Incoterms are the trade-terms rules set by the International Chamber of Commerce (ICC). They standardize who — the seller or the buyer — pays for freight, insurance and customs clearance, and at what point the risk to the cargo passes to the buyer. The current version is Incoterms 2020, which has 11 terms.

What is the difference between FOB and CIF?

Under FOB the seller covers costs only up to loading the goods on board the vessel, while under CIF the seller also pays the ocean freight and cargo insurance to the destination port. In both terms, however, risk transfers at the same point — when the goods are loaded on board at the port of export. With CIF the cost runs to the destination port, but the risk passes at the port of departure.

Should I use EXW or FCA?

EXW places the least burden on the seller, but the buyer has to handle inland transport in the export country and export clearance themselves. In practice FCA — where the seller takes care of export clearance — is more commonly recommended.

LOGISTICS GUIDE

Incoterms 2020 Made Simple — Trade Terms Explained Visually

Q: Who pays for what under DDP?

Under DDP the seller bears everything — import clearance in the destination country plus duties and VAT — and delivers to the place the buyer designates. The buyer only has to receive the goods, but if the seller does not understand the destination country's tax system, the risk to the seller is significant.

May 20, 2026 Logistics Guide

Export and import contracts and invoices always carry notations like FOB Busan or CIF Los Angeles. That is exactly what Incoterms are. They are the trade convention that spells out who pays the freight and who is responsible when something goes wrong with the cargo. There are 11 terms and the abbreviations look alike, so they are easy to confuse — but the whole thing clicks into place with a single diagram.

1. What are Incoterms?

Incoterms is short for International Commercial Terms, a set of trade-terms rules created by the International Chamber of Commerce (ICC). The current version is Incoterms 2020, made up of 11 terms.

Without Incoterms, every deal would mean drafting a new contract to answer questions like "Who pays the freight?" and "Who is liable if the cargo is damaged at sea?" Incoterms settle those answers with a single three-letter abbreviation.

2. The three things Incoterms decide

A single Incoterms rule settles the following three things at once.

Cost — how far the seller pays freight, customs and insurance
Risk — at what point liability for damage or loss of the cargo passes to the buyer
Obligation — who arranges transport and handles export and import clearance

The most common misconception here is that cost and risk do not always transfer at the same point. We will come back to this in the diagram below and in the section on CIF.

3. The four essential terms at a glance

Below, the four terms used most often in practice — EXW, FOB, CIF and DDP — are plotted along the journey the cargo takes from the seller's warehouse to the buyer's warehouse. The blue segment is the range over which the seller bears the cost, and the orange triangle marks the point where risk passes to the buyer.

※ Look at CIF — the blue bar (cost) runs all the way to the port of import, but the orange triangle (risk) sits at the on-board loading point. Cost and risk move independently — that is the heart of Incoterms.

4. The four essential terms — understood through real examples

EXW (Ex Works)

The seller is responsible only for placing the goods at its own warehouse or factory. Everything after that — loading, inland transport in the export country, export clearance, international carriage, insurance and import clearance — falls to the buyer. It is the term that puts the least burden on the seller.

EXAMPLE A Korean manufacturer sells to a US buyer on EXW Incheon factory terms. All the seller has to do is have the goods ready at its Incheon factory. The buyer must arrange a truck within Korea and handle export clearance itself. Because that is hard when the buyer does not know the local landscape, in practice the FCA term — where the seller takes on export clearance — is more commonly recommended.

FOB (Free On Board)

The seller is responsible for the goods up to loading them on board the vessel at the port of export. That includes inland transport within Korea, export clearance and terminal charges. The moment the goods are on board, both cost and risk pass to the buyer. It is a term used exclusively for sea and inland-waterway transport.

EXAMPLE A Korean seller exports to a US buyer on FOB Busan terms. The seller is responsible up to the moment the goods are loaded on board at the Port of Busan. After that, the ocean freight, cargo insurance and US import clearance and inland transport are the buyer's responsibility. It is one of the most widely used terms in import/export trade.

CIF (Cost, Insurance and Freight)

On top of FOB, the seller also covers the ocean freight and cargo insurance to the destination port. It is used exclusively for sea and inland-waterway transport. But there is one crucial trap.

Caution — under CIF, cost and risk move separately.
Under CIF the seller pays the cost all the way to the destination port, but the risk passes to the buyer at the same point as FOB — when the goods are loaded on board at the port of export. In other words, if the cargo is damaged in transit, the buyer bears the liability even though the seller paid the freight. That is precisely why CIF comes with cargo insurance attached.

