INTERNATIONAL TRADE LAW
How to Import With Incoterms: A Buyer's Guide
Incoterms decide who pays for shipping, who carries the risk of loss, and who handles customs at each stage of an international sale — so the term you agree to is one of the most important commercial decisions in any import. The current edition, Incoterms 2020, is published by the International Chamber of Commerce (ICC) and contains eleven three-letter rules. Picking the right one protects your margin and, just as important, controls whether you become the U.S. importer of record. This guide explains the terms that matter most to buyers.
What Incoterms Do — and What They Don’t
Incoterms are a standardized set of rules that allocate three things between buyer and seller: the costs of carriage and clearance, the point where risk of loss transfers, and the obligations for export and import formalities. They are incorporated into the sales contract by reference (for example, “CIF Houston, Incoterms 2020”).
What they do not do is just as important. Incoterms are not a contract by themselves, they do not transfer title or ownership, and they do not set payment terms. They also do not override mandatory U.S. import law: no matter which term you choose, someone must still satisfy CBP’s entry, classification, and valuation requirements.
The Eleven Incoterms 2020 Rules
The 2020 edition splits the rules into two families by mode of transport.
| Any mode of transport | Sea & inland waterway only |
|---|---|
| EXW — Ex Works | FAS — Free Alongside Ship |
| FCA — Free Carrier | FOB — Free On Board |
| CPT — Carriage Paid To | CFR — Cost and Freight |
| CIP — Carriage and Insurance Paid To | CIF — Cost, Insurance and Freight |
| DAP — Delivered at Place | |
| DPU — Delivered at Place Unloaded | |
| DDP — Delivered Duty Paid |
The rules run on a spectrum: EXW puts the maximum burden on the buyer (you collect the goods at the seller’s door and handle everything after), while DDP puts the maximum burden on the seller (they deliver to your door, duties paid). Everything else falls in between.
Who Becomes the Importer of Record?
For a U.S. buyer, the most consequential question an Incoterm answers is who clears customs — because that party acts as importer of record and inherits the legal responsibilities that role carries, including reasonable care, valuation, and recordkeeping.
| Term | Who clears U.S. customs | Practical effect for the buyer |
|---|---|---|
| EXW / FCA | Buyer | You control entry, classification, and duty — and bear the responsibility |
| CIF / CFR / CPT / CIP | Buyer (at destination) | Seller pays freight to the port; you still import the goods |
| DAP / DPU | Buyer | Seller delivers, but you handle import clearance and duty |
| DDP | Seller | Seller is importer of record and pays the duty |
DDP can look attractive because the price is “all in,” but a foreign seller acting as U.S. importer of record often lacks a bond, a U.S. presence, and any incentive to classify carefully — and CBP problems can still land on you commercially. Many experienced buyers prefer FCA or CIF so they keep control of the entry while limiting their freight exposure.
Choosing the Right Term
Weigh four factors when you negotiate:
- Risk transfer point. Under FOB and CIF, risk passes when goods are loaded on the vessel — a loss in transit is yours even though the seller arranged the freight. Match your cargo insurance to the actual risk point.
- Control of carriage. If you have strong freight forwarder relationships, an “F” term (FCA, FOB) lets you control routing and cost.
- Customs control. Keep yourself as importer of record when classification, valuation, or restrictions and quotas need careful handling.
- Insurance. Only CIF and CIP obligate the seller to insure — and CIF requires only minimum cover. Arrange your own policy where the term leaves a gap.
A common buyer mistake is using FOB for containerized or air cargo. FOB is a sea-only term keyed to the ship’s rail; for containers handed to a carrier at a terminal, FCA is the correct rule. Using the wrong family of term can leave a gap in who bears risk during inland movement.
Frequently Asked Questions
What is the current version of Incoterms?
Incoterms 2020, published by the International Chamber of Commerce and in effect since January 1, 2020. The ICC revises the rules roughly every decade, so the next edition is expected around 2030. Always state the edition in your contract.
Does the Incoterm decide who pays U.S. import duty?
Effectively, yes. Under DDP the seller pays the duty as importer of record. Under every other term the U.S. buyer typically imports the goods and pays the duty, even when the seller arranges and pays for freight (as in CIF or CFR).
Is FOB the right term for container shipments?
Usually not. FOB, FAS, CFR, and CIF are designed for bulk and break-bulk sea cargo. For containers and multimodal moves, the “any mode” terms — FCA, CPT, CIP, DAP, DPU, DDP — fit better and place the risk-transfer point where the goods actually change hands.
Do Incoterms transfer ownership of the goods?
No. Incoterms govern cost, risk, and delivery obligations, not title. Ownership transfer and payment are set by other clauses in your sales contract.
The right Incoterm aligns your freight cost, your risk exposure, and your customs control — and the wrong one can quietly make you responsible for things you never intended. Reidel Law Firm provides import and export compliance counsel for a predictable flat fee: get a flat-fee compliance memo before you sign your next supply contract.
