Incoterms — short for International Commercial Terms, published by the International Chamber of Commerce, with the current edition known as Incoterms 2020 — are three-letter rules that set out, for a sale of goods, who arranges and pays for transport and insurance, who clears the goods for export and import, and, above all, the exact point at which risk for the goods passes from seller to buyer. They are the shorthand that lets a mill in one country and a buyer in another agree, in a single line, how a shipment will be handled.
What do Incoterms decide, and what do they not?
An Incoterm allocates three things: the cost of carriage, insurance and handling; the obligations of export and import clearance; and the risk of loss or damage in transit. That is a great deal, but it is not everything, and the gaps matter as much as the contents.
- Incoterms do not decide when title or ownership passes, nor when payment is due. Those are settled by the sales contract and the letter of credit, not by the shipping term.
- They are not law. They are a widely adopted standard that only binds you because the contract says so.
- They only work if you name the version and the place precisely — always write, for example, "FOB Nhava Sheva, Incoterms 2020", never "FOB" on its own. An unqualified term invites two readings and one dispute.
Why is cost not the same as risk?
This is the single most misunderstood point in the whole framework, and it lives in the "C" terms — CFR, CIF, CPT and CIP. Under all four, the seller pays freight all the way to the destination. Yet under all four, risk still passes to the buyer at origin — the moment the goods are handed to the carrier or loaded on board. The seller pays for the voyage; the buyer owns the goods for it.
Picture a CIF shipment of fabric from an Indian port to Rotterdam. The seller has booked and paid the ocean freight and even bought the marine insurance. But if the container is lost in a storm mid-ocean, it is the buyer's loss, and the buyer's claim to pursue against the insurer. The seller has met its obligation the instant the goods crossed on board at origin. A buyer who reads "seller pays freight" as "seller carries the risk to my door" has misread the term entirely.
The C-terms are the classic trap: the seller pays for the voyage, but the buyer owns the risk from the moment the goods leave origin. Whoever bears the risk of the journey is the party who needs the insurance in place — read the term for the risk-transfer point, not the freight bill.
Which terms does a textile buyer actually meet?
Eleven Incoterms exist; a handful account for almost all textile trade. The table sets out, for each, where the seller's responsibility ends, who pays the main freight, who carries the insurance obligation, and who clears the goods for import.
| Term | Seller's responsibility ends | Freight paid by | Insurance | Import clearance |
|---|---|---|---|---|
| EXW — Ex Works | Goods placed at buyer's disposal at seller's premises | Buyer | Buyer (optional) | Buyer (and export too) |
| FCA — Free Carrier | Goods, export-cleared, handed to buyer's carrier at named place | Buyer | Buyer (optional) | Buyer |
| FOB — Free On Board | Goods on board the vessel at named port of shipment | Buyer | Buyer (optional) | Buyer |
| CFR — Cost and Freight | Risk: on board at origin (seller pays freight on) | Seller, to destination port | Neither obliged; buyer bears risk | Buyer |
| CIF — Cost, Insurance and Freight | Risk: on board at origin (seller pays freight on) | Seller, to destination port | Seller — minimum, ICC(C) | Buyer |
| CPT — Carriage Paid To | Risk: goods handed to first carrier at origin | Seller, to named destination | Neither obliged; buyer bears risk | Buyer |
| CIP — Carriage and Insurance Paid To | Risk: goods handed to first carrier at origin | Seller, to named destination | Seller — higher cover, ICC(A) | Buyer |
| DAP — Delivered at Place | Goods ready for unloading at named destination | Seller | Seller bears risk to destination | Buyer |
| DPU — Delivered at Place Unloaded | Goods unloaded at named destination | Seller | Seller bears risk to destination | Buyer |
| DDP — Delivered Duty Paid | Goods delivered, import-cleared, duties paid | Seller | Seller bears risk to destination | Seller |
A few points repay attention. EXW asks the least of the seller and the most of the buyer, who must even arrange export from a country not its own. FCA and FOB look similar, but FOB is a sea-freight-only term whose risk passes once the goods are on board the vessel; FCA hands over export-cleared goods to the buyer's carrier at a named place, by any mode. The ICC recommends FCA over FOB for containerised cargo, because a box is typically surrendered at a terminal days before it is craned aboard — under FOB the seller technically keeps the risk in that gap, which is not what most parties intend. CPT and CIP are simply the any-mode equivalents of CFR and CIF. At the far end, DAP delivers goods ready for unloading, DPU goes one step further and unloads them, and DDP delivers them cleared for import with duties paid — the most a seller can shoulder.
What changed in Incoterms 2020?
The 2020 revision was evolutionary rather than radical, but four changes are worth holding in mind, especially the two on insurance.
Incoterms 2020, the changes that matter
• DAT became DPU — the old "Delivered at Terminal" was renamed
"Delivered at Place Unloaded", since the destination need not be a terminal.
• Insurance split — CIP now requires the higher Institute Cargo
Clauses (A) cover, while CIF stays at the minimum Institute Cargo Clauses (C).
• FCA and the bill of lading — the parties may now agree that the
buyer instructs the carrier to issue an on-board bill of lading to the seller, which
eases FCA use under letters of credit.
• Clearer allocations — cost lists are consolidated term by term,
and security-related clearance obligations are spelt out more fully.
Which term should a textile buyer choose?
There is no single right answer, only a fit between the term and how much of the journey you want to control. FOB and CIF remain the staples of textile trade and are well understood by every freight forwarder and bank. FCA and CIP are the technically-correct choice for containerised shipments, for the terminal-handover reason above. New importers often prefer CIF or DAP for simplicity, since the seller arranges the carriage; more experienced buyers take FOB or FCA precisely so they can appoint their own carrier and insurer and hold the freight relationship themselves.
DDP shifts almost everything to the seller — but at a price built into the quotation, and it asks the seller to clear import and pay duties in a country where it may have no standing, a real practical risk. Whichever term you settle on, name the place exactly — the specific port or terminal, not just the city — and state the version, so that "CIF" reads unambiguously as "CIF, Incoterms 2020, at the named port".
On the programmes we handle, the Incoterm, the named place and who arranges freight, insurance and documentation are agreed per contract before the order is confirmed. We coordinate the freight booking, the shipping documents and the customs interface to match whatever term the parties have chosen; we do not impose a fixed term, and we quote neither a fixed freight figure nor a guaranteed transit time. The aim is only that both sides read the three letters the same way before the goods move.
Agree the Incoterm before the order is confirmed.
Tell us the route, the term you have in mind and who you want arranging freight and insurance. We will coordinate the documentation and customs interface to match — and flag anything in the term that does not sit right.