Incoterms 2020 & Trade Document Terms Explained

The 11 Incoterms® 2020

An Incoterm is the three-letter code on a quote or commercial invoice (for example FOB Shanghai or DDP Melbourne). It tells everyone who books and pays the freight, who clears customs, who pays import duty and GST, and the point where the risk of loss or damage moves from the seller to the buyer.

Code	Name	Transport	Risk passes to the buyer
EXW	Ex Works	Any	Passes to the buyer at the seller's premises, before loading.
FCA	Free Carrier	Any	Passes when the goods are handed to the buyer's carrier at the named place.
CPT	Carriage Paid To	Any	Passes at the first carrier in the seller's country, even though the seller has paid freight further on.
CIP	Carriage and Insurance Paid To	Any	Passes at the first carrier in the seller's country; the insurance policy protects the buyer.
DAP	Delivered at Place	Any	Passes at the named destination, before unloading.
DPU	Delivered at Place Unloaded	Any	Passes after unloading at the named place.
DDP	Delivered Duty Paid	Any	Passes at the named destination, before unloading.
FAS	Free Alongside Ship	Sea only	Passes when the goods are alongside the ship.
FOB	Free On Board	Sea only	Passes once the goods are on board the vessel.
CFR	Cost and Freight	Sea only	Passes on board at the port of shipment.
CIF	Cost, Insurance and Freight	Sea only	Passes on board at the port of shipment.

Seven rules work for any mode of transport. FAS, FOB, CFR and CIF are for sea and inland waterway only; for containers, FCA, CPT or CIP usually fit better.

Make the paperwork in minutes. Vendara Trade Documents creates commercial invoices, packing lists and shipper's letters of instruction with the Incoterm, HS codes, origin and values filled in and checked before you send.

Request access See Trade Documents

Trade document terms A–Z

Air waybill (AWB): The air freight transport document. Unlike a bill of lading it is not a document of title. A house AWB is issued by the forwarder; the master AWB by the airline.
Bill of lading (B/L): The sea freight document issued by the carrier. It is a receipt for the goods, evidence of the transport contract and (if negotiable) a document of title used to claim the cargo.
Biosecurity (wood packaging / ISPM 15): Australia's biosecurity rules check imports for pests and disease. Solid wood packaging such as pallets and crates generally needs ISPM 15 treatment and marking, or it may be inspected, treated or destroyed at the importer's cost.
Blind shipping: Shipping goods straight from a supplier to the end customer with the supplier's details hidden, so the paperwork shows only the retailer's branding. Common in drop shipping.
CBM: Cubic metre, the volume unit for freight: length × width × height in metres. LCL sea freight is usually charged per CBM or per 1,000 kg, whichever is greater.
Certificate of origin: A document or declaration proving where goods were made. Under many free trade agreements it lets the importer claim a lower or zero duty rate.
Chargeable weight: The weight a carrier charges on: the greater of the actual gross weight and the volumetric weight. For air freight volumetric weight is commonly length × width × height in cm ÷ 6,000.
Commercial invoice: The seller's invoice for international goods. Customs uses it to value and classify the shipment, so it shows the parties, goods description, HS code, quantity, unit and total value, currency, country of origin and Incoterm.
Consignee: The party the goods are shipped to, usually the buyer or importer, named on the transport document.
Consignor / shipper: The party sending the goods, usually the seller or exporter.
Country of origin: Where the goods were made or last substantially transformed, not where they were shipped from. It affects duty rates, free trade agreement claims and labelling rules.
Customs broker: A licensed professional who prepares and lodges customs declarations, classifies goods and calculates duty and taxes for importers and exporters.
Customs value: The value customs uses to calculate duty. In Australia it is generally the FOB value: the price of the goods plus costs up to loading at the port of export, converted to Australian dollars.
Dangerous goods (DG): Goods that can harm people, property or the environment in transport, such as batteries, aerosols, flammable liquids and gases. They need classification, a UN number, special packing and a DG declaration.
Delivery docket: A document that travels with the goods listing what was ordered and what was supplied. The receiver signs it as proof of delivery.
Drop shipping: A sales model where the seller does not hold stock; the supplier ships directly to the end customer, often with the seller's own docket and invoice.
EAR99: A US export-control designation for items that are subject to US Export Administration Regulations but not on the Commerce Control List. Do not enter EAR99 unless the goods really are subject to US rules; leave the field blank otherwise.
ECCN: Export Control Classification Number. A US export-control code for dual-use items. It only matters if the goods are US-origin or subject to US export rules; most Australian exports never need one.
Exporter of record: The party legally responsible for export clearance and export declarations in the country of shipment.
FCL / LCL: Full Container Load (you use the whole container) or Less than Container Load (your cargo shares a container with others and is charged by volume or weight).
Free trade agreement (FTA): A treaty between countries that lowers or removes duty on goods that meet its rules of origin. Australia has FTAs with many trading partners, including China, the US, Japan and New Zealand.
Freight forwarder: A company that arranges transport for shippers: booking carriers, consolidating cargo and handling documents. Many also offer customs broking.
Gross weight / net weight: Gross weight includes packaging; net weight is the goods alone. Both normally appear on the packing list.
GST on imports: Australian GST of 10% charged at the border on the value of the taxable importation: customs value plus duty plus international transport and insurance (plus wine tax if any). Registered businesses can usually claim it back.
HS code: Harmonized System code: the international six-digit product classification used by customs worldwide. Australia adds digits to make an 8-digit tariff classification plus a 2-digit statistical code. It decides the duty rate and any import controls.
Import duty: A tax on imported goods set by their tariff classification and origin. In Australia most rates are 0% or 5%, and an FTA may reduce them.
Importer of record: The party legally responsible for import clearance, the accuracy of the import declaration and paying duty and taxes. Under DDP this is the seller; under every other Incoterm it is normally the buyer.
Incoterms® 2020: The current version of the ICC's 11 standard trade terms. They set out who arranges and pays for transport, insurance and customs, and where risk passes from seller to buyer. They do not decide when ownership passes or the price.
Landed cost: The full cost of getting a product into your warehouse: purchase price plus freight, insurance, duty, broker and port fees. GST is usually excluded if you can claim it back.
Named place: The location written after an Incoterm (e.g. 'FCA Dandenong South' or 'DAP 12 Example St, Hampton Park'). It fixes where delivery, and usually risk, happens. Be as precise as possible.
Notify party: The party the carrier tells when the goods arrive, often the buyer's customs broker or forwarder. It can be different from the consignee.
Packing list: Lists what is in each package: marks and numbers, contents, quantities, net and gross weights and dimensions. Forwarders, customs and the receiver use it to check the shipment.
Proforma invoice: A preliminary invoice issued before shipment, used as a quote or to arrange payment or an import permit. It is not a demand for payment and is replaced by the commercial invoice.
Shipper's Letter of Instruction (SLI): The shipper's written instructions to the freight forwarder: who the parties are, routing, Incoterm, services wanted (e.g. insurance, customs) and export control details.
Tariff Concession Order (TCO): An Australian instrument that lets certain goods be imported duty-free when no substitutable goods are made in Australia.
Tax invoice (Australia): An Australian invoice for a taxable sale. It must show the words 'Tax invoice', the seller's identity and ABN, the date, what was sold and the GST. For sales of $1,000 or more it must also show the buyer's identity or ABN.

General information only, not legal, tax or customs advice. Always confirm the right term for a shipment with your customs broker or freight forwarder. Incoterms® is a registered trademark of the International Chamber of Commerce (ICC); the full rules are published by ICC.