Incoterms 2020 Explained: All 11 Terms in Plain English

Incoterms 2020 are eleven standardised trade rules published by the International Chamber of Commerce that define, for each sale, which costs the seller bears, where risk transfers to the buyer, and who handles export and import clearance. They allocate cost and risk — not ownership, payment terms, or who physically books the freight.

The eleven rules in one pass

Any-mode terms: EXW (buyer collects at seller's premises — maximum buyer burden), FCA (seller delivers to buyer's carrier, export-cleared), CPT and CIP (seller pays carriage — and insurance under CIP — to destination, but risk transfers at origin handover), DAP (seller delivers to destination, buyer clears import), DPU (seller delivers and unloads), DDP (seller does everything including import duty — maximum seller burden).

Sea-only terms: FAS (alongside vessel), FOB (risk transfers when goods are on board; buyer pays ocean freight), CFR (seller pays ocean freight, risk still transfers on board at origin), CIF (CFR plus seller-provided marine insurance at minimum ICC(C) cover).

The two mistakes desks see weekly

First: using FOB/CFR/CIF for containerised cargo. Those terms transfer risk 'on board the vessel', but containers are handed over days earlier at the terminal — leaving a risk gap the ICC itself warns about. The container-correct equivalents are FCA (for FOB), CPT (for CFR), and CIP (for CIF).

Second: confusing cost transfer with risk transfer on the C-terms. Under CIF, the seller pays freight to the destination port, but risk passed to the buyer when the goods went on board at origin — cargo lost mid-ocean is the buyer's insurance claim, not the seller's failure to deliver. This single misunderstanding causes more trade disputes than any other Incoterms issue.

What Incoterms do not decide

Incoterms are silent on ownership/title transfer, payment terms, and — critically for forwarders — who actually nominates and books the freight. A buyer purchasing FOB typically controls carrier choice via their forwarder (a 'nominated' shipment); a seller selling CIF controls routing. This is why the same Incoterm produces opposite freight-buying relationships depending on which side your customer sits — and why a forwarder's sales team should read every prospect's Incoterms mix before pitching.

Frequently Asked Questions

What is the difference between Incoterms 2010 and 2020?

The 2020 revision renamed DAT to DPU (delivery can be any unloaded place, not just a terminal), raised CIP's default insurance to ICC(A) all-risks while CIF stayed at ICC(C), and clarified FCA on-board bills of lading for letter-of-credit use. Older-term contracts remain valid if they state the edition.

Which Incoterm is best for a first-time importer?

FCA or FOB gives the buyer control of the main freight leg through their own forwarder while the seller handles export formalities. EXW looks cheapest but transfers export-clearance burden to the buyer, and DDP hides freight and duty costs in the goods price.

Why shouldn't FOB be used for containers?

FOB transfers risk when goods are placed on board the vessel, but containerised cargo leaves the seller's control at the terminal gate days earlier. If cargo is damaged in the yard, neither party's cover may respond cleanly. FCA moves the risk-transfer point to the actual handover.

Does DDP include VAT and import duty?

DDP makes the seller responsible for import clearance and duties. Whether local VAT/GST is recoverable by a foreign seller varies by country — which is why many sellers offer 'DDP excluding VAT' or prefer DAP and leave import taxes to the buyer.