When an international shipment is arranged, one of the first questions buyers and sellers ask is: Who pays the freight?
The answer depends on the Incoterm agreed in the sales contract.
Incoterms help define which party is responsible for transportation costs, customs clearance, insurance, delivery, and other responsibilities. But freight payment is only one part of the agreement. In some Incoterms, the seller may pay for transportation while the buyer carries the risk during the journey.
This is why businesses should understand both who pays and when the risk transfers before agreeing to an Incoterm.
What Does “Freight” Mean?
In simple terms, freight is the cost of transporting goods from one location to another.
Depending on the shipment, it can include:
- Ocean freight
- Air freight
- Inland transportation
- Trucking
- Rail transportation
- Delivery to a port or airport
- Transportation from the destination port to the final location
Not every Incoterm covers all of these costs in the same way.
The agreed Incoterm determines which transportation costs are the seller’s responsibility and which are the buyer’s.
Who Pays Freight Under Different Incoterms?
Here is a simple overview of the 11 Incoterms 2020 rules.
| Incoterm | Who Usually Pays Main Freight? | Who Handles Import Clearance? |
|---|---|---|
| EXW | Buyer | Buyer |
| FCA | Buyer | Buyer |
| CPT | Seller | Buyer |
| CIP | Seller | Buyer |
| DAP | Seller | Buyer |
| DPU | Seller | Buyer |
| DDP | Seller | Seller |
| FAS | Buyer | Buyer |
| FOB | Buyer | Buyer |
| CFR | Seller | Buyer |
| CIF | Seller | Buyer |
This table refers to the main transportation responsibility under each Incoterm. The exact costs and responsibilities can vary depending on the named place and shipment arrangement.
Let’s look at each one in more detail.
1. EXW – Buyer Pays Most Transportation
Under EXW (Ex Works), the seller generally makes the goods available at an agreed location.
The buyer takes responsibility for most of the transportation process.
The buyer may pay for:
- Pickup
- Export-related transportation and arrangements
- Main freight
- Import transportation
- Final delivery
EXW therefore places significant logistics responsibility on the buyer.
2. FCA – Buyer Pays Main Freight
Under FCA (Free Carrier), the seller delivers the goods to the carrier or another party nominated by the buyer at the agreed location.
After that delivery, the buyer generally arranges and pays for the main transportation.
The seller normally handles export clearance where applicable under the rule.
FCA can be useful when the buyer wants control over the main freight arrangement.
3. CPT – Seller Pays Freight
Under CPT (Carriage Paid To), the seller arranges and pays for transportation to the named destination.
However, the risk does not remain with the seller until the cargo reaches that destination.
Risk transfers when the goods are handed over to the carrier as defined by the rule.
This is an important difference between freight payment and risk.
4. CIP – Seller Pays Freight and Insurance
Under CIP (Carriage and Insurance Paid To), the seller pays for transportation to the named destination and also arranges the insurance required under the Incoterm.
The buyer still handles import clearance and related duties and taxes.
Risk transfers when the goods are handed over to the carrier.
5. DAP – Seller Pays Transportation to Destination
Under DAP (Delivered at Place), the seller arranges and pays for transportation to the agreed destination.
The goods are delivered ready for unloading.
The buyer generally handles:
- Import clearance
- Import duties
- Import taxes
- Unloading
This means the seller takes care of transportation much closer to the buyer’s location.
6. DPU – Seller Pays Transportation and Unloading
Under DPU (Delivered at Place Unloaded), the seller is responsible for transportation to the agreed destination and unloading the goods there.
The buyer then handles the import clearance and related duties and taxes.
DPU is different from DAP because the seller is responsible for unloading under DPU.
7. DDP – Seller Pays Most Delivery Costs
Under DDP (Delivered Duty Paid), the seller takes on the most extensive delivery responsibility.
The seller generally arranges and pays for:
- Transportation
- Export clearance
- Import clearance
- Import duties and taxes
- Delivery to the agreed destination
The buyer mainly receives the goods at the agreed destination.
However, sellers should make sure they can legally and practically handle import requirements in the destination country before agreeing to DDP.
8. FAS – Buyer Pays Main Freight
Under FAS (Free Alongside Ship), the seller delivers the goods alongside the vessel at the agreed port.
