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16 min read
/17 April 2026
Incoterms 2020 Explained: A Plain-English Guide for Importers and Exporters
Incoterms — short for International Commercial Terms — are a set of standardised trade rules published by the International Chamber of Commerce (ICC) that define exactly who is responsible for the cost, risk, and logistics of an international shipment at each stage of its journey. The 2020 edition, which replaced the 2010 rules and remains current, contains eleven terms. Choosing the wrong one can leave you paying costs you did not expect, or bearing the risk of a loss you thought the other party owned.
They are not laws. They are contractual terms — meaning they only apply when written into your sale contract or purchase order. But in international trade, they are as close to a universal language as the industry has.
Why Incoterms matter
Every international shipment involves a handover of responsibility somewhere along the route. Who books the freight? Who pays for it? Who arranges insurance? Who handles import customs at the destination? If a container is damaged at sea, who bears the financial loss — the buyer or the seller?
Without Incoterms, these questions are resolved by negotiation, local law, or dispute — none of which is fast or cheap. With Incoterms written into a contract, both parties know exactly where their responsibility begins and ends before the cargo moves.
For businesses shipping between the UAE and Europe, this matters acutely. The distance is significant, the customs regimes on each end are different, and freight costs and risks on a Dubai-to-Rotterdam sea shipment are material. Getting the Incoterm right from the start saves money and prevents the kind of mid-shipment confusion that delays delivery and damages supplier relationships.
The eleven Incoterms 2020 — at a glance
Incoterms are grouped into two categories based on the mode of transport they apply to.
Any mode of transport (air, sea, road, or multimodal):
| Term | Full name | Risk transfers at | Seller arranges freight? | Seller pays freight? | Seller arranges import customs? |
|---|---|---|---|---|---|
| EXW | Ex Works | Seller's premises | No | No | No |
| FCA | Free Carrier | Named point (after export customs) | No | No | No |
| CPT | Carriage Paid To | Named destination | Yes | Yes | No |
| CIP | Carriage and Insurance Paid To | Named destination | Yes | Yes | No |
| DAP | Delivered at Place | Named destination | Yes | Yes | No |
| DPU | Delivered at Place Unloaded | Named destination (unloaded) | Yes | Yes | No |
| DDP | Delivered Duty Paid | Named destination | Yes | Yes | Yes |
Sea and inland waterway only:
| Term | Full name | Risk transfers at | Seller arranges freight? | Seller pays freight? |
|---|---|---|---|---|
| FAS | Free Alongside Ship | Alongside vessel at origin port | No | No |
| FOB | Free on Board | On board vessel at origin port | No | No |
| CFR | Cost and Freight | On board vessel at origin port | Yes | Yes |
| CIF | Cost, Insurance and Freight | On board vessel at origin port | Yes | Yes |
Each Incoterm explained
EXW — Ex Works
The seller makes the goods available at their own premises. Everything else — collecting the goods, arranging export clearance, paying freight, arranging import customs at destination, paying duties — is the buyer's responsibility.
Risk transfers: At the seller's factory, warehouse, or named premises.
Who typically uses it: Buyers with strong logistics capabilities who want maximum control over the supply chain. Common in manufacturing contracts where the buyer has established freight forwarding arrangements.
Watch out for: EXW places the export customs obligation on the buyer, which is problematic if the buyer does not have legal standing to export from the seller's country. In practice, FCA is often a better choice for the same result.
FCA — Free Carrier
The seller delivers the goods to a named place — typically a freight terminal, container yard, or the buyer's nominated forwarder's warehouse — having completed export customs clearance. From that point, the buyer takes over.
Risk transfers: When the goods are handed to the buyer's carrier at the named place.
Who typically uses it: Increasingly preferred over EXW and FOB for containerised shipments. Under Incoterms 2020, FCA now allows the buyer to instruct their bank to issue an on-board bill of lading to the seller after loading — solving a longstanding problem with letter of credit transactions.
