Incoterms 2020 Explained: The 11 ICC Rules

Incoterms are eleven three-letter rules, published by the International Chamber of Commerce, that answer one narrow question in a sale of goods: at which physical point does the seller’s job end and the buyer’s begin. The current set is Incoterms 2020, in force from 1 January 2020, and it does three things and only three. It fixes the point of delivery, it fixes where the risk of loss or damage passes from seller to buyer, and it allocates who pays for carriage, insurance, and customs clearance at each border. It does not transfer ownership, set the price, or govern payment. Those sit in the rest of the sales contract. Getting the term right decides who eats the cost of a typhoon-damaged container and who is named on the bill of lading; getting it wrong, FOB on a box that never touches the ship’s rail, leaves a seller on risk for cargo it cannot see or control.

This article walks the eleven rules in the two groups the ICC organizes them into, states for each one where risk transfers and who pays carriage, insurance, and export and import clearance, then covers the five changes from Incoterms 2010 (the DAT-to-DPU rename, the CIP insurance upgrade, the FCA on-board bill of lading option, the consolidated A9/B9 costs, and the new security obligations). It sits inside the wider freight forwarding and Incoterms hub, which routes the whole shipment from ex-works to landed cost and names where this Incoterms layer fits in that chain. It links to the Incoterms risk-transfer calculator, which returns the exact delivery and risk point for any of the eleven terms, and to the sibling cost articles for landed cost and import duty, cargo insured value, and ocean freight cost and surcharges that pick up where the term hands the cost over.

What Incoterms are, and the three things they are not

An Incoterm is a standardized abbreviation for a set of obligations. The letters EXW, FCA, FOB and the rest are trademarks of the ICC, and the full text that defines each one runs to several pages per rule in the ICC’s Incoterms 2020 book. Each rule is laid out as ten paired articles, A1 to A10 for the seller and B1 to B10 for the buyer, covering general obligations, delivery, transfer of risk, carriage, insurance, document handover, export and import clearance, checking and packaging, costs, and notices. When a contract says “FOB Shanghai Incoterms 2020,” it pulls that whole article set into the contract by reference, so the two parties don’t have to spell out who pays the load-port terminal charge or who files the export declaration. The term has already answered it.

The single most consequential thing to understand is what Incoterms do not cover, because the commonest disputes come from treating the term as the whole deal. Incoterms don’t transfer title or ownership of the goods; that passes when and how the sales contract and its governing law say it does, which is often on payment or on endorsement of the bill of lading, not at the Incoterm delivery point. Incoterms don’t set the price or govern payment: a letter of credit, an open-account term, or cash against documents lives in the payment clause, not the Incoterm. And Incoterms don’t deal with breach, force majeure, retention of title, or the consequences of a defective good. The ICC is explicit that the Incoterms rules are not a contract of sale and do not replace one; they are one input clause to it.

The reason the distinction bites is risk versus title. A seller shipping CIF can have transferred risk to the buyer the moment the goods crossed the ship’s rail, while still holding title until the buyer pays against documents. If the vessel sinks the next day, the loss is the buyer’s even though the buyer never owned the cargo and never received it, because risk and title moved at different moments under different clauses. That isn’t a quirk; it is the design. The Incoterm governs risk and cost; the contract governs title and payment; the cargo policy, sized to the cargo insured value, covers the gap when the goods are lost in transit.

The two groups: any-mode and sea-only

The ICC splits the eleven rules into two families, and the split is about the mode of transport, not the obligations. The first group, seven rules, works for any mode of transport or for more than one mode: EXW, FCA, CPT, CIP, DAP, DPU, and DDP. Use these for road, rail, air, courier, multimodal door-to-door, and crucially for containerized sea freight. The second group, four rules, is for sea and inland waterway transport only: FAS, FOB, CFR, and CIF. These four were written for cargo loaded over the side of a ship, bulk grain poured into a hold, steel coils slung aboard, oil pumped into tanks, and their delivery point is defined at the ship.

