Three letters on a commercial invoice determine who pays for shipping, who pays the customs duties, and, most importantly, who is liable for any loss if the package goes missing in transit. These three letters are the Incoterms. Many Canadian small and medium-sized businesses copy them from a template found online without ever checking what they mean—until the day a European customer refuses to pay a duty invoice for 340 $ that he didn’t see coming.

The rules in effect in 2026 remain the Incoterms 2020 published by the International Chamber of Commerce (ICC). They include eleven terms, seven of which apply to all modes of transportation—including packages shipped via UPS, FedEx, Purolator, DHL, or Canada Post—and four that apply only to maritime or inland waterway transportation.

Here's a practical guide to choosing the right option when shipping packages rather than containers.

What an Incoterm Covers—and What It Doesn't Cover

An Incoterm answers just three questions:

• Who organizes and pays for transportation?, to what exact extent;
• Where the Risk Lies from the seller to the buyer (the point of transfer of risk);
• Who handles customs clearance? for exports and imports, and who pays the duties and taxes.

An Incoterm does not specify the transfer of ownership, the method of payment, the applicable law, or the court with jurisdiction in the event of a dispute. This is the most common mistake: believing that «DDP Montreal» serves as a sales contract. A separate contract is required.

The 5 Terms That Really Matter for an SME

EXW — Ex Works (At the factory)

The seller makes the goods available at its warehouse. Everything else—loading, transportation, export, import, and duties—is the buyer’s responsibility. In practice, EXW is almost always a bad choice for a Canadian exporter: your foreign buyer has neither a carrier account in Canada nor the ability to file a Canadian export declaration. You end up doing everything without getting paid for it.

FCA — Free Carrier

The seller delivers to the designated carrier at an agreed-upon location, with export customs clearance included. Risk transfers at that point. This is the term recommended by the ICC to replace EXW, and it is well-suited for package shipments: you hand over the box to the Purolator pickup or at the UPS drop-off location, and your responsibility ends there.

CPT and CIP — Carriage Paid To / Carriage Paid To, Insurance Included

The seller pays for shipping to the destination, but the Risk passes upon delivery to the first carrier. It’s the classic trap: you pay for shipping to Lyon, but if the package gets crushed in Toronto, the buyer bears the loss. With CIP, you must also purchase insurance—and since 2020, at the «all risks» coverage level (Clause A of the Institute Cargo Clauses), not just the minimum.

DAP — Delivered at Place (Delivered at the destination)

You deliver to the customer's address, ready for unloading. You assume all risk and responsibility for transportation until delivery is complete, but the buyer remains liable for import duties and taxes. This is the standard procedure for most international express shipments: the recipient receives a call from the freight forwarder before delivery.

DDP — Delivered Duty Paid

You pay for everything, including import duties and taxes. This is the smoothest experience for a B2C customer—and the one that online shoppers now expect. The downside: you must be able to act as the official importer in the destination country, which sometimes requires local VAT registration. In the United Kingdom and the EU, IOSS registration resolves this issue for low-value shipments.

Comparison Chart: The 5 Terms at a Glance

The responsibilities described below are based on the ICC’s Incoterms 2020. The actual terms depend on the signed contract and the carrier’s service agreement.

How this will affect your bill

Let’s consider a 4-kg shipment from an SME in Laval to a customer in Germany, with a declared value of 600 $ CA.

• In DAP, you pay for shipping (around 90 to 140 $, depending on the service). Your customer receives a customs clearance notice, pays approximately 19 % in German VAT plus a broker’s handling fee of 15 to 25 €, and picks up their package. Some of these customers refuse the package at that point—and you then pay for the return shipping.
• In DDP, you add the sales tax and brokerage fees to your selling price up front. The package is delivered without a hitch. Your total cost goes up, but your return rate plummets.

For B2C transactions, the difference in acceptance rates almost always justifies using DDP. For B2B transactions with a buyer who imports regularly, DAP is simpler and less expensive.

The Four Most Costly Mistakes

1. Write the Incoterm without the location. «DAP» on its own means nothing. It must be «DAP — 12 Hauptstrasse, 10115 Berlin, Incoterms 2020.» Without a specified location, the point of transfer of risk cannot be determined.
2. Do not mention the version. Always specify «Incoterms 2020.» The meanings of some terms have changed from one version to the next.
3. Use CIF or FOB for packages. These terms are reserved for maritime transport. Using them for an air shipment creates ambiguity that an insurer will exploit in the event of a claim.
4. Selling DDP without verifying feasibility. Some countries do not allow non-residents to act as official importers. Check before informing the customer.

How to Apply It to Your Next Mailing

Include the Incoterm in three places: on the quote, on the commercial invoice included with the shipment, and in the «delivery terms» field of your shipping software. All three must match. A discrepancy between the commercial invoice and the shipping label is one of the most common causes of customs delays.

Next, tailor your insurance coverage to the term you’ve chosen. With CIP and DDP, you bear the risk for the longest period of time: an accurate declared value and adequate coverage are not optional.

Do you ship internationally and are you unsure whether to use DAP or DDP for your customers? The consultants at’Shipping Store compare the scenarios with your actual volumes and destinations, and prepare the corresponding customs documentation. Find the nearest service location and get a quote at expertshipping.ca.

The amounts listed are for reference only and vary depending on the carrier, the service selected, the destination, and your rate agreement.