Incoterms — A Plain-Language Guide for Importers & Exporters
What Are Incoterms and Why Do They Matter for Your Supply Chain?
Incoterms are standardized trade terms published by the International Chamber of Commerce (ICC) that define the responsibilities of buyers and sellers in international transactions. They determine who pays for transportation, insurance, and customs duties — and when risk transfers from seller to buyer. Choosing the right Incoterm affects your landed cost, liability exposure, and customs compliance.
Incoterms for Maritime Shipping — FOB, CFR, CIF, FAS
FAS
Free Alongside Ship
Seller delivers goods alongside the vessel at the port of export.
FOB
Free on Board
Risk transfers when goods pass the ship's rail. Most common for bulk cargo.
CFR
Cost and Freight
Seller pays for transport to the port of destination.
CIF
Cost, Insurance & Freight
Seller pays transport + insurance to the port of destination.
Seller is responsible for Inland Transport from the place of origin to the Named Port of Export. Seller makes goods available to the buyer, once the goods are placed within the reach of the ship's tackle. Requires the buyer to notify the seller of the arrangements for international transportation and the date and place of delivery. This requires the buyer to have established a relationship with a carrier, forwarder or agent at the ocean port of loading. The seller is responsible for all costs and transport, until goods are placed alongside the vessel.
Seller is responsible for Inland Transport from the place of origin to the Named Port of Export. Seller makes goods available to the buyer when goods are loaded on board the vessel. Is intended for use when it is important that the goods pass the ship's rail to evidence delivery. This term is most commonly used for bulk cargo and port to port shipments of goods not loaded in an ocean container.
Seller is responsible for placing the goods on board an ocean vessel and paying for international transport to the port of destination. Is intended for use in shipping ocean freight pier to pier cargo that is not containerized, when it is important that the goods pass the ship's rail to evidence delivery, and the seller is contracting and paying for international carriage. This term is usually limited to oversized goods that cannot be loaded into a container, overweight shipments, or less than container load shipments.
The seller is responsible for placing the goods on board an ocean vessel. Seller must pay for international transport and insurance to the port of destination. Is intended for use in shipping Pier to Pier Ocean cargo that is not containerized. The insurance purchased is to be for a minimum amount of coverage, once the goods are loaded on the ocean vessel, and is to include insurance coverage to cover the buyer's insurable interests to the port of destination stated on the bill of lading. The insurance is to cover 110% of the CFR value of the goods.
Incoterms for Any Mode of Transport — EXW, FCA, CPT, DAP, DDP
EXW Ex-Works
Buyer takes responsibility for everything from the seller's premises. Seller's obligation is minimal.
FCA Free Carrier
Seller loads goods on the buyer's carrier. Buyer responsible for inland transport onward.
CPT Carriage Paid To
Seller pays for international transport to the named destination. Air, ocean, multimodal.
CIP Carriage & Insurance Paid To
Same as CPT + seller pays insurance to destination.
DAP Delivered at Place
Seller delivers to destination. Buyer handles customs & duties.
DDP Delivered Duty Paid
Seller assumes all responsibility including customs, duties & taxes.
Ex-Works (EXW) — Is intended to be used when the buyer is going to take responsibility for loading the goods onto a carrier selected by the buyer without assistance from the seller. If the seller is going to load the goods on the carriers selected and contracted by the buyer, the FCA LOADED should be used.
FCA (Free Carrier) — Goods loaded on the Buyer's Carrier by the Seller, at the Seller's premises or other place of Origin. Buyer is responsible for Inland Transport from the named place. Should only be used when the responsibilities of the seller are limited to loading a carrier provided by the buyer, at the seller's dock, and the buyer is going to take responsibility for transportation once the goods are loaded.
CPT (Carriage Paid To) — Seller is responsible for placing the goods on an Air or Ocean Carrier (Containerized, Roll-On, Roll Off) at the port of export. Seller must pay for international transport to the named place of destination. Is intended for use in shipping by air freight, and ocean shipments that are containerized or can be rolled on and off the vessel. This term is also used for multimodal ocean shipments. The term CPT allows for the seller to arrange and pay for transportation from a named place at origin to a named place or destination in a foreign country.
CIP (Carriage and Insurance Paid To) — Seller is responsible for placing the goods on an Air or Ocean Carrier (Containerized Roll-On, Roll Off cargo) at the port of export. Seller must pay for international transport and insurance to the named place of destination.
DAP (Delivered at Place) — Establish an agreement that includes identification of who will insure the shipment; typically it is the seller under this term. The seller delivers goods to a named destination, but the buyer is responsible for import customs clearance and payment of duties. This is one of the most common terms in US-Mexico cross-border trade.
DDP (Delivered Duty Paid) — Is intended for use in shipping goods by any means of transport to a named place. The seller is responsible for all transportation costs, customs formalities, duties, taxes and any other expenses normally incurred in the course of transportation and customs clearance of goods entering the foreign country. The seller is also responsible for obtaining any import permit or import license that may be required to satisfy governmental or industry regulation for entering goods into the foreign country.
DAP vs. DDP — The Difference That Determines Who Pays Customs Duties
Under DAP, the seller delivers goods to the destination but the buyer handles import clearance and pays duties. Under DDP, the seller assumes everything — including duties, taxes, and customs formalities in the foreign country. At the US-Mexico border, this distinction determines who bears the compliance burden. TMS manages both scenarios seamlessly.
INCOTERMS® is a registered trademark of the International Chamber of Commerce. This document is not intended as legal advice but is provided for reference purposes only. Users should seek specific guidance from INCOTERMS® 2020 available through the ICC at www.iccwbo.org
Incoterms at the US-Mexico Border — What TMS Manages for You
At the US-Mexico border, Incoterms determine who is responsible for customs clearance, duties, and transportation on each side. TMS, LP manages the entire process regardless of which Incoterm governs your transaction. Whether your goods are shipped DAP (where the buyer handles import clearance) or DDP (where the seller assumes all responsibility), TMS coordinates customs brokerage, documentation, tariff classification, and physical transportation to ensure zero border crossing complications.
Incoterms & USMCA — How Trade Agreement Rules Interact
The United States-Mexico-Canada Agreement (USMCA) provides preferential tariff treatment for qualifying goods traded between the three countries. However, USMCA benefits are not automatic — they require proper rules of origin documentation, certificates of origin, and correct tariff classification at the time of customs entry.
The Incoterm you choose determines who is responsible for preparing this documentation. Under DDP, the seller must ensure USMCA compliance. Under DAP or FCA, the burden may fall on the buyer or their customs broker. In either case, TMS ensures that every cross-border shipment we manage is fully USMCA-compliant, maximizing duty savings for our clients.
How TMS Ensures USMCA Compliance in Every Cross-Border Shipment
Our team verifies rules of origin for every product, prepares or reviews certificates of origin, ensures correct HTS tariff codes are applied, and coordinates with customs brokers on both sides of the border. This integrated approach means your goods qualify for the lowest applicable duty rate under USMCA — whether you are shipping from Texas to Mexico, from Mexico to the US, or through our Miami FTZ hub to Latin America.
Need Help with Incoterms or Cross-Border Compliance?
TMS, LP has managed cross-border supply chains since 2005. If you need guidance on which Incoterm is right for your shipments, or if you want to ensure your goods qualify for USMCA preferential treatment, we can help.