Good for UAE–Europe shipments: Yes. An FCA Dubai arrangement, with the named place being Jebel Ali port or a freight terminal in Dubai, is clean and practical for containerised sea freight.
FAS — Free Alongside Ship
The seller places the goods alongside (not on board) the named vessel at the port of shipment. The buyer is responsible from that point, including loading costs.
Risk transfers: When goods are placed alongside the vessel.
Who typically uses it: Bulk cargo shipments (grain, ore, tanker cargo) where the buyer controls the vessel. Rarely used for manufactured goods or containerised freight.
FOB — Free on Board
One of the most widely used Incoterms globally. The seller delivers the goods on board the vessel at the named port of shipment, having completed export clearance. From the moment the goods are on board, risk passes to the buyer.
Risk transfers: When goods are loaded on board the vessel at the origin port.
Who typically uses it: Importers who want to control their own freight costs and carrier selection. Very common for goods shipped from Asia or the UAE to European buyers who have volume freight agreements with carriers.
Important limitation: FOB is technically a sea-freight-only term and is not appropriate for containerised goods where the seller hands over a container at an inland terminal. In that scenario, FCA is the correct term — but FOB remains widely (mis)used in contracts for containerised freight. Your freight forwarder can advise which applies to your specific shipment.
CFR — Cost and Freight
The seller pays freight to the named destination port, but risk transfers to the buyer when the goods are loaded on board the vessel at origin. The buyer is responsible for insurance and import customs at destination.
Risk transfers: When goods are loaded on board at origin — even though the seller is paying for the freight onwards.
Who typically uses it: Sellers who want to handle freight booking but transfer risk early. The split between when risk transfers (at loading) and when cost obligation ends (at destination) makes CFR less intuitive than it appears.
CIF — Cost, Insurance and Freight
Similar to CFR, but the seller also arranges and pays for marine cargo insurance during transit. Risk still transfers to the buyer when goods are loaded at origin.
Risk transfers: When goods are loaded on board at origin.
Who typically uses it: CIF is one of the most common terms in global trade, particularly for commodity shipments. In UAE trade, CIF is frequently used as the basis for customs duty assessment — UAE customs calculates duty on the CIF value (cost of goods + insurance + freight to UAE port).
Watch out for: The insurance the seller arranges under CIF only meets the minimum cover required under Institute Cargo Clauses (C) — which excludes many of the risks that actually matter (water damage, theft, rough handling). If you are the buyer, consider arranging your own broader insurance regardless of the Incoterm used.
CPT — Carriage Paid To
The seller pays freight to a named destination, but risk transfers to the buyer when goods are handed to the first carrier at origin. Suitable for any mode of transport.
Risk transfers: At the first carrier handover at origin.
Good for: Multimodal shipments (road + sea, for example) where the cargo moves through multiple carrier legs. CPT is the multimodal equivalent of CFR.
CIP — Carriage and Insurance Paid To
CPT plus insurance. The seller pays freight to the named destination and arranges insurance. Risk transfers at the first carrier handover at origin.
Risk transfers: At the first carrier handover at origin.
Important 2020 update: CIP now requires a higher minimum insurance standard than CIF — Institute Cargo Clauses (A), which is all-risks cover, rather than the minimum (C) clauses. This makes CIP significantly better for the buyer from an insurance standpoint than CIF.
Good for: High-value manufactured goods, electronics, pharma shipments — any cargo where comprehensive transit insurance is important.
DAP — Delivered at Place
The seller is responsible for the full journey — freight, insurance, and all logistics — up to the named destination (typically the buyer's warehouse or a named address). Import customs and duties at destination are the buyer's responsibility.
Risk transfers: When goods arrive at the named destination, ready for unloading.
Who typically uses it: Sellers with strong logistics capabilities who want to offer a convenient, door-to-destination service. Common in European imports from UAE where the UAE seller wants to control the shipping experience. The buyer handles import customs at their end.
DPU — Delivered at Place Unloaded
Identical to DAP, except the seller is also responsible for unloading the cargo at the destination. DPU replaced DAT (Delivered at Terminal) in the 2020 revision and expanded the range of valid destinations beyond just terminals.
