What Are Incoterms?

Quick Answer

Incoterms (International Commercial Terms) are standardized three-letter trade terms published by the International Chamber of Commerce (ICC) that define the responsibilities, costs, and risks between buyer and seller in international transactions. The current edition is Incoterms 2020, effective January 1, 2020. Every purchase order for internationally shipped piping materials should specify an Incoterm.

The 11 Incoterms 2020

Incoterms are divided into four groups (E, F, C, D) based on increasing seller responsibility:

Incoterm	Full Name	Risk Transfer Point	Seller Pays For
EXW	Ex Works	Seller’s premises	Nothing beyond making goods available
FCA	Free Carrier	Named place (carrier)	Delivery to carrier at named place
FAS	Free Alongside Ship	Port quay	Delivery alongside vessel
FOB	Free on Board	On board vessel	Loading onto vessel
CPT	Carriage Paid To	Carrier (seller’s country)	Freight to destination
CIF	Cost, Insurance & Freight	On board vessel (origin)	Freight + insurance to destination port
CIP	Carriage & Insurance Paid To	Carrier (seller’s country)	Freight + insurance to destination
DAP	Delivered at Place	Destination (unloaded)	All costs except import duties + unloading
DPU	Delivered at Place Unloaded	Destination (unloaded)	All costs except import duties
DDP	Delivered Duty Paid	Destination	All costs including import duties
CFR	Cost and Freight	On board vessel (origin)	Freight to destination port

Most Common Incoterms for Piping Materials

Three Incoterms dominate piping material procurement:

Incoterm	Typical Use Case	Buyer’s Risk Starts
FOB	Bulk pipe shipments from mills (sea freight)	When goods are loaded on vessel at origin port
CIF	International pipe and fitting orders	When goods are loaded on vessel (but seller pays freight + insurance)
DAP	Deliveries to project site or warehouse	When goods arrive at destination, before unloading

FOB is the most common term for sea shipments of piping materials from manufacturing hubs (China, India, South Korea, Europe) to project destinations. The seller delivers the goods on board the vessel at the named port; risk transfers at that point.

CIF adds freight and insurance to the seller’s obligations, simplifying logistics for the buyer. However, the seller only needs minimum insurance coverage (ICC “C” clause) unless the contract specifies otherwise.

DAP shifts most logistics responsibility to the seller, making it popular for deliveries to remote project sites where the buyer lacks local freight infrastructure.

Why Incoterms Matter in Procurement

Incoterms directly affect the total landed cost of materials. A quoted price means nothing without an Incoterm—“$2,500 per ton FOB Shanghai” and “$2,500 per ton DAP Jubail” are vastly different propositions.

Cost Element	EXW	FOB	CIF	DAP
Manufacturing	Seller	Seller	Seller	Seller
Loading at origin	Buyer	Seller	Seller	Seller
Origin port handling	Buyer	Seller	Seller	Seller
Sea freight	Buyer	Buyer	Seller	Seller
Marine insurance	Buyer	Buyer	Seller	Seller
Destination port handling	Buyer	Buyer	Buyer	Seller
Inland transport (destination)	Buyer	Buyer	Buyer	Seller
Import duties/customs	Buyer	Buyer	Buyer	Buyer

Common Mistake

Comparing supplier quotes without normalizing to the same Incoterm. A $2,200/ton EXW price may be more expensive than a $2,500/ton CIF price once you add freight, insurance, and origin handling. Always convert all quotes to the same delivered basis before comparing.

For the complete breakdown of Incoterms 2020 types and risks, including cost allocation diagrams, see the detailed guide. Also review common shipping documents required under each Incoterm.

Read the full guide to pipe classes and specifications