How Incoterms Affect Freight, Customs Value and Landed Cost

What Incoterms do (and do not) decide

Incoterms are standard three-letter rules, published by the International Chamber of Commerce, that set out who arranges and pays for each stage of transport, who bears risk, and where responsibility passes from seller to buyer. They do not set the price, transfer title, or replace your contract. This guide is practical, not legal advice, and does not reproduce the ICC’s protected rule texts. For the official rules and definitions, see the ICC Incoterms rules.

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Term-by-term comparison

The table shows, for each common term, which costs a buyer typically pays directly, which are usually already inside the supplier quote, and the key questions to confirm for landed cost.

Term	Costs visible to the buyer	Costs potentially in the supplier quote	Landed-cost questions to confirm
EXWEx Works	Almost everything: export handling, main freight, insurance, import duty and delivery.	Little beyond the goods at the supplier’s door.	Who handles export clearance, and where exactly collection happens.
FCAFree Carrier	Main freight, insurance, import duty and delivery from the named handover point.	Goods delivered to a named carrier/place, usually with export clearance.	The exact named place and whether export clearance is included.
FOBFree On Board	Main sea freight, insurance, import duty and destination delivery.	Goods loaded on board at the origin port, export cleared.	Which origin port, and what local charges precede loading.
CIFCost, Insurance and Freight	Import duty, destination handling and inland delivery.	Main sea freight and a minimum insurance to the destination port.	The insurance level, and destination charges not covered by the seller.
CPTCarriage Paid To	Import duty, and risk transfers earlier than costs — worth noting for insurance.	Carriage to a named destination place (any mode).	The named place, the mode, and who insures the main carriage.
DAPDelivered At Place	Import duty and taxes, plus any unloading if agreed.	Delivery to a named place in the destination country, freight included.	Whether import duty/taxes are truly excluded, and unloading responsibility.
DDPDelivered Duty Paid	Usually the least — most costs are in the price.	Freight, import clearance, duty and taxes, delivery to the buyer.	Exactly which taxes are included, and whether recoverable VAT is handled correctly.

How the term affects customs value

Customs value is usually based on the price actually paid or payable, adjusted to a defined point in the journey (commonly including freight and insurance to the destination in many regimes). Because each Incoterm bundles different costs into the price, the starting figure differs: a CIF quote already contains freight and insurance, while an EXW price does not. You may need to add or separate costs to reach the customs value your destination requires — see customs value explained.

Building landed cost from any term

Whatever the term, landed cost is the same destination: goods + freight + insurance + duty + import tax + clearance + delivery. The term only changes which of those are already paid. Identify what the supplier price includes, add every cost that sits outside it, and you can compare quotes on different terms fairly. The landed cost formula lays out every component.

Common mistakes

Comparing an EXW price against a DDP price as if they were like-for-like.
Assuming DDP means every tax is handled — recoverable VAT often is not.
Forgetting origin local charges that sit before an FOB handover.
Confusing where risk passes with where cost passes (they can differ, e.g. CPT/CIP).

Assumptions and limitations

The cost splits above are typical, not universal — the exact allocation depends on the named place and your contract. This guide is practical and does not replace the official ICC rules or legal advice. Always read the specific term against your actual contract.

What UtilityPilot can calculate

The landed-cost workflow lets you add the costs that sit outside the supplier price for any term, and the freight tools estimate the freight a term may exclude. Together they let you compare quotes on different Incoterms on the same basis.

What you must verify

Confirm the exact named place, what the supplier price includes, and your destination’s customs value rules with the official authority or your broker. UtilityPilot organises and estimates costs; it does not give legal advice or issue binding valuations.