Incoterms® 2020
Complete guide to the 11 Incoterms® 2020: allocation of costs and risks, choosing the right Incoterm for each mode of transport and transaction.
Related tool: - Try the tool →What are Incoterms?
Incoterms (International Commercial Terms) are a set of 11 standardised trade rules published by the International Chamber of Commerce (ICC). First introduced in 1936, the current version - Incoterms 2020 - came into effect on 1 January 2020 and remains the applicable edition in 2026.
A critical point that many traders misunderstand: Incoterms are not law. They are contractual terms that only apply when the parties to a sales contract explicitly incorporate them. The correct reference is: "[Incoterm] [named place], Incoterms 2020" - for example, "CIF Hamburg, Incoterms 2020".
What Incoterms define
Each Incoterm precisely allocates between buyer and seller:
- Costs: who pays for transport, insurance, loading/unloading, customs formalities, duties, and terminal handling
- Risks: the exact point where risk of loss or damage transfers from seller to buyer
- Obligations: who arranges transport, who obtains export/import clearance, who provides documents
What Incoterms do NOT define
Incoterms do not address:
- Transfer of ownership or title to the goods
- Payment terms or price
- Applicable law or jurisdiction for disputes
- Consequences of breach of contract
- Sanctions or trade restrictions
These must be covered separately in the sales contract, payment terms, and governing law clauses.
The 11 Incoterms 2020 - overview
Incoterms 2020 are divided into two groups based on the mode of transport:
Rules for any mode of transport (7 rules)
These apply whether the goods are carried by sea, air, rail, road, or a combination (multimodal):
| Incoterm | Name | Risk transfer point | Seller arranges transport? | Seller arranges insurance? |
|---|---|---|---|---|
| EXW | Ex Works | Seller's premises | No | No |
| FCA | Free Carrier | Delivery to carrier at named place | No | No |
| CPT | Carriage Paid To | Delivery to first carrier | Yes (to destination) | No |
| CIP | Carriage and Insurance Paid To | Delivery to first carrier | Yes (to destination) | Yes (all-risks) |
| DAP | Delivered at Place | Destination, not unloaded | Yes (to destination) | No (but recommended) |
| DPU | Delivered at Place Unloaded | Destination, unloaded | Yes (to destination) | No (but recommended) |
| DDP | Delivered Duty Paid | Destination, import cleared | Yes (to destination) | No (but recommended) |
Rules for sea and inland waterway transport only (4 rules)
These should only be used when goods are transported entirely by sea or inland waterway - not for containerised cargo delivered to a container terminal (use FCA, CPT, or CIP instead):
| Incoterm | Name | Risk transfer point | Seller arranges transport? | Seller arranges insurance? |
|---|---|---|---|---|
| FAS | Free Alongside Ship | Alongside vessel at port | No | No |
| FOB | Free on Board | On board vessel at port | No | No |
| CFR | Cost and Freight | On board vessel at port | Yes (to destination port) | No |
| CIF | Cost, Insurance and Freight | On board vessel at port | Yes (to destination port) | Yes (minimum cover) |
Detailed analysis of each Incoterm
EXW - Ex Works (named place of delivery)
Minimum obligation for the seller. The seller makes the goods available at their premises (factory, warehouse). The buyer bears all costs and risks from that point onward, including export clearance.
- Risk transfers: at the seller's premises when goods are placed at the buyer's disposal
- Export/import clearance: buyer handles both (problematic - see below)
- Best for: domestic sales or when the buyer has a strong logistics capability in the seller's country
- Common mistake: using EXW for international trade. In most countries, the foreign buyer cannot legally act as exporter for customs purposes. This makes EXW impractical for cross-border transactions. Use FCA instead.
FCA - Free Carrier (named place of delivery)
The most versatile Incoterm and the one recommended by the ICC for most international transactions, including containerised shipments.
- Risk transfers: when goods are delivered to the carrier at the named place. If delivery is at the seller's premises, risk passes when loaded onto the collecting vehicle. If elsewhere, risk passes when the goods are at the carrier's disposal, still on the seller's transport.
- Export clearance: seller's responsibility
- Import clearance: buyer's responsibility
- New in Incoterms 2020: FCA now includes an option for the buyer to instruct their carrier to issue an on-board bill of lading to the seller. This addresses a longstanding problem with letter of credit transactions requiring a B/L.
- Best for: containerised shipments, air freight, road transport, multimodal transport
CPT - Carriage Paid To (named place of destination)
The seller delivers goods to the first carrier and pays for transport to the named destination. However, risk transfers at the point of delivery to the first carrier, not at the destination. This creates a gap: the seller pays for carriage but the buyer bears the risk during transit.
