller to buyer, who pays which costs, and who handles which paperwork. The current edition is Incoterms 2020, in force since 1 January 2020.

Which Incoterms does Excess Luggage quote on? +

For luggage and personal cargo our standard is door to arrival airport - we collect from your UK address and carry the shipment to the destination airport, with import clearance, duty and onward delivery being the receiver's responsibility. That sits closest to CPT. For commercial cargo we can quote on most Incoterms.

Why doesn't my quote include destination duty? +

Because our standard service ends at the arrival airport. Import duty, taxes and local handling are set by the destination country and its agents, not by us. We quote what we control and tell you plainly what sits outside it.

Can I use FOB for air freight? +

You shouldn't. FOB and CIF are written for sea and inland waterway transport, around goods being loaded on board a vessel. For air freight and containers the ICC recommends the any-mode group - FCA, CPT, CIP, DAP, DPU or DDP.

What is the difference between DAP and DDP? +

Under DAP the seller delivers to the named destination but the buyer handles import clearance and pays duty. Under DDP the seller handles import clearance and pays the duty and taxes too.

What changed in Incoterms 2020? +

DAT was replaced by DPU, which requires the seller to unload. CIP now requires a higher level of insurance than CIF. The rules also allow for buyers and sellers using their own transport, and set out security-related obligations more clearly.

Do Incoterms decide who owns the goods? +

No. They deal with risk, cost and paperwork only. Ownership passes according to your sales contract, which is separate.

👤

Lak Kharod, Director

Excess Luggage Co. • 40 years in the freight industry • MetEx House, Hounslow, next to Heathrow

“Mostly we quote door to arrival airport for luggage and cargo, and we offer most terms for commercial cargo. A lot of problems come from people using a term they have seen without knowing what it means — tell us what the deal actually is and we will tell you which rule fits.” Call 0800 096 38 39.

Incoterms explainedWhat the three letters actually mean — and what we quote on