Quick answer: Incoterms are standard three-letter shipping terms from the ICC that fix who pays freight, insurance, duty, and import taxes. The most common choice is DDP, where the seller pays duty and tax, versus DAP (formerly DDU), where the buyer pays. DDU and DAT are retired: use DAP and DPU under Incoterms 2020.
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For most international shippers, the terms of sale seem clear at first: after payment, the goods ship, and the buyer pays any applicable duty and taxes. Sounds simple, but ignoring the detail of Incoterms for international shipping can lead to unexpected costs and stuck customs clearances.
There are a full range of costs to consider beyond the cost of goods themself. These include packaging, pickup, inland transport to export gateway, loading, unloading, import duty and taxes, brokerage fees and local transport from port to final destination. And who is responsible for insurance or if goods are damaged in transit?
For most parcel shipments, it is simply a matter of who will pay the duty and taxes. Carriers often use the terms DDP (delivery duty paid) and DDU (delivery duty unpaid).
Note: Incoterms is a registered trademark of the ICC. In this post we also use "shipping terms" and "conditions of sale" to convey the same concepts.
Shipping Terms Explained
Shipping terms are the backbone of global trade. They clarify obligations for buyers and sellers: who pays for insurance, who clears customs, and where risk transfers. Here is the fast comparison shippers ask about most.
Key comparison: DDP versus DAP (DDU)
The most common confusion is the difference between Delivered Duty Paid and Delivered at Place, the term that replaced Delivered Duty Unpaid.
| Feature | DDP (Delivered Duty Paid) | DAP (Delivered at Place), formerly DDU |
|---|---|---|
| Customs duties | Paid by the seller | Paid by the buyer |
| Import taxes (VAT or GST) | Paid by the seller | Paid by the buyer |
| Best for | Customer experience, with no surprise fees | B2B shipments where the buyer reclaims tax |
Note on DDU: "Delivered Duty Unpaid" was officially retired in Incoterms 2010 and replaced by DAP. DDU is still used informally to describe the same process.
Need help navigating these terms? Contact our team for an initial consultation.
The 11 Incoterms 2020 Rules
Incoterms 2020 defines 11 rules in two groups. Click a term to expand its definition.
Rules for any mode of transport
EXW (Ex Works)
The seller makes the goods available at their own premises. The buyer bears all costs and risks, including export clearance, from that point. This is the minimum obligation on the seller. EXW is not the same as DDU or DAP.
FCA (Free Carrier)
The seller delivers the goods to the carrier or a party nominated by the buyer at the seller premises or another named place, and clears the goods for export. Risk passes at that point. Under Incoterms 2020 the buyer may instruct the carrier to issue an on-board bill of lading to the seller, which helps with letters of credit.
CPT (Carriage Paid To)
The seller pays for carriage to the named destination, but risk transfers to the buyer as soon as the goods are handed to the first carrier. The seller clears goods for export, not import.
CIP (Carriage and Insurance Paid To)
Similar to CPT, but the seller also contracts insurance for the buyer risk during carriage. Under Incoterms 2020, CIP requires the higher Institute Cargo Clauses (A) all-risks cover, for at least 110 percent of the contract value.
DAP (Delivered at Place), formerly DDU
The seller delivers when the goods are placed at the buyer disposal at the named destination, ready for unloading. The buyer pays import duties and taxes. DAP replaced DDU in Incoterms 2010.
DPU (Delivered at Place Unloaded), formerly DAT
The seller delivers when the goods are unloaded from the arriving transport and placed at the buyer disposal at the named place. The seller bears all risk to and including unloading. DPU replaced DAT in Incoterms 2020, since delivery can be any place, not only a terminal.
DDP (Delivered Duty Paid)
This places the maximum obligation on the seller, who pays shipping, insurance, and all import duties and taxes. The buyer simply receives the package. Note that the seller cannot always reclaim import VAT in this scenario.
Rules for sea and inland waterway transport only
FAS (Free Alongside Ship)
The seller delivers when the goods are placed alongside the vessel at the named port of shipment. The buyer bears costs and risk from that point.
FOB (Free on Board)
Used for sea freight. The seller delivers the goods on board the vessel, and risk of loss or damage passes to the buyer once the goods are on board. The buyer bears all costs from that moment.
CFR (Cost and Freight)
The seller pays cost and freight to the destination port, but risk passes to the buyer once the goods are on board. The seller has no insurance obligation.
CIF (Cost, Insurance, and Freight)
CFR plus seller-paid insurance to the destination port, at the Institute Cargo Clauses (C) minimum cover. CIF applies to sea and inland waterway transport only. For containerized cargo the ICC recommends CIP instead.
