Incoterms determine who arranges transport, who deals with customs, who pays import charges and when responsibility for the goods changes hands.
Choosing the wrong one can leave both the customer and the retailer facing costs they did not expect.
For most online sellers, the key decisions involve DDP, DAP, FCA and EXW. This guide explains how they work, where the risks lie and how customs changes may affect the best choice for your business.
Table of Contents
What are Incoterms?
Incoterms are 11 standard trade terms published by the International Chamber of Commerce, or ICC.
They are used in contracts for the domestic and international sale of goods. Their purpose is to give buyers, sellers, carriers, and customs professionals a common understanding of each party’s responsibilities.
Incoterms can establish:
- where the seller delivers the goods;
- when risk passes from seller to buyer;
- who arranges and pays for transport;
- who handles export and import clearance;
- which party pays particular transport-related costs;
- whether the seller must arrange cargo insurance.
They do not settle every part of a commercial transaction. Incoterms do not determine when ownership changes, when payment is due, which tax rate applies or how returns should be handled. They also do not replace rules on product safety, sanctions, consumer rights or customs compliance. Those matters must be addressed separately in the sales contract and the company’s operating procedures.
The importance of Incoterms
Cross-border customers generally want to know the full cost of an order before they pay.
A product may appear inexpensive at checkout, only for the customer to receive a later demand for customs duties, import tax, brokerage charges or a carrier administration fee.
In the United States, duty-free de minimis treatment for low-value imports has been suspended worldwide. Sellers should therefore not assume that an order below the former $800 threshold will enter the country without duties.
In the European Union, a temporary customs duty was introduced from 1 July 2026 for specified low-value ecommerce imports. The measure applies a charge of €3 per item in relevant consignments worth no more than €150.
These developments do not change the Incoterms themselves. They change the cost and operational consequences of deciding who will manage import clearance.
Which Incoterms matter most to ecommerce businesses?
There are 11 Incoterms, but only a small number are commonly relevant to direct-to-consumer ecommerce.
DDP and DAP are the main terms used for deliveries to customers. FCA and EXW are more likely to appear when an ecommerce company buys stock, works with suppliers or moves inventory into a fulfilment centre.
The remaining terms are generally associated with business-to-business freight or port-to-port shipping.
DDP: the all-inclusive option
DDP means Delivered Duty Paid.
Under DDP, the seller accepts responsibility for transporting the goods, completing export and import procedures, and paying the relevant import duties and taxes. The seller carries the risk until the order reaches the named destination and is ready for the buyer to receive.
For the customer, DDP can provide a straightforward experience. Duties and taxes can be included in the checkout price, reducing the chance of an unexpected payment request at delivery.
For the retailer, however, DDP is the most demanding Incoterm.
The business needs accurate customs information for every product, including its HS code, country of origin and customs value. It must also understand the duties, taxes and carrier fees that apply in the destination market.
There is another important issue. A foreign seller may not always be allowed to act as the importer of record. Some countries require a local registration, tax number, customs representative or locally established importer.
A company should therefore use DDP only when it has confirmed that it can legally and operationally complete the import process.
When it is properly managed, DDP can reduce complaints, rejected parcels and delivery delays. It can also make international pricing easier for customers to understand.
DAP: lower responsibility for the seller, more uncertainty for the customer
DAP means Delivered at Place.
Under DAP, the seller arranges transport to the agreed destination. The buyer is responsible for import clearance and normally pays the customs duties and import taxes.
For the seller, this can be simpler than DDP. The business does not have to manage the complete import process in every destination.
For the customer, the experience can be less predictable.
A shopper may receive a message from the carrier requesting payment before delivery. The final charge may include customs duty, import tax, brokerage and administration fees. If the customer was not expecting these costs, the result may be a complaint or a refused parcel.
DAP can still be a valid option, particularly when the seller cannot legally act as importer. The important point is transparency.
If customers will be responsible for import charges, this should be stated before they complete the purchase. The message should appear close to the shipping option or order total and should be repeated in the order confirmation.
Hiding the information in lengthy terms and conditions is unlikely to prevent confusion.
DDP or DAP: which should an ecommerce business choose?
DDP is generally the better option for the customer experience. It allows the retailer to offer a clearer final price and reduces the risk of charges appearing after checkout.
But DDP is not automatically the right choice for every business. It requires accurate landed-cost calculations and a reliable customs setup. If the company cannot manage import clearance in a particular market, DAP may be more realistic.
The decision should begin with the promise made to the customer.
If the website says “duties and taxes included”, the warehouse, carrier, customs broker and billing process must all support DDP. If the customer will have to pay import charges, the checkout should say so clearly.
The greatest problems occur when the website promises one experience while the carrier has been instructed to provide another.
FCA and EXW when buying or moving stock
Incoterms are not only used for customer orders. They also matter when an ecommerce company buys goods from a manufacturer, imports inventory or sends stock to a fulfilment centre.
Two terms often appear in these transactions: FCA and EXW.
EXW means Ex Works. Under this term, the supplier makes the goods available at its premises or another agreed location. The buyer then takes on most of the transport and customs responsibilities.
