Essential Incoterms for Importing and Exporting

Entering the world of international trade can be exhilarating, profitable and confusing. When you’re just getting started connecting with buyers and sellers, you may notice a lot of acronyms in their listings. Industry shorthand such as DA, DP, DAP, DDP and LC can feel like an overwhelming alphabet soup of terms to learn at first. If you’re new to importing and exporting, here are some of the most common terms you’ll see.

AWB: Air Waybill

This is a receipt for transport by air, it also contains the conditions of transport.

 B/L: Bill of Lading

This document serves as a title for transfer of ownership of goods when they are transported by ship.

CAD: Cash against Documents

This agreement means that the buyer will pay for goods as soon as (s)he receives the seller’s documents.

There is usually a third-party intermediary involved to ensure that the transaction runs smoothly.

CFR or C&F: Cost and Freight

The seller must clear the goods for export and pay all transportation costs, but the risk of loss is transferred to the buyer when the goods pass the ship’s rail in the port of shipment.

CIF:  Cost, Insurance and Freight

Similar to CFR except that the seller has to purchase marine insurance against the buyer’s risk of loss.

CIP: Cost and Insurance Paid

Similar to CIF, except that CIP is for all modes of transport except for sea freight.

The seller pays for transport and insurance against the buyer’s risk of loss from carrier to buyer (until they reach the carrier, the seller carries the risk).

CPT: Carriage Paid to…

Similar to CIP, except that the seller is not obligated to purchase insurance.

D/C: Documentary Collection

In this transaction, the seller’s bank will collect payment by sending the shipping documents to the buyer’s bank along with payment instructions. Because shipping is initiated before payment is received, D/Cs are riskier for the seller and they are only recommended in situations where there is a long-standing trade relationship.

D/A: Documents Against Acceptance

This is a form of D/C where the buyer pays in order to release the documents (s)he will need to claim the goods.

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 D/P: Documents Against Payment

Another form of D/C where the buyer does not have to pay in order to receive the documents. Instead (s)he will have to sign an agreement to pay at some later specified date. Of all D/C options, this one offers the least amount of protection to the seller.

DAF: Delivered at Frontier

The seller must pay to transport the goods to a land frontier, but before the customs border of the adjoining country. This term is for land transport only. 

DDP: Delivered Duty Paid

The seller bears all risks and costs of transport, including duties and import taxes, in order to deliver the goods to the seller.

DDU: Delivered Duty Unpaid

The seller bears all risks and costs of transport, except for duties and import taxes. The buyer is responsible for customs clearance, and for any consequences resulting from the inability to obtain customs clearance.

 DEQ: Delivered ex Quay

The seller ensures a timely arrival, and covers all costs and risks until the goods reach the destination port, including discharge onto the quay or wharf.

 DES: Delivered ex Ship

Similar to DEQ, except that the seller does not have to provide discharge onto the quay or wharf.

EXW: Ex Works

Here, the seller makes the goods available on his/her premises, (e.g., the manufacturing facility). The buyer bears the full cost and risk involved in transporting and clearing the goods. This option requires the smallest obligation of the seller.

FCA: Free Carrier

The seller must provide the goods, cleared for export, into the charge of a carrier, or another person, named by the buyer at the named place or point. The buyer has to bear all costs and risks from that point.

FAS: Free Alongside Ship

The seller must provide the goods, cleared for export, alongside the vessel at the named port of shipment. The buyer has to bear all costs and risks from that point. This term can only be used for water transport when using a chartered ship, or when goods are not containerized.

FCL: Full Container Load

This usually means that goods in the container are from one seller who packed the container, going to one buyer who will unpack the container.

FIS: Free into Store

Similar to DDP, this unofficial trade term means that the seller’s price includes all costs up to delivery to the buyer.

FOB: Free On Board

Once the goods have passed over the ship’s rail at the named port of shipment, the buyer has to bear all costs and risks from that point, including clearing the goods for export. This term can only be used for water transport when using a chartered ship, or when goods are not containerized.

LCL: Less than Container Load

A small amount of cargo that is not enough to be economically shipped as FCL. It will be combined with other LCL cargo from other shippers going to the same port.

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Also take a look at this schematic to see these terms in a tabular form.