Incoterms 2020: Complete Guide for Importers and Exporters

Incoterms — International Commercial Terms — are the standardized rules that determine who pays for freight, who handles insurance, and who bears the risk of loss or damage at each point of an international shipment. Published by the International Chamber of Commerce (ICC), Incoterms 2020 is the current version in effect.

They matter more than most buyers and sellers realize. A misunderstood Incoterm creates a dispute about who owes $40,000 in freight charges, who files the insurance claim on a damaged shipment, or who pays the customs duties at the destination country. These disputes are common — and almost always traceable to contracts that specified an Incoterm without both parties understanding what it meant.

This guide explains all 11 Incoterms 2020 rules, what each means for cost and risk allocation, and which to use in different trade scenarios.

How Incoterms Work

Every Incoterm specifies two things:

The point of delivery — where the seller’s obligation ends and the buyer’s begins
Who arranges and pays for freight, insurance, and other services at each stage

Incoterms do not determine who owns the goods at any given point (that’s governed by the sales contract), and they do not cover all costs — import duties, taxes, and some terminal charges may fall outside the scope of the Incoterm and must be addressed separately in the contract.

Incoterms 2020 contains 11 rules organized into two groups:

Rules for any mode of transport (7 terms): EXW, FCA, CPT, CIP, DAP, DPU, DDP
Rules for sea and inland waterway only (4 terms): FAS, FOB, CFR, CIF

Using FOB or CIF for containerized cargo — which is one of the most common mistakes in international trade — creates problems because these terms were designed for bulk cargo where goods are loaded directly onto a vessel, not placed in a container at an inland freight station.

Rules for Any Mode of Transport

EXW — Ex Works

Risk transfers: at the seller’s premises (factory, warehouse)

The seller makes the goods available at their premises. Everything else — loading, export clearance, freight, insurance, import clearance — is the buyer’s responsibility.

When to use: when the buyer has strong logistics capability and wants maximum control over the supply chain. Common in manufacturing sourcing when the buyer has a freight forwarder managing the entire outbound journey.

Watch for: EXW creates a logistical complication — the seller isn’t responsible for loading the truck, which means if the goods are damaged during loading at the seller’s facility, liability is murky. FCA at a named place is often a better alternative for the same commercial intent.

FCA — Free Carrier

Risk transfers: when goods are handed to the carrier nominated by the buyer at a named place

FCA is the most versatile and commonly recommended term for modern containerized trade. If the named place is the seller’s premises, the seller loads the goods onto the buyer’s carrier. If the named place is anywhere else (a freight station, a port), the seller delivers unloaded.

Incoterms 2020 update: FCA was updated to allow the buyer to instruct the carrier to issue an on-board bill of lading to the seller — addressing the practical problem that sellers frequently need an on-board B/L for letters of credit, which wasn’t possible when risk transferred at a point before vessel loading.

When to use: the recommended default for containerized ocean freight, replacing FOB in most commercial scenarios. Also appropriate for air freight and road transport.

CPT — Carriage Paid To

Risk transfers: when goods are handed to the first carrier

The seller pays for carriage to the named destination, but risk transfers to the buyer when goods are handed to the first carrier — which may be far from the final destination. This split between where cost goes and where risk transfers is the source of most CPT disputes.

When to use: when the seller wants to arrange and pay for main carriage but doesn’t want to retain risk through the entire journey. Common for road freight in Europe.

CIP — Carriage and Insurance Paid To

Same as CPT, plus: the seller must procure insurance for the buyer’s risk during transit.

Incoterms 2020 update: CIP now requires Institute Cargo Clauses (A) insurance — the highest level — as the default. This is a significant change from Incoterms 2010, which required the lower (C) clauses.

When to use: when main carriage insurance is required or preferred to be arranged by the seller. Common for valuable cargo where the seller has better insurance terms than the buyer.

DAP — Delivered at Place

Risk transfers: at the named destination, ready for unloading, before import clearance

The seller arranges and pays for carriage to the named destination, including export clearance. Import clearance and unloading remain the buyer’s responsibility.

When to use: the most common term for door-to-door international shipments. The buyer retains control of import clearance (important when the buyer has established importer relationships and customs procedures).

DPU — Delivered at Place Unloaded

Same as DAP, plus: seller is also responsible for unloading at the named destination.

DPU is new in Incoterms 2020, replacing DAT (Delivered at Terminal). The expansion to “any place” (not just a terminal) reflects how modern logistics handles delivery.

When to use: when the seller wants to deliver goods physically unloaded at the destination — common for large or awkward freight where unloading equipment is at the seller’s arrangement.