EXAMPLE Change the FOB Busan deal above to CIF Los Angeles terms, and the seller now pays the ocean freight and cargo insurance to the port of arrival in LA. But if an accident happens in transit, liability has already passed to the buyer at the on-board loading point in Busan. "Cost to LA, risk from Busan" — that one line is all of CIF.

DDP (Delivered Duty Paid)

The seller bears everything, including import clearance in the destination country and duties and VAT, and completes delivery to the place the buyer designates. The buyer only has to receive the goods. It is the term that places the greatest burden on the seller.

EXAMPLE A Korean seller exports to a German buyer on DDP Berlin terms. The seller handles German import clearance, duties and VAT, and delivers all the way to the buyer's warehouse door in Berlin. It is convenient for the buyer, but if the seller does not understand Germany's tax and customs system, unexpected costs and delays can arise, so it calls for caution.

5. All 11 Incoterms 2020 terms

The 11 Incoterms terms are divided into four groups by their first letter (E, F, C, D). The further down the list, the more the seller bears.

Group	Term	Full name	Seller's cost coverage	Transport mode
E	EXW	Ex Works	Delivered at the seller's warehouse	Any mode
F	FCA	Free Carrier	Delivered to the carrier at a named place (export clearance included)	Any mode
F	FAS	Free Alongside Ship	Alongside the ship at the port of export	Sea only
F	FOB	Free On Board	Up to loading on board	Sea only
C	CPT	Carriage Paid To	Carriage to the destination	Any mode
C	CIP	Carriage and Insurance Paid To	Carriage to the destination + insurance	Any mode
C	CFR	Cost and Freight	Ocean freight to the destination port	Sea only
C	CIF	Cost, Insurance and Freight	Ocean freight to the destination port + insurance	Sea only
D	DAP	Delivered At Place	To the destination (before unloading)	Any mode
D	DPU	Delivered At Place Unloaded	Through unloading at the destination	Any mode
D	DDP	Delivered Duty Paid	Everything, including import clearance and duty	Any mode

The C group (CPT, CIP, CFR, CIF) all behave like CIF, with cost and risk moving separately. The seller pays carriage to the destination, but the risk transfers to the buyer at origin — the moment the goods are handed to the first carrier (or loaded on board). Also, in Incoterms 2020 the former DAT was renamed DPU.

6. Points that often cause confusion

FOB ≠ "seller is responsible to the destination port" — FOB runs only to loading on board. Having the seller pay freight to the destination port is CFR or CIF.
The "I" in CIF is insurance, not peace of mind — the seller merely takes out the insurance; the risk in transit itself still lies with the buyer. You should also check the scope of insurance cover (the ICC clause level).
EXW and DDP lean too far to one side — with EXW the buyer, and with DDP the seller, takes on clearance in the other party's country. If you do not know the other country's landscape, a middle term like FCA or DAP is safer.
Do not use sea-only terms for containers — FAS, FOB, CFR and CIF are based on the ship's rail, so for containerized cargo FCA, CPT and CIP are a better fit.

7. Which term should you choose?

There is no single right answer, but there is a guiding principle. Whichever party wants to directly control the transport and clearance in the other country should naturally take on the cost and obligation for that leg.

New to exporting — starting with FCA or FOB, which end within the export country, keeps the risk small.
Sellers with a logistics network in the destination country — taking responsibility all the way through with DAP or DDP raises buyer satisfaction.
Buyers who want to negotiate freight directly — receive on FOB or FCA and arrange transport themselves.

What matters is that Incoterms are only the boundary of responsibility for freight, insurance and clearance — who actually carries out the transport, and how well, is a separate question. Once the term is set, it is the forwarder's capability in that leg that ultimately determines the quality of the shipment.

RUNIC international freight forwarding

RUNIC is an integrated logistics partner that runs 3PL fulfillment, freight brokerage, international express and international freight forwarding under one roof, based at K-One Gimpo Logis. Our international freight forwarding covers every mode — sea, air and land — FCL and LCL, and the full span of export and import clearance, and reliably handles the relevant leg of responsibility for any Incoterms term. If you would like to talk through term selection or a freight quote, reach out anytime.

Not sure which Incoterms term works in your favor? We will review the right term and a forwarding quote for your cargo and route together

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