Incoterms 2020: Clauses, Risk Transfer and Customs Documents for Businesses

In B2B foreign trade, agreeing precise delivery terms can make or break the financial outcome of a deal. Misunderstandings over transport conditions can, in the worst case, lead to significant extra costs, customs shipments stuck at the border, or unresolved liability disputes over transport damage.

Incoterms 2020 provides a clear framework that heads off exactly these problems. In day-to-day logistics, though, most road, express and air freight shipments can be handled most safely and efficiently under just two central clauses: DAP and DDP. Through our platform, you manage both your goods exports and your goods imports under these clauses fully digitally and with full legal certainty.

The table below gives you a quick point of reference for every clause currently in force. It also covers the DAP terms under Incoterms in more detail than a typical summary table, since these are the clauses most B2B shippers actually need day to day.

The following table provides a quick overview of all currently valid clauses:

Overview: risk transfer and cost split

Clause	Full Term	Risk Transfer	Seller’s costs covered until …
DAP	Delivered At Place	Goods made available for unloading at the named destination (not customs-cleared or duty-paid).	Named destination (excluding import clearance/duties/taxes).
DDP	Delivered Duty Paid	Goods made available for unloading at the named destination (customs-cleared and duty-paid).	Named destination (including import clearance, duties and taxes).
FCA	Free Carrier	Handover to the carrier nominated by the buyer, at the named place.	Named place of handover (including export clearance).
EXW	Ex Works	On collection of the goods at the named place (usually the seller’s works/warehouse).	Named place of collection (seller does not load the goods).
CPT	Carriage Paid To	Handover of the goods to the first carrier.	Named destination (main carriage paid).
CIP	Carriage and Insurance Paid To	Handover of the goods to the first carrier.	Named destination (main carriage + all-risk insurance paid).
DPU	Delivered at Place Unloaded	After unloading from the arriving means of transport, at the named destination.	Named destination (including unloading, excluding import duty/taxes).
FAS	Free Alongside Ship	Placement of the goods alongside the ship at the named port of shipment.	Alongside the ship at the port of shipment.
FOB	Free On Board	Once the goods are delivered on board the ship at the named port of shipment.	On board the ship at the port of shipment.
CFR	Cost and Freight	Once the goods are delivered on board the ship.	Named port of destination (main sea carriage paid).
CIF	Cost, Insurance and Freight	Once the goods are delivered on board the ship.	Named port of destination (main carriage + minimum insurance paid).

To save you wading through the small print, we’ve summarised the remaining nine clauses as compactly as possible. These play a smaller role in standardised multi-carrier shipping and aren’t offered directly by LetMeShip for standard platform bookings:

• EXW (Ex Works): Minimal obligation for the seller — the buyer collects the goods unloaded and without export clearance in place. *Watch out:* this can expose the seller to tax risk when it comes to proving the goods actually left the country. Also written as exw incoterms or ex works incoterms in most searches.
• FCA (Free Carrier): The seller hands over the export-cleared goods to the buyer’s nominated carrier. A common alternative to EXW in B2B trade, and the clause the ICC now recommends wherever a seller can handle export clearance — which, in practice, is almost always (more on the FCA Incoterms meaning below).
• CPT (Carriage Paid To): The seller pays for the main carriage, but risk passes to the buyer as soon as the goods reach the first carrier. Sometimes searched as carriage paid to incoterms or CPT incoterms.
• CIP (Carriage and Insurance Paid To): Works like CPT, but the seller must also take out all-risk transport insurance.
• DPU (Delivered at Place Unloaded): The seller must deliver the goods to the destination *and* unload them personally. Only after that does risk pass to the buyer.
• Sea-freight-only clauses (FAS, FOB, CFR, CIF): These four terms may only be used for conventional (non-containerised) sea transport. Risk usually passes as soon as the goods are loaded on board the ship. Note: FOB stands for Free On Board — you’ll sometimes see it written as “freight on board incoterms”, but that’s a common mix-up, not the correct term. The same logic applies to CIF incoterms and cost and freight incoterms (CFR).

