Understanding how Incoterms define responsibilities in international trade

Incoterms explained

At NLD Customs, we view Incoterms as a fundamental building block in determining customs value and understanding responsibilities within international trade. When calculating customs value, the starting point is the transaction value, meaning the price actually paid or payable for the goods. However, this price often needs to be adjusted. The agreed delivery terms play a critical role in determining which costs must be added or excluded for customs purposes.

Globally standardized delivery terms, known as Incoterms, were established by the International Chamber of Commerce (ICC). The most recent version is Incoterms 2020. Understanding how these rules work is essential for correct customs declarations and risk management.

Incoterms overview

EXW - Ex Works

The seller makes the goods available at their premises, such as a factory or warehouse. The buyer assumes all risks and costs from that point onward.

Customs note: Under EXW, the buyer typically handles export and import formalities.

FCA – Free Carrier

The seller delivers the goods to the carrier at an agreed location. Risk transfers to the buyer once the goods are handed over to the carrier.

CPT – Carriage Paid To

The seller pays for transport to the agreed destination. Risk transfers to the buyer when the goods are handed over to the carrier, not upon arrival.

CIP – Carriage and Insurance Paid To

The seller pays for both transport and insurance to the agreed destination. Risk transfers to the buyer once the goods are delivered to the carrier.

DAP – Delivered At Place

The seller delivers the goods ready for unloading at the agreed destination. The seller bears all risks up to that point.

DPU – Delivered at Place Unloaded

The seller is responsible for delivering and unloading the goods at the agreed destination.
Risk transfers after unloading.

DDP – Delivered Duty Paid

The seller is responsible for delivering the goods to the destination, including payment of duties and taxes. Risk transfers once the goods are available to the buyer, ready for unloading.

Customs note: DDP requires careful consideration, as the seller must manage import formalities in the destination country.

FAS – Free Alongside Ship

The seller delivers the goods alongside the vessel at the port of shipment. Risk transfers to the buyer at that point.

Sea transport only.

FOB – Free On Board

The seller delivers the goods on board the vessel at the port of shipment. Risk transfers once the goods are loaded on the ship.

Sea transport only.

CFR – Cost and Freight

The seller pays for transport to the port of destination. Risk transfers to the buyer once the goods are loaded on the vessel.

Sea transport only.

CIF – Cost, Insurance and Freight

The seller pays for transport and insurance to the destination port. Risk transfers once the goods are loaded on the vessel.

Sea transport only.

Download Incoterms

Incoterms chart

The impact of Incoterms on customs

Why Incoterms matter for customs

Although Incoterms are commercial agreements, they have a direct impact on customs processes. They influence customs valuation, determine how transport and insurance costs are allocated, define import and export responsibilities, and establish how risk is distributed during transit. Incorrect interpretation can result in declaration errors, valuation adjustments, penalties, or shipment delays.

At NLD Customs, we support businesses in applying Incoterms correctly within the broader customs framework, ensuring regulatory compliance while maintaining operational efficiency. If you have any questions about which Incoterm applies to your transaction or how it affects your customs position, contact our team for tailored guidance and practical support.

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