Incoterms

Incoterms (International Commercial Terms) are the ICC-published rules that split cost, risk, and responsibility between a buyer and seller in an international sale of goods — who pays freight, insurance, duties, and customs, and at what point risk passes from one party to the other. They are the "who-pays-what" layer sitting under Landed Cost: the chosen term determines which cost components land on the importer's side of the ledger and therefore feed into Cost of Goods Sold (COGS) and every Gross Margin / Unit Economics model. This page was selected boundary-first as the most-linked new dangling node in the vault — named "the who-pays-what layer, the cleanest next" at the close of run 125 (Landed Cost). Filed web-only; both practitioner streams were down this run.

Firewall: every claim below is what a source reports. The only non-vendor source this run is trade.gov (US International Trade Administration — government); all per-term cost deltas, apparel duty bands, and tool prices come from trade intermediaries and vendors (Cosmo Sourcing, Ninghow, Zonos, Flexport, Shipping Solutions) with a conflict of interest. The official ICC Incoterms 2020 text is copyright-protected and was NOT fetched — per-rule definitions here come from government and intermediary summaries, not ICC verbatim. See ../../CONTEXT.md Rule 1.

What it is

• Incoterms are a set of 11 internationally recognized rules issued by the International Chamber of Commerce (ICC) defining the responsibilities of sellers and buyers in the sale of goods, clarifying tasks, costs, and risks (trade.gov).
• The current ruleset is Incoterms 2020 (effective 1 Jan 2020). Contracts may still reference Incoterms 2010 or earlier after that date if all parties agree and the version is clearly specified, though the ICC recommends Incoterms 2020 (trade.gov).
• What Incoterms do NOT cover: they do not address when title/ownership passes, the method or timing of payment, or which documents the seller must provide for import customs clearance — these are separate from the risk transfer Incoterms govern (trade.gov).

The 11 rules, grouped by transport mode

trade.gov groups the Incoterms 2020 rules into two categories:

Category	Rules
Any mode of transport (incl. air, road, multimodal)	EXW, FCA, CPT, CIP, DAP, DPU, DDP
Sea / inland waterway only	FAS, FOB, CFR, CIF

[!note] DPU replaced DAT. Under Incoterms 2020, the DPU rule (Delivered at Place Unloaded) replaced the old DAT, adding a requirement that the seller unload the goods from the arriving means of transport (trade.gov).

The cost/responsibility ladder (seller-minimal → seller-maximal)

From least to most seller responsibility, as summarized by trade-intermediary sources:

Term	What the seller does / who pays what
EXW (Ex Works)	Most seller-minimal. Seller just makes goods available at their facility; the buyer bears everything from that point — export clearance, transport, insurance, import clearance, delivery (Cosmo Sourcing).
FCA (Free Carrier)	Seller delivers goods to a carrier nominated by the buyer at a named place; usable for any transport mode, and is the technically correct equivalent of FOB for air shipments (Cosmo Sourcing).
FOB (Free On Board)	Seller loads goods onto the vessel at origin port and handles export customs; from there the buyer pays ocean freight, insurance, import customs, duties, and last-mile. Sea/inland waterway only (Cosmo Sourcing).
CIF (Cost, Insurance & Freight)	Seller pays freight and insurance to destination port — but risk still transfers to the buyer at origin when goods are loaded on the vessel (Shipping Solutions).
DAP (Delivered at Place)	Seller delivers to the buyer's named destination and covers all transport cost and risk to that point, but the buyer handles import clearance, duties, and unloading — the "middle ground" (Cosmo Sourcing).
DDP (Delivered Duty Paid)	Seller bears all costs and risks — export clearance, main carriage, import clearance, duties, and taxes — delivering to the buyer's door; the buyer's only job is to receive and unload (Cosmo Sourcing).

Key terms

Term	Meaning
Risk transfer point	The moment liability for loss/damage passes from seller to buyer (distinct from who pays cost)
Importer of record	The party legally liable for the customs entry — can remain the buyer even under DDP
FOB point	Under FOB and CIF, the moment goods are loaded on board the vessel at the port of shipment

Risk transfer vs cost — they are not the same point

• Under FOB and CIF, risk transfers at the same moment — when goods are loaded on board the vessel at the port of shipment (the "FOB point") — even though under CIF the seller keeps paying freight and insurance afterward (Shipping Solutions). Paying for carriage ≠ bearing risk during it.
• Under FCA, risk passes to the buyer just before main carriage commences, typically at or near the seller's premises in the country of origin (ICC Academy).