- Risk transfers: when goods are handed to the first carrier
- Insurance: not required - the buyer bears the risk during main carriage but the seller has no obligation to insure
- Best for: multimodal shipments where the seller is in a better position to negotiate freight rates
- Common mistake: assuming risk transfers at destination. The buyer should arrange their own cargo insurance from the point of first carrier delivery.
CIP - Carriage and Insurance Paid To (named place of destination)
Identical to CPT, but the seller must also procure insurance for the buyer's benefit. Incoterms 2020 change: CIP now requires Institute Cargo Clauses (A) - all-risks cover - rather than the minimum cover (C clauses) required under Incoterms 2010.
- Risk transfers: when goods are handed to the first carrier (same as CPT)
- Insurance: seller must obtain all-risks (A clauses) cover for 110% of the contract value
- Best for: when the buyer wants the convenience of seller-arranged transport and adequate insurance
DAP - Delivered at Place (named place of destination)
The seller delivers the goods at the buyer's disposal, on the arriving transport, ready for unloading at the named destination. The seller bears all costs and risks up to the destination but is not responsible for unloading or import clearance.
- Risk transfers: when goods are placed at the buyer's disposal at the destination, on the arriving vehicle, not unloaded
- Import clearance: buyer's responsibility
- Best for: when the seller can arrange door-to-door transport and the buyer handles import formalities
DPU - Delivered at Place Unloaded (named place of destination)
New in Incoterms 2020 (replaces DAT - Delivered at Terminal from Incoterms 2010). The only Incoterm where the seller must unload the goods at the destination. The named place can be any location, not just a terminal.
- Risk transfers: when goods are unloaded at the named destination
- Import clearance: buyer's responsibility
- Best for: bulk cargo, situations where the seller has unloading capabilities at destination
- Caution: the seller must ensure they have the ability to unload at the destination point. If uncertain, use DAP instead.
DDP - Delivered Duty Paid (named place of destination)
Maximum obligation for the seller. The seller delivers goods cleared for import at the named destination. The seller bears all costs including transport, insurance (if taken), export and import duties, customs formalities, and all taxes (including VAT in some interpretations).
- Risk transfers: when goods are placed at the buyer's disposal at the destination, not unloaded
- Export/import clearance: both handled by the seller
- Best for: e-commerce, when the seller wants to offer a fully landed price, when the seller has a fiscal representative in the destination country
- Common mistake: the seller may not be able to act as importer of record in the destination country. In the EU, a non-established entity typically needs a fiscal representative to clear goods and pay import VAT. Always verify this before committing to DDP.
FAS - Free Alongside Ship (named port of shipment)
The seller delivers when the goods are placed alongside the vessel at the named port. Only for sea or inland waterway transport.
- Risk transfers: alongside the vessel at the loading port
- Export clearance: seller's responsibility (changed from Incoterms 2000)
- Best for: bulk commodities loaded by the buyer (grain, ore, oil)
- Rarely used in practice for general cargo
FOB - Free on Board (named port of shipment)
The seller delivers when the goods are on board the vessel at the named port of shipment. The buyer arranges and pays for the main carriage.
- Risk transfers: when goods pass on board the vessel
- Export clearance: seller's responsibility
- Import clearance: buyer's responsibility
- Best for: bulk and break-bulk cargo where goods are physically loaded onto a vessel
- Common mistake: using FOB for containerised cargo. When goods are delivered to a container terminal (CY), they are handed to the carrier before being loaded on board. Risk should transfer at the terminal, making FCA the correct choice.
CFR - Cost and Freight (named port of destination)
The seller delivers goods on board the vessel at the port of shipment and pays freight to the destination port. Like CPT for sea transport: risk transfers at shipment, not destination.
- Risk transfers: when goods are on board the vessel at the loading port
- Insurance: not required by the seller
- Best for: bulk maritime shipments where the seller negotiates freight
- Same mistake as FOB: do not use for containerised cargo - use CPT instead
CIF - Cost, Insurance and Freight (named port of destination)
Identical to CFR plus the seller must procure marine insurance for the buyer. Unlike CIP, CIF requires only minimum cover - Institute Cargo Clauses (C) - unless otherwise agreed.
- Risk transfers: when goods are on board the vessel at the loading port
- Insurance: seller must obtain minimum (C clauses) cover for 110% of contract value
- Best for: commodity trading, bulk maritime shipments with basic insurance needs
- Important distinction from CIP: CIF = minimum insurance (C clauses); CIP = all-risks (A clauses). This was a significant change in Incoterms 2020.