The reason this grouping isn’t academic is the container. A box of finished goods handed to the carrier at an inland container yard or a port terminal does not get loaded over the rail by the shipper; the carrier stows it days later, out of the shipper’s sight. The four sea-only rules define risk transfer at the ship, so applying them to a container leaves the seller on risk during the terminal gap. The ICC’s guidance is direct: for containers, use FCA, CPT, or CIP, the any-mode equivalents whose delivery point is where the seller hands the box to the carrier, not where it is loaded. The persistence of “FOB” on container bookings is one of the most common and costly mistakes in trade documentation.

The any-mode rules: EXW, FCA, CPT, CIP, DAP, DPU, DDP

The seven any-mode rules run along a spectrum of seller obligation. At one end, EXW asks almost nothing of the seller; at the other, DDP asks almost everything. Reading them in order shows the obligation migrating from buyer to seller term by term. The Incoterms risk-transfer calculator returns the delivery and risk point for each, but the prose below is where the why lives.

EXW (Ex Works)

EXW is the minimum seller obligation. The seller makes the goods available at its own named premises, the works, factory, or warehouse, and that is the whole performance. Risk transfers there, at the seller’s place, when the goods are placed at the buyer’s disposal. The seller doesn’t even have to load the goods onto the buyer’s collecting vehicle, and the cost and risk of loading sit with the buyer unless the parties agree otherwise. The buyer pays all carriage from that point, arranges any insurance it wants for its own benefit, and handles both export and import clearance.

That last point is where EXW trips up exporters. Under EXW the buyer is responsible for export clearance in the seller’s country, a country whose customs system the foreign buyer may not be able to file in. The ICC notes that EXW can be impractical for export precisely because the buyer can’t directly carry out export formalities. For most international sales, FCA is the better choice; it shifts export clearance to the seller, who is positioned to do it. EXW suits domestic ex-works pickups and cases where the buyer has a forwarder fully set up in the origin country.

FCA (Free Carrier)

FCA delivers the goods, cleared for export, to a carrier or other person nominated by the buyer, at a named place. There are two delivery situations. If the named place is the seller’s premises, delivery and risk transfer happen when the goods are loaded onto the buyer’s collecting transport. If the named place is anywhere else, a terminal, a forwarder’s depot, the delivery point is when the goods are placed at the carrier’s disposal on the seller’s arriving vehicle, ready for unloading. The seller clears the goods for export; the buyer pays the main carriage, takes import clearance, and insures for its own account.

FCA is the workhorse for containers and for the modern trade where a forwarder, not the ship, is the first carrier the seller deals with. Incoterms 2020 added a specific feature for FCA used in sea trade: where the parties agree, the buyer can instruct the carrier to issue an on-board bill of lading to the seller after loading, which the seller then tenders to the buyer, often through banks under a letter of credit. This closed a real gap, because an FCA seller delivering before loading previously couldn’t obtain the on-board bill that a documentary credit demanded.

CPT (Carriage Paid To)

CPT is FCA plus the main carriage. The seller contracts and pays for carriage to the named destination, but risk still transfers earlier, when the goods are handed to the first carrier, not when they reach the destination. This split between cost point and risk point is the defining feature of the C-group rules and the one buyers most often miss. Under CPT the seller pays freight all the way to, say, the buyer’s city, yet if the goods are damaged in transit, the loss is the buyer’s, because risk passed back at the origin handover. The seller clears for export; the buyer clears for import and arranges its own insurance, because CPT carries no insurance obligation.

CIP (Carriage and Insurance Paid To)

CIP is CPT with insurance added. The seller contracts and pays for carriage to the named destination and also buys cargo insurance for the buyer’s benefit covering the carriage. Risk transfers at the same early point as CPT, when goods are handed to the first carrier; the insurance is what bridges the buyer’s risk from that point to destination. Here is the Incoterms 2020 change that matters most: CIP now requires the seller to obtain insurance complying with Institute Cargo Clauses (A) or equivalent, the broad all-risks level, where Incoterms 2010 required only the minimum. The reasoning is that CIP is used for manufactured goods, which justify the wider cover. The seller clears for export, the buyer for import. The insured sum follows the cargo insured value convention of CIF or CIP price plus ten percent in the contract currency.

