Incoterms 2020 explained for first-time importers and exporters
What Incoterms are
Incoterms are standard trade terms published by the International Chamber of Commerce (ICC). The current version, Incoterms 2020, has 11 rules. Each one is a three-letter code that tells both sides who arranges transport, who pays for it, and the exact point where the risk of loss or damage moves from seller to buyer.
Always write the rule, a named place and the version, for example FOB Mundra Incoterms 2020. "FOB" on its own leaves room for argument.
What they don't cover
Incoterms say nothing about when ownership passes, how or when you pay, or what happens if the goods are faulty. Those belong in your sales contract.
The 11 rules at a glance
| Rule | Transport | Main freight paid by | Risk passes to buyer |
|---|---|---|---|
| EXW | Any | Buyer | When goods are made available at the seller's premises |
| FCA | Any | Buyer | When handed to the buyer's carrier at the named place |
| CPT | Any | Seller | When handed to the first carrier |
| CIP | Any | Seller, plus insurance | When handed to the first carrier |
| DAP | Any | Seller | At the destination, ready for unloading |
| DPU | Any | Seller | At the destination, once unloaded |
| DDP | Any | Seller, plus import duty and tax | At the destination, cleared for import |
| FAS | Sea | Buyer | Alongside the vessel at the port of shipment |
| FOB | Sea | Buyer | On board the vessel at the port of shipment |
| CFR | Sea | Seller | On board the vessel at the port of shipment |
| CIF | Sea | Seller, plus insurance | On board the vessel at the port of shipment |
The C-terms catch
Under CFR, CIF, CPT and CIP, the seller pays freight all the way to the destination, but risk passes to the buyer much earlier, at origin. If the goods are damaged at sea under CIF, it's the buyer who claims on the insurance. Many first-time importers assume the opposite.
Why FOB is awkward for containers
FOB risk passes when goods are on board the ship. Container cargo, though, is handed over at a terminal, often days before loading, and the seller loses control of it there. The ICC suggests FCA for containerised goods for this reason. FOB still works well for bulk cargo loaded straight onto the vessel.
Insurance under CIF and CIP
Only CIF and CIP oblige the seller to insure the goods. Under Incoterms 2020, CIF needs only minimum cover (Institute Cargo Clauses C), while CIP needs broader all-risks cover (Clauses A). If you buy CIF, check what the policy covers or arrange your own.
The two extremes: EXW and DDP
EXW puts almost everything on the buyer, including export clearance in the seller's country, which a foreign buyer often can't do. FCA is usually the more practical "minimum" term. DDP puts almost everything on the seller, including paying import duty and tax in the buyer's country. That may require a local tax registration the seller doesn't have.
Incoterms and trade data
Shipment records usually state values on an FOB or CIF basis, depending on the country. Before you compare prices across countries, check which basis each one uses. Our guide to benchmarking prices shows how.