Risk transfers: When goods have been unloaded at the named destination.
Who typically uses it: Situations where the seller has confirmed unloading capability or has arranged it at the destination. Less common in general cargo than DAP.
DDP — Delivered Duty Paid
The maximum responsibility for the seller. The seller pays for everything: freight, insurance, export customs, import customs, duties, taxes, and delivery to the named destination. The buyer does nothing except receive the goods.
Risk transfers: When goods arrive at the named destination, ready for unloading.
Who typically uses it: E-commerce sellers offering landed price sales (common in direct-to-consumer cross-border retail). Also used where the seller has established import infrastructure in the buyer's country.
Important consideration: DDP requires the seller to act as importer of record in the destination country. For a UAE business selling into Europe, this means registering for VAT in the relevant EU country (or the UK) and managing import compliance there. This is operationally complex if you are not already set up for it. If DDP is on the table, discuss the VAT and compliance implications with your freight forwarder before agreeing.
Which Incoterm should you use?
There is no single right answer — it depends on the balance of power in your trading relationship, your logistics capability, and where you want control and risk to sit. Here is a practical framework.
If you are a UAE exporter selling into Europe
You want simplicity: Use DAP to a named European address. You control the freight, the buyer handles import customs at their end. Clean, straightforward, and increasingly standard for UAE–Europe B2B trade.
You want to offer a full-landed price: Use DDP, but only if you have — or can set up — import VAT registration in the destination country. Without this, DDP creates a compliance obligation you cannot legally fulfil.
Your buyer insists on controlling freight: Use FCA at a named point in Dubai (Jebel Ali port or your nominated freight terminal). The buyer books their own forwarder from there.
If you are a European business importing from the UAE
You want cost control: Use FOB Dubai or FCA Jebel Ali — this lets you negotiate your own freight rates directly with carriers or through your European freight forwarder, rather than accepting the seller's freight margin.
You want simplicity: Use CIP to a named destination — the seller handles freight and insurance to your door, and you handle import customs at your end. Better insurance cover than CIF.
You want maximum simplicity: Negotiate DDP if the UAE seller is set up for it — you receive goods at your door with all costs included. Less common but increasingly available from larger UAE exporters.
For air freight specifically
EXW, FCA, CPT, CIP, DAP, DPU, and DDP all work for air freight. FOB, CFR, CIF, and FAS are technically sea-only terms — though FOB is commonly (and incorrectly) used in air freight contracts. Use FCA for air shipments where you want the equivalent of FOB.
Incoterms and UAE customs duty
UAE customs duty is assessed on the CIF value of imported goods — the cost of the goods plus the cost of shipping and insurance to the UAE port of entry. This applies regardless of the Incoterm agreed between buyer and seller.
This matters in practice: if you agree an EXW or FOB price with a supplier, UAE customs will still want to know the CIF value when you import. You will need to declare the actual freight and insurance costs to arrive at the correct dutiable value. Attempting to declare a lower value to reduce duty is customs fraud and carries significant penalties under UAE Customs Law.
For more on how duties are calculated, see our guide to UAE Import Duties & VAT (coming soon).
Common Incoterms mistakes
Using FOB for containerized cargo: FOB is a sea-only term designed for bulk cargo where the seller controls loading onto the vessel. For containerised freight, the container is typically handed to a terminal operator long before it goes on board — risk should transfer at that handover point, not at loading. FCA is the appropriate term for containerised shipments.
Agreeing DDP without checking VAT obligations: DDP requires the seller to pay import duties and taxes at destination. In the EU, this means the UAE seller must either register for VAT or use a fiscal representative. Many small exporters agree DDP without realising this and then face a compliance problem when the shipment arrives.
Treating Incoterms as a freight contract. Incoterms define responsibilities between buyer and seller — they are not a contract with the carrier. Your actual freight booking is a separate agreement (a booking confirmation, bill of lading, or airway bill) with different terms.