Incoterms 2020 insurance change

• Under Incoterms 2020, CIP now requires the seller to provide insurance at the higher Institute Cargo Clauses (A) level (~110% of value), while CIF retained the lower Clause C minimum (ICC, via intermediary summary).

FOB vs DDP — transparency, cost, and the importer-liability trap

• Transparency: Cosmo Sourcing states FOB gives high cost transparency — every line item (product, factory-to-port, ocean freight, broker fee, duty) is visible separately — while DDP bundles shipping, insurance, duties, and delivery into one opaque price, so the buyer can't tell whether ocean freight is $2,000 or $4,000.
• Cost delta: WebSearch-surfaced sources put DDP typically 10–20% more expensive than FOB (one example cited FOB landing goods ~6% cheaper) because the seller adds margin to each managed service (Importivity, as-of 2026; med confidence, snippet-sourced).
• The undervaluation trap: Cosmo Sourcing warns that under DDP the seller files the customs entry, but the importer of record (the buyer) can still be held liable if the seller undervalues goods to cut the duty bill — citing retroactive duty assessments, penalties, and lost import privileges. A DDP quote significantly cheaper than FOB-plus-freight is "a red flag, not a bargain" ("Legitimate DDP should cost more than FOB because the seller is taking on more responsibility").
• Tariff-era relevance: Flexport's 2025 customs guide notes DDP "is becoming a point of relevant conversation, pitched by some suppliers and providers as a way to reduce the entered value of goods — along with their applicable tariffs," flagging the same undervaluation risk in the high-tariff environment (as-of 2025-04).

How this connects to landed cost (apparel)

• The Incoterm chosen determines which Landed Cost components the importer pays directly vs which are pre-bundled into the supplier's price. Ninghow defines apparel landed cost as ex-factory price + freight & insurance + duties & taxes + customs fees, and recommends DDP for first-time buyers / brands with no in-house logistics, FOB for established brands with their own forwarders, and EXW for expert buyers with local agents (Ninghow, vendor, 2025-11-25).
• Apparel duty bands (single vendor, volatile, cross-check needed): US apparel duty 0–32%, EU duty ~12–14% for cotton apparel plus country-varying VAT, and US customs entry/handling fees of roughly $75–$200 per shipment (Ninghow, as-of 2025-11-25; should be checked against official USITC HTS / EU TARIC schedules).
• Apparel landed cost is sensitive to fabric content and decoration (screen print, embroidery, technical finishes) because these change the HS Code Classification duty rate; rPET typically carries lower US/EU duty (Ninghow, vendor).
• DTC checkout angle: Zonos states that calculating landed cost at checkout lets the shopper see the full DDP cost before paying, with no surprise border charges; it supports DDP shipping with DHL, FedEx, and UPS and (volatile pricing) charges $2 USD + 10% of duties/taxes/import fees per order for its guaranteed landed-cost calculation (Zonos, vendor, as-of 2026-06-28).

Common confusions sources flag

• Risk ≠ cost — CIF/CFR sellers pay freight but risk already passed to the buyer at the FOB point (Shipping Solutions).
• DDP cheaper than FOB+freight — treat as an undervaluation red flag, not a saving; importer of record stays liable (Cosmo Sourcing; Flexport).
• FOB used for air freight — FOB is sea/waterway only; FCA is the correct air equivalent (Cosmo Sourcing).
• Assuming Incoterms set ownership/payment — they don't; title transfer and payment terms are separate contract clauses (trade.gov).

Gaps / open questions

• No ICC primary source — the official Incoterms 2020 text is ICC-copyrighted and was not fetched; per-rule definitions rest on government (trade.gov) and intermediary summaries. The CIP Clause-A 110% insurance change is widely reported but not confirmed from an ICC page.
• No DHL or Maersk source fetched — risk-transfer claims rest on ICC Academy, Shipping Solutions, and Roanoke.
• Apparel duty figures (US 0–32%, EU 12–14%) are single-vendor and volatile — not cross-checked against official USITC HTS or EU TARIC.
• No UK-specific (post-Brexit) Incoterms/duty treatment — sources focus on US and EU destinations (the running UNIQLO-Europe gap).
• Both practitioner streams down (reddit-research MCP not connected; Apify transcript actor not connected) — no operator counter-narrative on DDP gotchas or which Incoterm to negotiate; 11+ YouTube candidate videos were found but no transcripts read.

Related

Landed Cost · Cost of Goods Sold (COGS) · Tariffs & Duties · HS Code Classification · Gross Margin · Free Trade Zones