What Incoterms 2020 are, how the 11 rules split cost and risk between buyer and seller, and how to choose the right one for your next shipment.
6 min read
When you request a quote for goods shipped across borders, one short code changes the price more than almost anything else: the Incoterm. Two quotes for the same product can look very different simply because one includes sea freight and insurance and the other stops at the factory gate.
This guide explains what Incoterms are, what they do and do not cover, and how to pick the right rule for your purchase.
What are Incoterms?
Incoterms (International Commercial Terms) are a set of standard trade rules published by the International Chamber of Commerce (ICC). The current version, Incoterms 2020, came into effect on 1 January 2020.
Each rule is a three-letter code that answers three questions:
- Who arranges and pays for each part of transport, from the seller's premises to the buyer's destination.
- Where risk passes from seller to buyer, meaning who bears the loss if goods are damaged or lost on the way.
- Who handles export and import clearance, including customs formalities and duties.
Always write the rule together with a named place and the version, for example "FOB Jeddah Islamic Port, Incoterms 2020". Without the named place, the rule is incomplete.
What Incoterms do not cover
Incoterms are often misunderstood. They do not decide:
- the price or currency of the goods,
- payment terms or the method of payment,
- when ownership (title) of the goods transfers,
- what happens if one party breaches the contract.
These points belong in your sales contract. Incoterms sit inside that contract; they do not replace it.
The 11 rules at a glance
Incoterms 2020 has 11 rules in two groups.
Rules for any mode of transport
These work for sea, air, road, rail or a combination, including containerised shipments.
| Rule | Name | Risk passes to the buyer when… |
|---|---|---|
| EXW | Ex Works | Goods are made available at the seller's premises |
| FCA | Free Carrier | Goods are handed to the buyer's carrier at the named place |
| CPT | Carriage Paid To | Goods are handed to the first carrier; seller pays freight to destination |
| CIP | Carriage and Insurance Paid To | As CPT, and the seller also buys insurance |
| DAP | Delivered at Place | Goods arrive at the named destination, ready for unloading |
| DPU | Delivered at Place Unloaded | Goods are unloaded at the named destination |
| DDP | Delivered Duty Paid | Goods arrive at destination, cleared for import with duties paid |
Rules for sea and inland waterway only
| Rule | Name | Risk passes to the buyer when… |
|---|---|---|
| FAS | Free Alongside Ship | Goods are placed alongside the vessel at the port of loading |
| FOB | Free On Board | Goods are loaded on board the vessel at the port of loading |
| CFR | Cost and Freight | Goods are on board; seller pays freight to the destination port |
| CIF | Cost, Insurance and Freight | As CFR, and the seller also buys insurance |
Notice the pattern in the "C" rules (CPT, CIP, CFR, CIF). The seller pays for main transport to the destination, but risk passes at origin. If cargo is damaged at sea under CIF, the buyer bears the risk and claims on the insurance the seller arranged.
What changed in Incoterms 2020
If you are used to the 2010 version, three changes matter most:
- DAT became DPU. "Delivered at Terminal" was renamed "Delivered at Place Unloaded", because unloading can happen at any place, not only a terminal.
- Higher insurance under CIP. CIP now requires broader cover (Institute Cargo Clauses A, "all risks"). CIF still requires only the minimum cover (Clauses C), unless the parties agree more.
- FCA and on-board bills of lading. Under FCA, the parties can agree that the buyer's carrier will issue an on-board bill of lading to the seller. This helps when a letter of credit requires one.
How to choose the right Incoterm
There is no single best rule. The right choice depends on your experience, your logistics partners and how much control you want.
Choose EXW or FCA if you have a freight forwarder at origin and want full control over shipping costs and routing. FCA is usually more practical than EXW, because under EXW the buyer is responsible for export clearance in the seller's country, which can be hard to do as a foreign buyer.
Choose FOB if you buy goods shipped by sea in bulk or break-bulk and have your own forwarder or shipping line. For containers, FCA is often a better fit, since the seller hands over the container at a terminal before it is loaded on board.
Choose CFR or CIF if you prefer the seller to book main freight to your port. Check who your insurer is under CIF, and whether minimum cover is enough for your goods.
Choose DAP or DDP if you want a delivered price and minimal involvement. Be careful with DDP: the seller must handle import clearance and pay duties in your country, which not every seller can do.
Choose "not sure" if you are new to importing. A good trading partner can explain the options and quote on more than one basis, so you can compare.
Practical tips
- Match the rule to the transport mode. Do not use FOB or CIF for air freight or for containers handed over inland.
- Name the place precisely. "CIF Rotterdam" is weaker than "CIF Port of Rotterdam, Maasvlakte terminal, Incoterms 2020".
- Ask what is excluded. Terminal handling charges, inspection fees and destination charges are common sources of surprise.
- Align insurance with risk. Whoever carries the risk at each stage should be sure the cargo is insured for that stage.
- Keep the version. Older contracts may still reference Incoterms 2010. State the version every time.
Requesting a quote with the right Incoterm
When you ask for a price, include your preferred Incoterm, the named place and the destination country. If you are not sure, say so: it is better to compare an FOB and a CIF price side by side than to guess.
Ready to source your next shipment? Request a quote with your product, quantity, destination and preferred Incoterm, and we will come back with the next steps.
This article is general guidance, not legal, tax or customs advice. Rules change; confirm requirements for your shipment with the relevant authorities.
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