DDP — Delivered Duty Paid

Risk transfers: at the named destination, with all duties paid

DDP is the maximum obligation for the seller — they handle everything including import clearance and duty payment. For the buyer, it’s the simplest arrangement: they receive goods with no further obligation.

When to use: when buyers want complete simplicity in an import transaction. Common in B2C cross-border e-commerce where the importer wants to offer a landed, duty-paid price.

Watch for: DDP is complex for sellers. They must have the legal standing to import in the destination country (importer of record), know the duty rates, and handle all customs documentation. Sellers unfamiliar with importing in the destination country should avoid DDP.

Rules for Sea and Inland Waterway Only

These four terms are specifically designed for bulk cargo loaded directly onto vessels — not for containerized freight. Using them for containerized shipments creates practical problems because the terms reference the ship’s rail as the transfer point, which has no practical meaning for goods in a container.

FAS — Free Alongside Ship

Risk transfers: when goods are placed alongside the vessel at the named port of shipment

The seller delivers goods to the quayside or barge at the loading port. Export clearance is the seller’s responsibility (updated in Incoterms 2020 from 2010 where it was ambiguous).

Best for: bulk commodities, break-bulk cargo. Rarely appropriate for containerized goods.

FOB — Free On Board

Risk transfers: when goods pass the ship’s rail at the port of shipment

FOB is the most commonly cited Incoterm — and the most commonly misused. For containerized freight, FOB is inappropriate because the practical point of risk transfer (when goods are handed to the carrier at an inland container depot) occurs well before the goods pass the ship’s rail.

Use FCA instead for containerized freight. FOB remains appropriate for bulk commodities and break-bulk cargo.

CFR — Cost and Freight

Risk transfers: at the port of shipment (same as FOB), but the seller pays for freight to the destination port

The seller pays for ocean freight but risk travels with the buyer from the port of origin. This is the same risk/cost split problem as CPT — the point where cost obligation ends (destination) is different from where risk transfers (origin port).

CIF — Cost, Insurance and Freight

Same as CFR, plus: seller arranges insurance for the buyer’s risk during the ocean voyage.

CIF requires only minimum Institute Cargo Clauses (C) coverage — lower than the (A) coverage now required under CIP. For valuable cargo, buyers should negotiate CIP instead or specify enhanced insurance requirements in the contract.

Choosing the Right Incoterm

The selection depends on three factors: who has the logistics expertise, how risk should be allocated, and who needs to control customs clearance.

Your situation	Recommended Incoterm
Buyer has strong freight forwarder, wants cost control	FCA or EXW
Containerized ocean freight, seller manages freight	FCA (preferred over FOB)
Seller wants to deliver door-to-door, buyer handles import	DAP
Complete door-to-door including duties	DDP
Bulk commodity, ocean only	FOB or CFR
Air freight, seller manages	CIP

Common Incoterms Mistakes

Using FOB for containerized cargo. As above: the risk transfer point (ship’s rail) is meaningless for containers. Use FCA with the named place as the container freight station or the seller’s premises.

Not naming a specific place. “FOB China” is incomplete. “FOB Port of Shanghai” is better. “FCA Seller’s Warehouse, Guangzhou, China” is specific enough to be enforceable.

Confusing risk transfer with ownership. Incoterms determine when risk passes; the sales contract determines when ownership passes. These are often the same point but don’t have to be.

Assuming CIF insurance is adequate. CIF requires only minimum (C) clauses coverage. For valuable goods, specify CIP (which now requires A-level coverage) or require A clauses explicitly in the contract.

Not specifying port charges allocation. Terminal handling charges, port congestion surcharges, and destination handling fees create disputes when the Incoterm doesn’t clearly address them. Specify in the contract which THC charges fall to which party.

Frequently Asked Questions

What replaced Incoterms 2010? Incoterms 2020 replaced Incoterms 2010 in January 2020. The main changes were: DAT renamed to DPU with expanded scope; FCA updated to allow on-board B/L issuance; CIP now requires higher insurance (Clauses A vs C); security requirements clarified across all terms.

Do Incoterms cover all costs? No. Incoterms define the point of delivery and core cost allocation but don’t cover all costs. Import duties, taxes, port surcharges, and some ancillary charges must be addressed separately in the contract.

Are Incoterms legally binding? Incoterms are not automatically part of any contract. They become binding when the contract explicitly incorporates them: “CIF Port of Rotterdam, Incoterms 2020” in the commercial terms makes the rule binding between the parties.

Which Incoterm is best for e-commerce? For international B2C e-commerce where the seller wants to offer a landed, duty-paid price, DDP gives buyers the simplest experience. DAP is more practical for sellers who don’t have importer-of-record capability in each destination country.