In modern parcel, express and pallet shipping, DAP and DDP have established themselves as the safest and most customer-friendly interfaces between buyer and seller. That’s why we focus on these two clauses at LetMeShip: they give you a clean split of logistics responsibilities and run seamlessly through our multi-carrier platform.

Direct comparison: DAP vs DDP (cost & risk)

Criterion / process step	DAP (Delivered At Place)	DDP (Delivered Duty Paid)
Risk transfer (liability for loss/damage)	Seller (liable until the goods are made available at the agreed delivery address)	Seller (liable until the goods are made available at the agreed delivery address)
Packing & shipment preparation	Seller (cost & organisation)	Seller (cost & organisation)
Export clearance	Seller (prepares the export declaration)	Seller (prepares the export declaration)
Main carriage (freight costs)	Seller (pays transport to the destination)	Seller (pays transport to the destination)
Import clearance	Buyer (recipient handles the import)	Seller (sender / carrier handles the import)
Import duties & customs fees	Buyer (recipient pays any duties)	Seller (sender pays any duties)
Import VAT	Buyer (recipient pays import VAT)	Seller (sender pays import VAT)
Unloading at destination	Buyer (carrier unloads the vehicle)	Buyer (carrier unloads the vehicle)
B2B customer experience	Limited (missing clearance instructions, a power of attorney, or unexpected charges can delay delivery)	Maximum (a missing clearance instruction or power of attorney can still delay delivery)

*Important: as the comparison shows, liability only shifts to the buyer at the destination under either clause. The real difference lies purely in who covers customs clearance and import duties in the destination country.

Under DAP Incoterms, the seller is responsible for the safe transport of the goods all the way to the destination.

• Cost split: The seller pays for packing, export clearance and the entire transport leg to the delivery address. The buyer covers import VAT, duties and the local clearance fee.
• Risk transfer: Risk of loss or damage only passes to the buyer once the goods are made available at the destination on the means of transport (still unloaded). With LetMeShip’s parcel and express carriers, unloading is carried out by the carrier’s driver.

The DDP Incoterms clause is the fully-inclusive package for the recipient, and the most customer-friendly shipping method in B2B online trade. It’s also referred to (less precisely) as delivery duty paid Incoterms in some searches.

• Cost split: The seller covers *all* costs involved — freight, export clearance, import duties, import VAT and the destination-country clearance fee. The buyer doesn’t need to do anything beyond taking delivery and unloading.
• Risk transfer: As with DAP, the seller remains liable for the goods until they’re made available at the buyer’s delivery address.

How do these clauses actually play out in your day-to-day logistics? The two scenarios below show them in practice.

Background: A German toolmaker needs to send urgently required spare parts worth €1,500 to a business customer in Zurich, Switzerland.

How it works via LetMeShip:

1. The seller logs into LetMeShip, compares rates and books an express service (e.g. FedEx or DHL Express).
2. During booking, they select the DAP option (the default setting).
3. The seller prepares the commercial invoice and the export declaration.
4. The express carrier moves the parcel across the border.
5. The express carrier’s customs broker contacts the Swiss recipient, who pays the applicable Swiss VAT and any duties.
6. Once payment is received (or via the recipient’s deferred customs account), the parcel is delivered.

Why this works well: the German seller never has to get to grips with Swiss tax law. The tax side of things in the destination country stays entirely with the Swiss recipient.

Background: An electronics manufacturer in Hamburg delivers specialist components directly to a customer’s assembly line in Texas, USA. The US customer wants completely uninterrupted delivery with zero admin on their end.

How it works via LetMeShip:

• The seller selects DDP in the LetMeShip system (also described as “duty/tax paid by the sender”).
• They issue a commercial invoice showing the Incoterm as `DDP Houston, TX, Incoterms® 2020`.
• The express carrier booked through LetMeShip takes care of the entire US import clearance process.
• The parcel is delivered straight to the recipient’s factory gate in Texas — the US customer makes no payments and fills in no forms.
• The resulting US import duties and the clearance fee are billed back to the German seller afterwards by the carrier.

Why this works well: maximum customer satisfaction. The US buyer receives the goods as smoothly as they would a domestic delivery.