DAP (Delivered at Place)

DAP is the first of the three D-group delivered rules, where risk does not transfer until the goods reach the destination. Under DAP the seller delivers when the goods are placed at the buyer’s disposal at the named destination, ready for unloading from the arriving means of transport. Risk transfers there, at destination, not at origin, which flips the C-group logic. The seller bears all carriage cost and risk to that point; the buyer is responsible for unloading and for import clearance and import duty. The seller handles export clearance and any transit-country formalities, but import clearance is the buyer’s. DAP suits a seller willing to carry the goods to the buyer’s door but not to take on the buyer’s import customs.

DPU (Delivered at Place Unloaded)

DPU is the rule formerly called DAT, Delivered at Terminal, renamed in Incoterms 2020. The rename does two things. It drops “terminal,” so the named destination can be any place, a warehouse, a yard, the buyer’s site, not just a transport terminal. And the new name foregrounds the single feature that distinguishes DPU from DAP: under DPU the seller unloads the goods at the destination, and only when they are unloaded and at the buyer’s disposal does delivery occur and risk pass. DPU is the only Incoterms rule that requires the seller to unload at destination. Carriage and risk to destination are the seller’s; import clearance and duty are the buyer’s, as under DAP. Because the seller must unload, DPU shouldn’t be used if the seller can’t arrange unloading at the named place.

DDP (Delivered Duty Paid)

DDP is the maximum seller obligation, the mirror image of EXW. The seller delivers the goods, cleared for import, at the named destination, ready for unloading. The seller pays everything: all carriage, export clearance, transit formalities, and import clearance including import duty, VAT or GST, and any other charge payable on import. Risk transfers at the destination. The buyer’s only obligation is to receive the goods and, unless agreed otherwise, to unload them. DDP is a delivered-duty-paid, door-to-door commitment, and it puts the seller on the hook for a foreign country’s import tax and customs system, which is why sellers price it carefully and sometimes decline it. The full duty and tax stack the DDP seller must fund is the subject of the landed cost and import duty article.

The sea and inland waterway rules: FAS, FOB, CFR, CIF

The four maritime rules define delivery at the ship, which is exactly why they are wrong for containers and right for bulk and break-bulk. They run F-then-C, the same F-group and C-group split as the any-mode rules: under the F-rules the buyer arranges and pays the main carriage, under the C-rules the seller does.

FAS (Free Alongside Ship)

FAS delivers the goods alongside the vessel, on the quay or in a barge, at the named port of shipment. Risk transfers when the goods are placed alongside the ship the buyer nominated. From that point the buyer bears all cost and risk and arranges and pays for loading and the ocean carriage. The seller clears the goods for export; the buyer takes import clearance. FAS suits bulk or heavy-lift cargo that the buyer’s terminal or vessel will load, commodities sold on FAS terms at the load port. It is rare in general trade and almost never correct for containers, which are never delivered “alongside” in the FAS sense.

FOB (Free On Board)

FOB is the classic and the most misused term in trade. The seller delivers when the goods are placed on board the vessel nominated by the buyer at the named port of shipment, and risk transfers at that on-board point. The buyer contracts and pays for the ocean carriage and insurance and handles import clearance; the seller clears for export and bears cost and risk only up to and including loading on board. FOB is correct for bulk and break-bulk loaded directly aboard. It is wrong for containerized cargo, where the seller hands the box to the carrier at a terminal well before loading and so would remain on risk for a box it no longer controls. The ICC’s answer is FCA. Despite that, FOB persists on container bookings out of habit, and the gap it opens, seller on risk during the terminal dwell with no insurable interest clearly placed, is a recurring source of uncovered loss.

CFR (Cost and Freight)

CFR is FOB plus the ocean freight. The seller delivers on board and contracts and pays for carriage to the named destination port, but risk still transfers at the load port when the goods are on board, the C-group split again. So the seller pays the freight to discharge but is off risk from loading; if the cargo is damaged on the voyage, the loss is the buyer’s. CFR carries no insurance obligation, so a prudent CFR buyer insures its own risk from the load port onward. The seller clears for export; the buyer clears for import. CFR is the sea-only analogue of CPT and, like FOB, is meant for bulk and break-bulk, not containers, where CPT is the correct any-mode term.

