Incoterms cheat sheet: how FOB, CIF, DAP and DDP change your landed cost

An Incoterm is a three-letter trade term in your purchase order that says who arranges and pays for what between the seller's door and yours, and where risk passes from seller to buyer. Choosing the wrong one, or accepting a quote without understanding it, is a quiet way to lose margin. Two quotes for the same product can differ by 20 percent on paper and be identical once you add the costs each term leaves out.

This cheat sheet covers the Incoterms 2020 rules published by the International Chamber of Commerce (ICC), explains what each does to your landed cost, and shows how to compare quotes fairly. Incoterms are contract terms, not law. They only bind you when you write them into the contract, and they do not cover payment terms, title transfer or the governing law. This guide is general information; for high-value or unusual shipments, check with your freight forwarder or a trade attorney.

The eleven rules at a glance

There are two families. Seven rules work for any mode of transport, and four work only for sea and inland waterway freight.

Rule	Seller pays / arranges	Buyer pays / arranges	Risk passes
EXW Ex Works	Goods made available at seller's premises	Everything else, including export clearance and loading	At seller's premises
FCA Free Carrier	Export clearance; delivery to buyer's carrier	Main carriage, insurance, import clearance	When handed to carrier at named place
CPT Carriage Paid To	Main carriage to named destination	Insurance, import clearance	When handed to first carrier
CIP Carriage and Insurance Paid To	Main carriage plus insurance (Institute Cargo Clauses A under 2020)	Import clearance	When handed to first carrier
DAP Delivered at Place	Carriage to named place, ready for unloading	Unloading, import clearance and duty	At named destination
DPU Delivered at Place Unloaded	Carriage and unloading at named place	Import clearance and duty	After unloading
DDP Delivered Duty Paid	Everything to the destination, including import clearance and duty	Unloading	At named destination
FAS Free Alongside Ship (sea)	Delivery alongside vessel at port of shipment	Loading, main freight, import side	Alongside ship
FOB Free On Board (sea)	Export clearance, delivery on board vessel	Main freight, insurance, import side	On board vessel
CFR Cost and Freight (sea)	Freight to destination port	Insurance, import side	On board vessel
CIF Cost, Insurance and Freight (sea)	Freight plus minimum insurance (Clauses C) to destination port	Import side	On board vessel

Two points that surprise buyers. First, in CFR, CIF, CPT and CIP the seller pays for freight but the risk has already passed to you at loading or handover; if the cargo is lost at sea you bear the loss (which is why insurance matters). Second, the ICC guidance notes that FOB, CFR and CIF are meant for cargo that is loaded on board a vessel and are not well suited to containerized freight handed over at a terminal, where FCA, CPT or CIP fit the reality better. Many suppliers use FOB for containers anyway, so be explicit about the named place in your contract.

What each term does to your cost

The Incoterm decides which costs are in the price and which are yours. For a buyer landing goods in the U.S., the question is always: what is missing from this quote?

• EXW. Lowest quoted price, highest amount of work. You handle pickup, export clearance in the supplier's country, origin charges, main freight, insurance, import clearance and delivery. Export clearance in the supplier's country can be a real obstacle for a foreign buyer.
• FCA / FOB. The supplier clears export and delivers to your carrier or vessel. You pay main freight, insurance, U.S. duty and fees, brokerage, drayage and inland freight. This is the most transparent structure for a buyer who has a forwarder, and it matches how U.S. customs value is built (see below).
• CFR / CIF / CPT / CIP. The price includes international freight. It looks simple but you lose control of the forwarder, and the supplier chooses the carrier and the service level. You still handle U.S. import charges. On the entry, the freight and insurance need to be identified so they are not included in customs value where the rules allow.
• DAP / DPU. The supplier delivers to a named place in the U.S. You pay duty, taxes, fees and brokerage. Ask whether the price includes unloading and inland delivery.
• DDP. The supplier quotes an all-in price including duty. For a small importer this is attractive: one number. The trade-offs are that you cannot see how the duty was calculated, the seller may be acting as importer of record, and if tariffs change after you order, the contract should say who bears the change. You also do not get the entry records, which matters for drawback, audits and refunds of duty on past entries. If someone else was importer of record, a refund claim generally rests with them.

