Incoterms 2020 are the 11 standardised three-letter trade terms published by the International Chamber of Commerce (ICC) that define exactly where a seller's responsibility ends and a buyer's begins in an international sale. They settle three things every shipment depends on: who arranges and pays for each leg of transport, who carries the risk if the goods are lost or damaged, and who handles export and import clearance. Getting the term right prevents disputes, surprise charges, and cargo stuck at a port.
What Incoterms 2020 actually cover (and what they don't)
Incoterms define the division of cost, risk, and obligations between buyer and seller. They do not transfer title or ownership, set the price, specify the payment method, or govern what happens in a breach of contract. Two ideas trip people up most often, so hold onto them:
- Cost transfer and risk transfer are different points. Under some terms the seller pays freight to the destination but risk has already passed to the buyer much earlier. The buyer can end up owning the risk on cargo the seller is still paying to move.
- The named place matters as much as the term. Every Incoterm must be quoted with a location, for example "FOB Shanghai" or "DAP Rotterdam". Without a precise named place the term is ambiguous.
The two families of Incoterms 2020
The 11 rules split into two groups by the transport they suit. Choosing a sea-only term for an air or truck shipment is one of the most common and costly mistakes in freight documentation.
Rules for any mode of transport (7)
Use these for air, road, rail, courier, or multimodal moves, and for containerised sea freight handed over at a terminal rather than loaded onto a vessel by the seller: EXW, FCA, CPT, CIP, DAP, DPU, DDP.
Rules for sea and inland waterway only (4)
Use these only when goods are physically loaded onto a vessel, typically bulk or non-containerised cargo: FAS, FOB, CFR, CIF. For containers, ICC recommends FCA, CPT or CIP instead of FOB, CFR or CIF, because the container is handed to the carrier at a terminal, not lifted over the ship's rail.
All 11 Incoterms 2020 at a glance
| Term | Full name | Mode | Risk passes to buyer | Seller pays main carriage | Import clearance |
|---|---|---|---|---|---|
| EXW | Ex Works | Any | At seller's premises | No | Buyer |
| FCA | Free Carrier | Any | When handed to buyer's carrier | No | Buyer |
| CPT | Carriage Paid To | Any | When handed to first carrier | Yes | Buyer |
| CIP | Carriage & Insurance Paid To | Any | When handed to first carrier | Yes (+ all-risk insurance) | Buyer |
| DAP | Delivered at Place | Any | At destination, ready for unloading | Yes | Buyer |
| DPU | Delivered at Place Unloaded | Any | At destination, once unloaded | Yes | Buyer |
| DDP | Delivered Duty Paid | Any | At destination, ready for unloading | Yes | Seller |
| FAS | Free Alongside Ship | Sea/inland waterway | Alongside the vessel | No | Buyer |
| FOB | Free On Board | Sea/inland waterway | Once on board the vessel | No | Buyer |
| CFR | Cost & Freight | Sea/inland waterway | Once on board the vessel | Yes | Buyer |
| CIF | Cost, Insurance & Freight | Sea/inland waterway | Once on board the vessel | Yes (+ minimum insurance) | Buyer |
The four terms everyone asks about
EXW meaning: Ex Works
EXW places the maximum obligation on the buyer. The seller simply makes the goods available at their own factory or warehouse; the buyer arranges collection, export clearance, all transport, and import clearance from that point. Risk passes the moment the goods are placed at the buyer's disposal. It looks cheap on a quote, but the buyer becomes responsible for export formalities in a country where they may have no standing, and often cannot get the export documents needed to reclaim VAT or prove export. For most cross-border buyers, FCA is a safer alternative to EXW because the seller then handles export clearance.
FOB vs CIF
This is the classic comparison in sea freight. Under FOB (Free On Board) the seller delivers the goods on board the vessel at the origin port and clears them for export; from that point the buyer pays ocean freight, insurance, and everything onward. Under CIF (Cost, Insurance and Freight) the seller pays the ocean freight and buys insurance to the destination port, but here is the catch: risk still passes to the buyer once the goods are on board at origin, exactly as with FOB. So under CIF the buyer bears the risk of a mid-ocean loss while the seller holds the insurance policy. FOB gives the buyer control of carrier choice and freight cost and is widely preferred by experienced importers; CIF is convenient but the buyer pays a marked-up freight rate and relies on the seller's minimum-cover policy.
DDP shipping
DDP (Delivered Duty Paid) is the mirror image of EXW: maximum obligation on the seller. The seller delivers to the buyer's door with everything paid, including import duties, taxes, and customs clearance in the destination country. It is attractive to buyers who want a single all-in landed price, but it is risky for sellers, who must act as importer of record in a foreign jurisdiction, register for local taxes where required, and absorb any clearance delays or unexpected duty. Many sellers who quote DDP casually end up unable to reclaim import VAT. DAP or DPU is usually the smarter delivered term, leaving import clearance with the party that is actually established in the destination country.
Insurance: the key 2020 change (CIP vs CIF)
Only two Incoterms oblige the seller to buy insurance: CIF and CIP. The 2020 revision split their cover levels. CIP now requires all-risk cover (equivalent to Institute Cargo Clauses A), while CIF still requires only minimum cover (Institute Cargo Clauses C). Clauses C covers a short list of named perils and leaves most cargo exposed, so under CIF a prudent buyer should arrange additional insurance rather than rely on the seller's baseline policy. Under all other nine terms, neither party is obliged to insure, so whoever bears the risk at a given moment should carry their own cover.
Other 2020 updates worth knowing
- DAT became DPU. The old "Delivered at Terminal" was renamed Delivered at Place Unloaded to make clear delivery can happen at any place, not just a terminal, and DPU is the only term where the seller unloads at destination.
- FCA and the on-board bill of lading. Incoterms 2020 lets buyer and seller agree that the carrier issues an on-board bill of lading to the seller under FCA, solving a long-standing problem for containerised cargo under letters of credit.
- Own-transport recognised. The rules now explicitly allow the buyer or seller to move goods with their own vehicles rather than always hiring a third-party carrier.
How to choose the right Incoterm
- Match the term to the transport mode. Containers and multimodal moves want FCA, CPT or CIP, not FOB, CFR or CIF.
- Decide who controls the freight. Buyers who want carrier choice and cost control lean toward FCA or FOB; those who want an all-in landed price lean toward DAP.
- Avoid EXW and DDP unless you truly understand the customs exposure in the other country.
- Always name a precise place and state "Incoterms 2020" in the contract so the version is unambiguous.
- Confirm insurance separately whenever the term does not oblige it, and top up CIF cover.
A good freight forwarder will recommend the term that matches your route, cargo, and risk appetite, and quote each leg transparently. If you are weighing what each option costs, our guide to freight forwarding costs breaks down the charges that sit behind every Incoterm, and unfamiliar terms are defined in our freight glossary.
Ship with the right term and the right partner
Incoterms only work when the forwarder on the ground executes them correctly. Compare verified freight forwarders in the CargoLinked directory, tell them your preferred Incoterm and route, and get competitive quotes from providers who handle the clearance and carriage your term assigns to them.
