Incoterms 2020 explained

What Incoterms are — and what they are not

Incoterms, published by the International Chamber of Commerce, define the division of cost, risk and responsibility between a buyer and seller. They do not determine when ownership (title) transfers, nor do they replace your sales contract — they slot into it. The current edition is Incoterms 2020.

Every term is followed by a named place, e.g. FOB Shanghai or DAP Birmingham. That place is where the key responsibility or risk handover happens.

The 11 rules, grouped

Seven rules work for any mode of transport, and four are for sea freight only.

Any transport mode

• EXW — Ex Works: buyer collects from the seller's premises and takes on almost everything.
• FCA — Free Carrier: seller hands goods to the buyer's nominated carrier; risk passes there.
• CPT / CIP: seller pays carriage (and, for CIP, insurance) to the named place, but risk passes earlier, at the first carrier.
• DAP / DPU: seller delivers to the destination (DPU also unloads); buyer clears import.
• DDP — Delivered Duty Paid: seller does everything, including import duties — maximum seller obligation.

Sea and inland waterway only

• FAS — Free Alongside Ship
• FOB — Free On Board
• CFR — Cost and Freight
• CIF — Cost, Insurance and Freight

The mistake that costs importers money

The most common error is assuming that whoever pays the freight also carries the risk. Under CFR and CIF, the seller pays freight to the destination port — but risk passes to the buyer at the origin port the moment goods are loaded. If the vessel is lost mid-voyage, that's the buyer's problem. This is exactly why cargo insurance matters regardless of Incoterm.

How to choose the right Incoterm

New importers are usually best served by terms where the seller manages more of the journey (such as CIF, CPT or DAP) until they build their own forwarding relationships. Experienced buyers often prefer FOB or FCA to control the main carriage and capture better freight rates through their own forwarder. If you're unsure, we'll recommend the term that gives you the most control for the least risk.