How Incoterms interact with U.S. customs value

U.S. duty is generally assessed on the transaction value of the goods, meaning the price actually paid or payable, with certain adjustments. International freight and insurance that are identified separately are generally not part of it, and costs after arrival are excluded. In practice that means the dutiable base for a FOB purchase is the FOB price, and for a CIF purchase it is the CIF price minus the freight and insurance shown on the invoice.

The trap is a CIF or DDP invoice with one lump-sum price and no breakdown. If your broker cannot separate freight and insurance, you may pay duty on a larger base than necessary. Ask the supplier to itemize freight and insurance on the invoice, and make sure they match the actual freight paid. Your broker will tell you what documentation they need.

Same product, three quotes

The figures are illustrative placeholders for 1,000 units, using a 5 percent duty rate to keep the arithmetic simple. They show structure, not real market prices.

Cost line	FOB quote	CIF quote	DDP quote
Supplier price	$10,000	$11,000	$12,000
Ocean freight and insurance you pay	$1,000	$0 (in price)	$0 (in price)
Duty (5% of goods value)	$500 (on $10,000)	$500 (on $10,000 after removing $1,000 freight)	$0 (in price)
Brokerage, fees, drayage (placeholder)	$600	$600	Depends on seller
Your all-in cost	$12,100	$12,100	$12,000 (if truly all-in)

The FOB and CIF quotes come to the same place, provided the CIF price is itemized so duty is not charged on the freight. The DDP quote is cheaper only if it really covers everything you would otherwise pay, and only if it is not silent about duty changes. Compare on all-in cost per unit, not on the headline price.

How to choose

• Small, infrequent buyer with no forwarder: DAP or DDP from a reputable supplier or a sourcing agent can simplify things, but insist on a written statement of who is importer of record, who pays if duties change, and who handles claims for damage.
• Repeat importer with a forwarder and broker: FCA or FOB usually gives more control and cleaner records.
• Expensive or fragile cargo: Prefer terms that let you buy your own insurance, or CIP, which carries broader cover than CIF under the 2020 rules.
• Air freight: Use FCA, CPT or CIP, since FOB, CFR and CIF are sea-only.

Whatever you choose, always name the place after the term ("FOB Shenzhen," "FCA Ningbo warehouse," "DAP Dallas") and state the version: "Incoterms 2020." Unnamed or unversioned terms are a common source of disputes.

Sources

• International Chamber of Commerce, Incoterms 2020 rules (published 2019, effective January 1, 2020)
• 19 U.S.C. 1401a and 19 CFR Part 152, transaction value and dutiable exclusions

Reviewed September 21, 2026. Incoterms are contract terms; confirm your specific contract language and customs treatment with your forwarder and broker.

Frequently asked questions

What is the difference between FOB and DDP?

Under FOB the seller clears export and loads the goods on the vessel, and you pay main freight, insurance, U.S. duty, fees and delivery. Under DDP the seller arranges delivery to your destination and pays import duty, so you receive one all-in price. DDP is simpler but less transparent, and it matters who acts as importer of record.

Does duty apply to freight cost?

In general, U.S. customs value is the transaction value of the goods, and international freight and insurance that are identified separately from the price are not included. On a CIF or DDP invoice, itemizing them helps avoid paying duty on a larger base than necessary. Confirm the treatment with your broker.

Which Incoterm is best for importing from China?

There is no single best term. Repeat importers with a forwarder commonly use FOB or FCA for cost visibility. Small buyers sometimes prefer DAP or DDP for simplicity, provided the contract states who is importer of record and who bears any change in duty.

Is FOB right for container shipments?

The ICC guidance says FOB, CFR and CIF are designed for cargo loaded on board a vessel, and recommends FCA, CPT or CIP when containers are handed to a carrier at a terminal. In practice FOB is widely used, so name the exact place and confirm what the supplier's price covers.