This may look attractive because the supplier’s price appears simple. In practice, it can create difficulties. A foreign buyer may not be able to complete export procedures in the supplier’s country. The seller may also struggle to obtain evidence that the goods were exported.
FCA means Free Carrier. Under FCA, the seller clears the goods for export and hands them to the buyer’s nominated carrier at an agreed location.
For many supplier, wholesale and inventory transactions, FCA creates a more practical division of responsibility than EXW. It gives the seller control of export clearance while allowing the buyer to arrange the main transport.
The exact location must be written into the agreement. FCA at a supplier’s warehouse is different from FCA at an airport or freight terminal.
What about the other Incoterms?
CPT and CIP may be used when the seller pays for transport to a destination but risk passes to the buyer earlier, when the goods are handed to the carrier. CIP also requires the seller to arrange cargo insurance.
This difference between cost and risk is easy to miss. A seller may pay for the journey without carrying the risk for the entire journey.
DPU is used when the seller delivers and unloads the goods at the named destination. It is more relevant to freight and specialist deliveries than to ordinary ecommerce parcels.
FAS, FOB, CFR and CIF are designed only for sea or inland waterway transport. They are usually associated with bulk cargo and port-to-port trade rather than consumer parcels.
FOB is frequently misused as a general expression for international delivery. It should not be used for air freight, road transport or standard parcel shipments. FCA is usually more appropriate when goods are handed to a carrier before being loaded on a vessel.
Which Incoterm is best for ecommerce?
There is no single answer for every business.
DDP is often the strongest option for direct-to-consumer sellers that want to provide an all-inclusive checkout. It gives the merchant greater control of the delivery experience, but it also creates more compliance and financial responsibility.
DAP may be necessary when the business cannot complete import clearance in the destination country. It can work, but customers need to understand that additional charges may be due.
FCA is often a practical choice for wholesale orders, supplier shipments and inventory movements where the buyer controls the main transport.
EXW can appear simple, but it may create complications around export clearance. FOB and the other waterway-only terms are rarely suitable for consumer ecommerce deliveries.
The best Incoterm is the one that the business can execute consistently, legally and transparently.
Six common Incoterms mistakes
1. Failing to name an exact place
An expression such as “DAP Italy” is too broad.
The contract should identify a precise address, terminal or delivery point.
A complete reference might read:
DAP [full delivery address], Incoterms 2020
2. Confusing transport costs with risk
Under CPT, CIP, CFR and CIF, the seller pays for transport to a destination.
But risk passes to the buyer at an earlier point.
Paying the freight does not necessarily mean carrying the risk until the goods arrive.
3. Using FOB for every international shipment
FOB is intended only for sea and inland waterway transport.
It is not suitable for air freight or parcel delivery. FCA is often more appropriate when goods are handed to a carrier before being loaded on a vessel.
4. Assuming DDP removes customs problems
DDP assigns responsibility to the seller, but it does not simplify customs law.
The business still needs reliable product data, correct documentation, a workable importer arrangement and accurate landed-cost calculations.
5. Ignoring returns and refused deliveries
Incoterms do not provide a complete returns policy.
The seller must decide who pays return freight, how refunds are calculated, what happens to refused parcels and whether import charges can be reclaimed.
6. Using different terms across different systems
The sales contract may state DDP while the carrier is instructed to collect duties from the customer.
This creates disputes and delivery failures.
The checkout, commercial invoice, warehouse instructions, carrier data and customs arrangements should all reflect the same model.
How eLogy can support cross-border ecommerce
Choosing an Incoterm is only part of the process.
The intended delivery model must also be reflected in inventory management, order routing, commercial documentation, carrier selection, customs data and returns handling.
eLogy helps ecommerce businesses develop fulfilment workflows for domestic and cross-border growth.
A coordinated approach can improve cost visibility, reduce avoidable shipping exceptions and give customers clearer information about delivery charges.
Before entering a new market, ecommerce businesses should review their Incoterm alongside their importer arrangements, customs classifications, tax treatment, carrier contracts and customer-facing terms.
Planning your cross-border fulfilment strategy?
Incoterms FAQS
What is the best Incoterm for ecommerce?
There is no single best Incoterm. DDP often provides the strongest experience for cross-border consumers because duties and taxes can be included in the purchase price. DAP may be necessary when the seller cannot manage import clearance. FCA is often suitable for wholesale and inventory shipments.
Who pays customs duties under DDP?
The seller is responsible for import clearance and the applicable import duties and taxes under DDP.
Who pays customs duties under DAP?
The buyer handles import clearance and pays the associated duties and taxes under DAP.
Do Incoterms determine VAT or sales tax?
No. Incoterms allocate certain responsibilities between the buyer and seller, but they do not determine tax rates or replace tax law.
Do Incoterms cover ecommerce returns?
Not fully. Businesses need separate policies covering return transport, refunds, refused deliveries, damaged goods and the treatment of import charges.
Can FOB be used for air freight?
No. FOB is intended only for sea or inland waterway transport. FCA is generally more appropriate when goods are delivered to an air carrier.