Assuming CIF insurance is adequate. As noted above, the minimum insurance under CIF covers only basic risks. If your cargo is valuable, fragile, or sensitive, arrange Institute Cargo Clauses (A) — all-risks — cover regardless of the Incoterm.
Not specifying the named place clearly. Many Incoterms require a named place to function correctly ("FCA [named place]", "DAP [named place]"). A vague or missing named place creates ambiguity about where responsibility transfers and can cause disputes if something goes wrong.
How VELO advises on Incoterms
Choosing the right Incoterm affects your costs, your risk exposure, and your compliance obligations. As part of quoting any shipment, VELO's team advises on which Incoterm fits your trading relationship and logistics setup — particularly for UAE–Europe corridor shipments, where the combination of two customs regimes, multiple transport modes, and varying buyer expectations makes the choice genuinely consequential.
If you are currently using an Incoterm that does not reflect where your business actually wants risk and cost to sit, a conversation before your next shipment is booked is worth having.
Frequently asked questions
What are Incoterms and why do they matter?
Incoterms (International Commercial Terms) are standardised rules published by the International Chamber of Commerce that define the responsibilities of buyer and seller in an international trade transaction — specifically, who pays for freight and insurance, who handles customs clearance, and at what point the risk of loss or damage transfers from seller to buyer. They are not laws but contractual terms, and they only apply when written into a sale contract or purchase order. Using a clearly specified Incoterm prevents disputes about who is responsible when something goes wrong during transit.
What is the difference between EXW, FOB, and DDP?
These three terms represent the spectrum of seller responsibility. EXW (Ex Works) places almost all responsibility on the buyer — the seller only makes the goods available at their premises. FOB (Free on Board) sits in the middle — the seller handles export clearance and loads the goods on the vessel, after which the buyer takes responsibility for freight, insurance, and import customs. DDP (Delivered Duty Paid) places maximum responsibility on the seller, who handles everything including import duties and delivery to the buyer's door.
Which Incoterm is best for shipping from UAE to Europe?
For most UAE exporters shipping to European buyers, DAP (Delivered at Place) is a practical and increasingly standard choice — the seller controls freight and delivers to the buyer's named address, and the buyer handles import customs at their end. If the buyer wants to control freight costs, FCA at Jebel Ali or Dubai Airport is clean and appropriate. DDP is available for sellers with EU VAT registration, but introduces compliance complexity.
What Incoterms are used for air freight?
EXW, FCA, CPT, CIP, DAP, DPU, and DDP all apply to air freight. FOB, CFR, CIF, and FAS are technically sea-only terms. FCA is the appropriate air freight equivalent of FOB — it transfers responsibility at the point where the seller hands the goods to the carrier or freight forwarder.
How do Incoterms affect UAE customs duty?
UAE customs duty is calculated on the CIF value of imported goods — the cost of goods plus freight and insurance to the UAE port. This applies regardless of what Incoterm was agreed in the sale contract. If you import on EXW or FOB terms, you still need to declare the full CIF value to UAE customs, which means adding the actual freight and insurance costs to the declared goods value.
Are Incoterms 2010 still valid?
Incoterms 2010 can still be used if specified in a contract — the ICC does not invalidate earlier versions. However, Incoterms 2020 includes important updates (notably the CIP insurance requirement and the FCA letter of credit clause) that make it the better choice for new contracts. Always specify the version in your contract: "CIF [named port], Incoterms 2020" rather than just "CIF."
What is the difference between CIF and CIP?
Both terms have the seller pay freight and insurance. The key difference is the minimum insurance standard: CIF requires only Institute Cargo Clauses (C) — basic cover that excludes many common risks — while CIP requires Institute Cargo Clauses (A), which is all-risks cover. CIF is a sea-only term; CIP applies to any mode of transport. For high-value or sensitive cargo, CIP provides meaningfully better buyer protection.
Related guides
- What Is a Freight Forwarder — And Do You Actually Need One?
- UAE Customs Clearance: The Complete 2026 Guide