Key differences from Incoterms 2010
| Change | Incoterms 2010 | Incoterms 2020 |
|---|---|---|
| DAT renamed | DAT (Delivered at Terminal) | DPU (Delivered at Place Unloaded) - destination no longer limited to a terminal |
| CIP insurance level | Institute Cargo Clauses (C) - minimum | Institute Cargo Clauses (A) - all-risks |
| CIF insurance level | Institute Cargo Clauses (C) - minimum | Unchanged - still (C) minimum |
| FCA + B/L option | Not available | Buyer can instruct carrier to issue on-board B/L to seller |
| Security-related obligations | Mentioned but vague | More detailed allocation of security clearance costs and obligations |
| Own transport | Assumed third-party carrier | Seller or buyer can use own means of transport (relevant for FCA, DAP, DPU, DDP) |
How to choose the right Incoterm
Decision framework
- What is your role? (buyer or seller)
- What mode of transport? Sea only → FOB/CIF may be appropriate. Containerised or multimodal → use "any mode" rules.
- Who should control transport? If the seller has better freight rates or logistics expertise, consider CPT/CIP/DAP/DDP. If the buyer prefers control, consider FCA/FOB.
- What level of risk are you willing to assume? EXW/FCA = minimum seller risk. DDP = maximum seller risk.
- Are import formalities feasible for you? If the seller cannot clear goods at destination, do not use DDP. If the buyer cannot clear goods at origin, do not use EXW.
- What does your letter of credit require? L/Cs often require specific transport documents. FCA with B/L option or CIF/CFR may be necessary.
Common recommendations
| Scenario | Recommended Incoterm |
|---|---|
| Container shipment, buyer arranges freight | FCA (named place) |
| Container shipment, seller arranges freight | CPT or CIP |
| Bulk maritime, buyer arranges freight | FOB |
| Bulk maritime, seller arranges freight | CIF or CFR |
| Door-to-door, seller handles everything | DDP (if import clearance feasible) |
| Door-to-door, buyer handles import clearance | DAP |
| E-commerce / small parcels | DDP or DAP |
| Buyer picks up from seller's warehouse | FCA (seller's premises) |
Frequently Asked Questions
- Are Incoterms 2020 mandatory or can I still use Incoterms 2010?
- Incoterms are not law - they are contractual terms. Parties can reference any edition they choose, and Incoterms 2010 contracts remain valid. However, Incoterms 2020 is the current and recommended edition. Always specify the version in your contract: "FCA Shanghai, Incoterms 2020". If you reference "Incoterms" without a year, courts and arbitrators will typically apply the latest version in effect at the time of the contract.
- Why should I avoid using FOB and CIF for containerised cargo?
- FOB and CIF define risk transfer as occurring when goods are "on board the vessel". With containerised cargo, the seller typically delivers the container to a terminal (CY - container yard) where it may sit for days before being loaded on board. During this period, the risk is in a grey zone: the seller has delivered the goods out of their control, but risk has not formally transferred to the buyer. FCA (for FOB scenarios) and CIP (for CIF scenarios) solve this by transferring risk at the point of delivery to the carrier, which for containers is the terminal. The ICC has consistently recommended using FCA instead of FOB for containerised shipments since Incoterms 2010.
- What is the difference between CIF and CIP insurance requirements?
- This is one of the most important changes in Incoterms 2020. CIF requires the seller to obtain minimum insurance coverage - Institute Cargo Clauses (C) - which covers named perils only (fire, explosion, sinking, collision, etc.) but excludes risks like theft, pilferage, and water damage. CIP, on the other hand, now requires Institute Cargo Clauses (A) - all-risks coverage - which covers all risks of physical loss or damage subject to specific exclusions. In both cases, coverage must be for at least 110% of the contract value. If you need comprehensive coverage under a maritime sale, either negotiate CIF with A-clauses or use CIP instead.
- Can a non-EU seller use DDP for exports to the European Union?
- Technically yes, but there are significant practical challenges. Under DDP, the seller is responsible for import clearance, payment of duties, and import VAT. In most EU Member States, a non-established entity cannot act as importer of record without a fiscal representative. The seller would need to appoint a fiscal representative, register for VAT in the destination country, and comply with all local reporting obligations. This adds complexity and cost. Many non-EU sellers opt for DAP instead, leaving import formalities to the buyer, or use DDP only when they have a subsidiary or fiscal representative already established in the EU.
- How does the FCA bill of lading option work in Incoterms 2020?
- In letter of credit transactions, banks often require presentation of an on-board bill of lading as proof of shipment. Under FCA, the seller's delivery obligation ends when goods are handed to the carrier - typically at an inland point or container terminal - before they are loaded on board a vessel. Historically, sellers using FCA could not obtain an on-board B/L because loading had not yet occurred. Incoterms 2020 added option A6(b)/B6(b) to FCA: the buyer may instruct their carrier to issue an on-board B/L to the seller after loading. This must be agreed in the contract and the seller has no obligation to provide a B/L unless this option is activated. It bridges the gap between the commercial need for a B/L and the practical reality of container logistics.