A common misconception is that Incoterms govern the transfer of ownership of goods. That’s wrong — ownership is governed purely by the underlying sales contract. Incoterms only govern:

• Division of duties: Who organises transport and books the carrier? (Always the seller, under both DAP and DDP.)
• Cost transfer: Up to which geographical point does the seller pay for transport? (Excluding import duties under DAP; including them under DDP.)
• Risk transfer: From which point does the seller stop being liable for loss or damage? (Under both DAP and DDP, risk stays with the seller until the destination.)

Why the exact place matters

An Incoterm without an exact place designation is legally worthless. Never write just “DAP” or “DDP” on your documents. The correct wording on a commercial invoice always includes:

• The Incoterm clause
• The precise address of the handover point
• The rules version

Poor example: DAP Switzerland (too vague — where exactly in the country does risk and cost transfer?)

Good example: DAP Industriestrasse 12, CH-8002 Zürich, Incoterms® 2020

When exporting to third countries (outside the EU), the choice between DAP and DDP decides who’s responsible for tax and customs matters.

Process / document step	DAP	DDP
1. Commercial invoice	Seller issues the commercial invoice (Incoterm note: DAP [place])	Seller issues the commercial invoice (Incoterm note: DAP [place])
2. Export declaration	Seller declares the goods for export (e.g. via the ATLAS system from €1,000 upwards, for German-origin exports)	Seller declares the goods for export (same threshold applies)
3. Main carriage	Seller (or LetMeShip/carrier) transports the goods to the destination country	Seller (or LetMeShip/carrier) transports the goods to the destination country
4. Import clearance	Buyer (or their customs broker) handles the declaration in the destination country	Seller (the carrier usually declares on the seller’s behalf)
5. Import duties	Buyer pays all applicable duties, import taxes and clearance fees upfront	Seller pays duties, taxes and service fees (billed afterwards)
6. Recipient’s situation on the ground	Buyer must pay charges before the goods can be released	Buyer receives delivery directly and without administrative barriers (a clearance instruction/power of attorney may still be needed from the recipient)

Required for every international shipment outside the EU. It must clearly show the agreed Incoterm, including the exact place (e.g. *Terms of Delivery: DDP Customer Warehouse, New York, Incoterms 2020*). Make sure every line item carries the correct tariff code.

Under both DAP and DDP, the seller is responsible for declaring the goods for export in the country of origin (for example, via the ATLAS system in Germany for shipments valued at €1,000 or more). You’ll receive an electronic export confirmation as proof of your VAT-exempt export supply.

• Under DAP: The buyer (recipient) instructs the customs broker (or the delivering carrier) and provides the data needed for import clearance. They pay the import duties and taxes.
• Under DDP: The seller is responsible for organising and paying for import clearance. Because freight forwarders and express carriers (such as UPS, DHL Express and FedEx) run global networks, they handle the import in the destination country on your behalf and charge the corresponding duties and taxes back to your sender account.

Shipping through LetMeShip is built around the DAP and DDP clauses. Our system takes the complexity out of booking.

When you create a shipment to a third country in the LetMeShip system, DAP is set as the default. Compare rates from our carrier partners, pick the offer that suits you, and book. The freight cost is billed through your LetMeShip account, while the recipient receives the customs invoice directly from the delivering carrier in the destination country.

If you’d rather cover all the costs yourself, select DDP during booking (sometimes shown as “duty/tax paid by the sender”).

A note on fees: many carriers charge a small administration fee (an advancement fee) for handling and advancing customs charges in the destination country. These fees are billed to you transparently, together with the duties and taxes, afterwards through LetMeShip.

Smooth international B2B shipping comes down to choosing the right Incoterm and getting the operational details right. LetMeShip actively supports you through that process:

• Easy rate comparison: find the right freight forwarder or express carrier for your DAP and DDP shipments.
• Customs documents sorted: our booking system guides you step by step through the customs data you need to enter, so your commercial invoices come out error-free.
• A dedicated point of contact: our logistics experts are on hand for any questions about customs-compliant shipping.

Please note: we’re glad to support you with any customs questions, but ultimate responsibility for customs matters always rests with the exporter or importer.

Compare freight rates and ship customs-compliant now.