Incoterms 2020:
All 11 Rules Explained
The complete field guide to the 11 trade terms that decide who pays for what, who insures what, and who eats the loss when something goes wrong.
By the Syqora Group Team
FMC NVOCC #118446 · Operating from Guangzhou since 1995
Incoterms are the most-used three-letter contract clauses in international trade. They are published by the International Chamber of Commerce (ICC) and updated about every ten years. The current version is Incoterms 2020, in force since January 1, 2020.
This guide walks through all 11 Incoterms, what each one obligates the seller and buyer to do, and which one fits which kind of shipment. Bookmark this for the next time you need a quick reference.
What Incoterms cover and what they do not
Incoterms govern delivery, risk transfer, cost allocation, and customs responsibility between seller and buyer. They do NOT cover ownership transfer, payment terms, or contract law. Those need separate clauses.
The 11 rules at a glance
| Code | Name | Mode | Risk Transfer |
|---|---|---|---|
| EXW | Ex Works | Any | At seller's premises |
| FCA | Free Carrier | Any | When loaded onto buyer's carrier |
| CPT | Carriage Paid To | Any | When handed to first carrier |
| CIP | Carriage and Insurance Paid To | Any | When handed to first carrier |
| DAP | Delivered at Place | Any | At named destination, before unloading |
| DPU | Delivered at Place Unloaded | Any | At named destination, after unloading |
| DDP | Delivered Duty Paid | Any | At named destination |
| FAS | Free Alongside Ship | Sea only | At origin port, alongside vessel |
| FOB | Free On Board | Sea only | When loaded onto vessel |
| CFR | Cost and Freight | Sea only | When loaded onto vessel |
| CIF | Cost, Insurance and Freight | Sea only | When loaded onto vessel |
The 4 multimodal rules (any transport mode)
Seller makes goods available at their premises. Buyer arranges everything: loading, export clearance, freight, insurance, import clearance, duties, delivery.
When to use: domestic trade only. For international trade, FCA is almost always better. See EXW vs FCA breakdown.
Seller loads goods onto buyer's carrier and handles export clearance. Buyer arranges international transport, insurance, and import clearance.
When to use: the recommended default for most international shipments, especially air freight. Replaces EXW and FOB for non-vessel transport.
Seller pays for transport to named destination, but risk transfers at origin (when goods are handed to first carrier). Buyer carries risk during transit.
When to use: rarely. The risk and cost transfer at different points creates buyer-side complications. CIF/CFR or DAP usually fits better.
Same as CPT, but seller also buys insurance during transit. Under Incoterms 2020, CIP requires "all risks" insurance (a notable change from 2010).
When to use: when seller has stronger insurance relationships or buyer wants insurance bundled. Rare in practice.
Seller delivers to named destination but does NOT clear import customs or pay duties. Buyer handles import.
When to use: when buyer wants seller-arranged transport but retains customs control. See DAP vs FCA breakdown.
New in 2020 (replaced DAT). Seller delivers AND unloads at destination. Buyer still handles import customs and duties.
When to use: when buyer specifically wants unloading included. Common for project cargo where unloading requires specialized equipment.
Maximum seller obligation. Seller delivers, clears import customs, AND pays duties. Buyer just receives the goods.
When to use: first-time importers, small one-off shipments, or when seller has genuine US logistics partner. See FOB vs DDP breakdown.
The 4 sea/inland-waterway rules
Seller delivers goods alongside the vessel (on the dock, in a barge, etc.). Buyer handles loading and everything after.
When to use: bulk and break-bulk cargo (commodities, project cargo) where vessel loading is non-trivial. Rare for containerized cargo.
Seller loads goods onto the vessel. Buyer handles ocean freight, insurance, destination clearance, duties, delivery.
When to use: containerized ocean cargo. Most-used Incoterm for trans-Pacific imports.
Seller pays for ocean freight to destination port. Risk transfers when loaded onto vessel at origin. Buyer handles insurance, destination clearance, duties, delivery.
When to use: when seller has better ocean rates and buyer is fine carrying transit risk. Common in commodity trade.
Same as CFR but seller also buys insurance. Under Incoterms 2020, CIF still only requires minimum (Clause C) insurance, unlike CIP which now requires all-risks.
When to use: when buyer wants seller-arranged ocean freight and insurance bundled. Common in markets where buyers cannot easily purchase marine insurance.
What changed in 2020 vs 2010
- DAT renamed to DPU: Delivered at Terminal became Delivered at Place Unloaded, broadening the named place beyond terminals.
- CIP insurance level increased: now requires "all risks" (Clause A) coverage. CIF stayed at minimum (Clause C).
- FCA bill of lading clarification: parties can agree the carrier will issue an "onboard" bill of lading to the seller, helping with letter of credit transactions.
- Buyer/seller's own transport: 2020 explicitly recognizes that buyers under F-terms and sellers under D-terms can use their own transport.
- Security and obligations expanded: clearer allocation of security-related costs and obligations.
Common mistakes
Using FOB for non-sea transport
FOB requires goods to be loaded onto a vessel. It is wrong for air freight, road freight, or rail. Use FCA instead. Plenty of forwarders still write FOB on air shipments, but the contract language is sloppy.
Confusing DAP and DDP
DAP: seller delivers, buyer pays duty. DDP: seller delivers AND pays duty. The difference is meaningful when import duty rates are significant (which they are for most Chinese goods).
Using EXW for cross-border trade
EXW puts the buyer in charge of export clearance in the seller's country, which most foreign buyers cannot do. FCA at the seller's premises gives you the same physical handoff with proper legal coverage.
Treating Incoterms as a payment term
Incoterms do not address payment. They tell you who delivers and who carries risk. Payment terms (NET 30, LC at sight, T/T, etc.) need to be specified separately.
Not specifying the named place precisely
"FOB Shanghai" is ambiguous because Shanghai has multiple terminals. "FOB Shanghai (Yangshan)" is precise. Vague named places lead to disputes about which exact location the seller fulfilled their obligation at.
How to pick the right Incoterm
The decision usually comes down to:
- Do you have your own freight relationship? If yes, FCA or FOB. If no, DAP or DDP.
- Who clears customs at destination? If you, anything except DDP. If seller, DDP.
- How big is the shipment? Small and one-off: DDP is acceptable. Large volume: FCA or FOB is better.
- What mode of transport? Sea: FOB or CIF. Air or multimodal: FCA.
- Where is the duty risk? High duty rates (e.g., Section 301 on China): FOB so you control customs broker.
Bottom line
For most US importers buying containerized goods from Asia, FOB is the default and right choice. For first-time importers, DDP is acceptable as a learning crutch. FCA is the underused alternative that works for any transport mode and avoids the EXW legal trap.
Pick the Incoterm based on who controls what, not based on which one looks cheapest. Cheapness is an illusion when the bundled costs hit downstream.
Further reading
- FOB vs DDP: cost and risk breakdown
- EXW vs FCA: the difference that costs sellers money
- DAP vs FCA: when delivery means delivery
- NVOCC vs freight forwarder
- FCL vs LCL shipping
Picking the right term for your deal?
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Tell us the supplier, the goods, and the destination. We will quote FOB and DDP side by side so you can see the real spread.