The buyer then takes responsibility for the main ocean transportation and subsequent costs.
FAS is specifically for sea and inland waterway transport.
9. FOB – Buyer Pays Main Ocean Freight
Under FOB (Free on Board), the seller delivers the goods on board the vessel at the agreed port.
The buyer then arranges and pays for the main ocean freight.
The buyer also handles the import side of the shipment.
FOB is specifically used for sea and inland waterway transport.
10. CFR – Seller Pays Ocean Freight
Under CFR (Cost and Freight), the seller pays the cost of transporting the goods to the agreed destination port.
However, risk transfers when the goods are delivered on board the vessel.
So, the seller pays the ocean freight, but the buyer carries the risk after the goods have been loaded on board.
11. CIF – Seller Pays Ocean Freight and Required Insurance
Under CIF (Cost, Insurance and Freight), the seller pays the ocean freight to the agreed destination port and provides the insurance required under the CIF rule.
The buyer handles import clearance and related duties and taxes.
As with CFR, the risk transfers when the goods are delivered on board the vessel, even though the seller pays the freight to the destination port.
Freight Payment vs Risk Transfer
This is one of the most important things to understand about Incoterms.
The party paying the freight is not always the party carrying the risk during transportation.
For example, under CIF:
Seller pays ocean freight → Goods are loaded on vessel → Risk transfers to buyer → Shipment continues to destination
The seller pays for transportation to the destination port, but the buyer carries the risk after the goods are loaded on board according to the CIF rule.
The same concept applies to CFR.
This is why businesses should not choose an Incoterm based only on who pays the freight.
Who Pays Import Duties and Taxes?
Import duties and taxes are generally handled by the buyer under most Incoterms.
DDP is the major exception.
Under DDP, the seller takes responsibility for import clearance and applicable import duties and taxes according to the rule.
A simple comparison:
| Incoterm | Main Freight | Import Duties & Taxes |
|---|---|---|
| EXW | Buyer | Buyer |
| FOB | Buyer | Buyer |
| CIF | Seller | Buyer |
| DAP | Seller | Buyer |
| DDP | Seller | Seller |
This is a simplified overview and should be checked against the specific Incoterms rule and contract.
What About Insurance?
Insurance is another area where businesses can become confused.
Not every Incoterm requires the seller to provide cargo insurance.
Under CIF and CIP, the seller has an insurance obligation under the applicable rule.
Under other terms, the party carrying the transportation risk may need to consider arranging appropriate cargo insurance separately.
Businesses should check the required level of insurance and whether additional coverage is needed for the value and nature of the cargo.
How Should Businesses Choose?
Before agreeing on an Incoterm, buyers and sellers should consider:
- Who wants to control the freight?
- Who has better access to freight rates?
- Who will handle export customs?
- Who will handle import customs?
- Who can arrange transportation in the destination country?
- Where does the risk transfer?
- Is insurance required?
- Who will pay duties and taxes?
- What is the final delivery location?
For regular B2B shipments, these questions should be agreed before the sales contract is finalized.
A Simple Example
Imagine an exporter is shipping commercial goods to an overseas buyer.
Under FOB
The seller gets the goods through export procedures and delivers them on board the vessel.
The buyer pays the main ocean freight and handles the import side.
Under CIF
The seller arranges and pays for the ocean freight and required insurance to the destination port.
The buyer handles import clearance and related duties and taxes.
Under DDP
The seller takes responsibility for transportation, import clearance, duties and taxes, and delivery to the agreed destination.
The buyer receives the goods at the agreed location.
The cargo is the same in all three examples, but the financial and operational responsibilities are different.
Final Thoughts
Who pays freight under an Incoterm depends on the specific rule agreed between the buyer and seller.
In general:
- EXW, FCA, FOB and FAS: The buyer generally pays the main freight.
- CPT, CIP, DAP, DPU, CFR and CIF: The seller generally pays the main freight.
- DDP: The seller takes on the broadest transportation and customs cost responsibilities.
But freight payment is only one part of the decision.
Before choosing an Incoterm, businesses should also understand risk transfer, customs responsibilities, insurance, duties and taxes, and the exact delivery location.
For B2B international shipping, having these responsibilities clearly agreed before booking can help reduce unexpected costs and misunderstandings later.