What Changed in Incoterms 2020
The ICC revises these rules roughly every decade. Incoterms 2020 took effect on 1 January 2020 and remains current. The key changes shippers should know:
| Change | Incoterms 2010 | Incoterms 2020 |
|---|---|---|
| Terminal delivery term | DAT (Delivered at Terminal) | DPU (Delivered at Place Unloaded) |
| CIP insurance | Institute Cargo Clauses (C), minimum | Institute Cargo Clauses (A), all-risks, at least 110 percent of value |
| CIF insurance | Institute Cargo Clauses (C) | Institute Cargo Clauses (C), unchanged |
| FCA and bill of lading | No on-board bill-of-lading mechanism | Buyer may instruct the carrier to issue an on-board bill of lading to the seller |
| Own means of transport | Not explicit | Recognized for FCA, DAP, DPU, and DDP |
Corrections noted: DAT no longer exists; it is DPU under Incoterms 2020. EXW is not the same as DDU, and it is not the carrier default. These were fixed from the earlier version of this post.
The ICC has indicated a further revision, working title Incoterms 2030, is in preparation but not yet published, so Incoterms 2020 remains the version to cite in 2026.
Why Terms of Sale Matter
Terms of sale communicate a binding agreement on the delivery of goods. While you are not legally required to quote a term when selling internationally, doing so clarifies responsibilities and avoids costly misunderstandings.
What is not included? Incoterms define logistics responsibilities. They do not define payment terms, transfer of title or ownership, or protection against fraud or defective goods.
Information gain, from Jet Worldwide file data: across the international parcels Jet Worldwide handled in the last 12 months, about [JET-PROPRIETARY-PERCENT]% of receiver-billed disputes traced back to a commercial invoice that named no Incoterm at all, which defaults the duty and tax bill to the receiver. (Placeholder: insert a real Jet Worldwide operational figure before publishing.)
Understanding CIF: Value Versus Term
Cost, Insurance, and Freight (CIF) is a specific Incoterm used for sea transport. Confusingly, "CIF value" is also a valuation method used by customs.
- The term: the seller pays cost and freight to the destination port and provides minimum insurance at Institute Cargo Clauses (C).
- The value: customs often calculate duty on the CIF value, meaning cost of goods plus insurance plus freight, even when you used a different shipping term.
We recommend itemizing these costs on the commercial invoice to avoid overpaying duties.
DDP Versus DAP: The Import-Tax Complication
DDP gives a smoother customer experience for e-commerce, but it has a hidden drawback around VAT. Import VAT commonly runs between 5 and 27 percent worldwide, most often 15 to 25 percent. If you ship DDP:
- The seller pays the VAT.
- Because the seller is usually not a registered business in the destination country, they often cannot reclaim that tax.
- If you ship DAP, the buyer pays the VAT, and a business buyer can usually reclaim it as an input-tax credit.
For business-to-consumer online orders, DDP is usually preferred, to prevent the customer refusing the package over unexpected fees.
Default Shipping Terms for Parcels
If you do not specify a term on your invoice, the default for carriers such as FedEx, UPS, and DHL is DAP, formerly called DDU. This means:
- The seller pays the shipping.
- The receiver is billed for duties, taxes, and carrier disbursement fees.
If the invoice does not state shipping terms, the import fees are automatically charged to the importer or receiver.
Correction noted: an earlier version described EXW as the carrier default. The express-carrier default is DAP (formerly DDU), not EXW.
Frequently Asked Questions
What is the difference between DDP and DAP?
Under DDP (Delivered Duty Paid) the seller pays customs duties and import taxes. Under DAP (Delivered at Place, formerly DDU) the buyer pays them. DDP suits business-to-consumer orders for a no-surprise experience; DAP suits business-to-business shipments where the buyer can reclaim import VAT.
Is DDU still a valid Incoterm?
No. DDU (Delivered Duty Unpaid) was retired in Incoterms 2010 and replaced by DAP. The industry still uses the word DDU informally, but the current term is DAP.
Does DAT still exist as an Incoterm?
No. DAT (Delivered at Terminal) was renamed DPU (Delivered at Place Unloaded) in Incoterms 2020, to reflect that delivery can occur at any place, not only a terminal.
Is EXW the same as DDU?
No. EXW (Ex Works) places the minimum obligation on the seller: the buyer collects the goods at the seller premises and handles export clearance and everything after. DDU, now DAP, is a delivered term where the seller carries the goods to the destination and the buyer pays import charges.
What is the default term if I do not specify one?
For express carriers such as FedEx, UPS, and DHL the default is DAP, formerly called DDU. The seller pays the transport and the receiver is billed for duties, taxes, and carrier disbursement fees.
What is the difference between CIF the term and CIF value?
CIF as an Incoterm applies to sea and inland waterway transport and means the seller pays cost, insurance, and freight to the destination port. CIF value is a customs valuation basis, cost plus insurance plus freight, used to calculate duty even when a different term was used.
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Disclaimer: Jet Worldwide content is for general information only. Incoterms are a registered trademark of the ICC; for legally binding definitions, reference the ICC directly, especially for high-value contracts.
