Incoterms 2026: A Complete Guide to the 11 Terms

Incoterms are 11 international terms that spell out exactly who pays the freight, who buys the insurance, and at what point in the operation risk passes from seller to buyer. Any international sale contract that doesn't specify an Incoterm leaves gray areas that turn into costly disputes when something goes wrong. The version in force in 2026 is Incoterms 2020, published by the International Chamber of Commerce (ICC).

What Incoterms are and what they're for

Incoterms stands for International Commercial Terms. They're international rules that govern the obligations of buyer and seller in a foreign trade operation. They don't set the price, the payment method, or the transfer of ownership of the goods: they only address who pays each part of the transport, who carries the insurance, and at what moment the risk of damage or loss passes from one side to the other.

The ICC has published them since 1936 and updates them roughly every 10 years. The current version is Incoterms 2020. If you're searching "Incoterms 2026," you're likely looking for the latest version in force, which is the 2020 edition, with 11 terms.

The 11 Incoterms in force: term by term

EXW: Ex Works

The seller makes the goods available at their premises. The buyer takes on all costs and risks from that point on: loading, inland transport at origin, export clearance, international freight, import clearance, and final delivery. It's the Incoterm with the most responsibility for the buyer. Convenient for the seller, complex for an importer without experience in the country of origin.

FCA: Free Carrier

The seller delivers the goods to the carrier designated by the buyer at an agreed point. If that point is the seller's premises, the cargo is the seller's responsibility until the carrier picks it up. FCA works with any transport mode and is the recommended Incoterm for container shipments that used to default to FOB, since risk passes at the correct point for this type of cargo.

FAS: Free Alongside Ship

Ocean or inland waterway transport only. The seller delivers the goods on the dock, alongside the designated vessel. From that point the buyer takes on the risk. Uncommon in modern trade; mainly used for bulk cargo or special cargo that doesn't move in a container.

FOB: Free On Board

The seller delivers the goods on board the vessel. From that moment the risk is the buyer's. FOB is the most used Incoterm for imports from Asia into Mexico. Freight and insurance run on the buyer's account from the port of origin. For FCL and LCL containers, FCA is technically more precise, but FOB remains the de facto standard in many contracts.

CFR: Cost and Freight

The seller pays the freight to the destination port, but risk passes to the buyer once the goods are on board the vessel at the origin port. This gap between who pays the freight and who holds the risk confuses many people: if the vessel has an incident, the seller already paid the freight, but the losses are the buyer's. Ocean only.

CIF: Cost, Insurance and Freight

Same as CFR but the seller also buys cargo insurance. Coverage is minimal (Institute Cargo Clauses, clause C). Risk still passes to the buyer once the goods are on board at origin. CIF is very common in imports into Mexico from China and Asia. If your goods have high value, negotiate CIP instead of CIF for broader coverage.

CPT: Carriage Paid To

The seller pays the freight to the agreed destination. Risk passes to the buyer when the goods are handed to the first carrier at origin. Applies to all transport modes, including multimodal. Useful when the buyer wants the seller to handle the freight but prefers to arrange their own insurance.

CIP: Carriage and Insurance Paid To

Same as CPT but the seller also buys broad insurance coverage (clause A). Unlike CIF, CIP coverage is comprehensive by default. Risk still passes to the buyer when the goods are handed to the carrier at origin. Recommended for high-value goods on multimodal or air transport.

DAP: Delivered at Place

The seller delivers the goods at the agreed destination, ready for unloading, but not cleared through customs in the buyer's country. The buyer takes on import clearance and duties. On imports into Mexico, with DAP the supplier pays the freight to your warehouse and you handle clearance with SAT.

DPU: Delivered at Place Unloaded

The seller delivers the goods unloaded at the destination. It's the only Incoterm where the seller also takes on the cost and risk of unloading. The buyer remains responsible for import clearance. Previously called DAT (Delivered at Terminal) under Incoterms 2010.

DDP: Delivered Duty Paid

The seller takes on everything: international freight, insurance, import clearance in Mexico, and final delivery. For the buyer it's the most convenient option, but also the most expensive, because the supplier bakes all those costs into the price and also assumes the risk of any customs complication in Mexico. Useful for small purchases or when you don't have the capacity to manage the import yourself.

Differences between Incoterms 2020 and earlier versions

Incoterms 2020 replaced Incoterms 2010 with three main changes. First, DAT (Delivered at Terminal) was renamed DPU (Delivered at Place Unloaded) to clarify it applies to any place, not just terminals. Second, FCA added the option for the seller to obtain an on-board bill of lading, making it compatible with letters of credit. Third, CIP now requires broad insurance coverage (clause A) while CIF keeps minimal coverage (clause C).

There's no official "Incoterms 2026" version. If your contract or your supplier references "Incoterms 2026," confirm they mean the current version in force, Incoterms 2020.

How to choose the right Incoterm for your operation

The choice depends on how much control you want over logistics and how much risk you're willing to take on. These are the most common situations for imports into Mexico:

• Importing from China in an FCL container: FOB Shanghai / FCA Shanghai are the most common. With FOB you control the freight from the port of origin.
• Importing small volumes (LCL): CIF or CFR are convenient because the consolidator at origin handles the freight and you only coordinate clearance in Mexico.
• Your supplier is reliable and you want to simplify: DAP or DDP if you want the supplier to deliver to your plant. With DDP you don't have to manage anything, but you lose visibility into the real import cost.
• Exporting from Mexico: FCA or FOB are the most used. You deliver at the port or at the buyer's carrier's premises and your responsibility ends there.

Common mistakes with Incoterms on imports into Mexico

• Using FOB for container cargo: technically, risk should pass with FCA once the container is handed to the terminal, not "on board." In practice FOB remains the standard, but in the event of an incident the distinction matters.
• Confusing risk with ownership: Incoterms don't define when the goods legally become yours, only who carries the risk of loss or damage at each leg.
• Not specifying the exact place: "FOB China" isn't enough. The contract should say "FOB Shanghai, China" or the specific port.
• Assuming DDP includes VAT in Mexico: import VAT is almost always paid by the registered importer with SAT, not the foreign supplier. DDP in Mexico normally excludes VAT.
• Using CIF for high-value goods: CIF's minimum coverage may not cover the real value of your goods. Negotiate CIP or add extra insurance.

Need help with your operation?

The Incoterm is just the starting point. Once you decide who pays the freight, you still need to coordinate the freight forwarder, customs clearance in Mexico, inland transport, and final delivery. At 2DL we manage that entire process so your goods arrive without setbacks.