CIF (Cost, Insurance and Freight)

CIF is CFR with insurance, the sea-only twin of CIP. The seller delivers on board, pays the ocean freight to the destination port, and buys cargo insurance for the buyer’s benefit covering the sea carriage. Risk transfers at the load port on loading aboard, and the insurance bridges the buyer’s risk across the voyage. The crucial Incoterms 2020 point: CIF keeps the minimum insurance cover of Institute Cargo Clauses (C), unchanged from 2010, while its any-mode cousin CIP was raised to Clauses (A). Clauses (C) covers a list of named perils, suited to bulk commodities, and notably doesn’t cover many of the in-transit risks a manufactured-goods buyer would expect. The seller clears for export; the buyer clears for import. CIF, like CFR and FOB, is for bulk and break-bulk; the right term for an insured containerized door-to-door is CIP.

Risk, cost, and clearance at a glance

The eleven rules differ on four axes: where risk passes, who pays the main carriage, who insures, and who clears each border. Two tables set them side by side, split so each stays narrow enough to read on a phone. The first carries the risk and carriage axes; the second carries the insurance and customs-clearance obligations for the same eleven rules in the same order. Read the risk-transfer column of the first table as the single most important cell, because that is what decides who carries the loss when cargo is damaged.

The second table carries the insurance obligation and the two customs-clearance allocations for the same eleven rules.

Two patterns fall out of the tables. The risk point climbs from the seller’s gate (EXW) to the buyer’s destination (the D-rules) as you move down the any-mode block, with the C-rules breaking the pattern by passing risk at origin while still paying carriage to destination. And import clearance sits with the buyer in every rule except DDP, the one rule that puts the importing country’s customs on the seller. Only two rules, CIP and CIF, oblige the seller to insure, and at the two different levels (Clauses A and Clauses C) that the 2020 revision separated.

The same logic drives the customs value the buyer declares on import. Under a CIF or CIP sale the seller’s price already includes freight and insurance to destination, so in jurisdictions that value imports on a CIF basis the declared customs value tracks the invoice closely. Under an EXW or FCA sale the buyer adds the freight and insurance it arranged to reach the dutiable value. The chosen term therefore sets not only who pays the freight but how the landed cost and import duty is computed, which is why a buyer comparing two quotes on different terms cannot compare the headline prices alone.

Common documentation errors

The recurring mistakes are not exotic; they are the same handful, repeated across millions of shipments. The first is FOB on a container, covered above: the term passes risk on board, the box is delivered to the carrier days earlier, and the seller is left exposed for the terminal interval. A forwarder who sees “FOB” on a container booking and an experienced buyer who sees it on a quote both read it as a signal that the counterparty has not thought the term through. The correct term is FCA, and the FCA on-board bill of lading option added in 2020 removed the last documentary reason to reach for FOB instead.

The second error is naming a term without a place or a version. “CIF” alone tells you the cost structure but not the destination port, and “DDP” alone tells you the seller delivers duty-paid but not where. The ICC’s standing advice is to write the rule, the named place as precisely as possible, and the year: “CIF Rotterdam Incoterms 2020.” Omitting the year matters because the same three letters can mean different insurance levels across editions; CIP under Incoterms 2010 carried Clauses (C) cover, CIP under Incoterms 2020 carries Clauses (A), so “CIP Hamburg” without a year is genuinely ambiguous about what the seller must insure.

The third error is assuming an Incoterm settles the documentary credit. A letter of credit requires specific documents, an on-board bill of lading, a certificate of insurance, a certificate of origin, and the Incoterm has to be compatible with what the credit demands. An FCA sale under Incoterms 2010 could not produce an on-board bill, so an LC requiring one against an FCA sale was a trap; the 2020 FCA fix closed it, but only where the parties actually invoke the on-board notation option in articles A6 and B6. Where they don’t, the same mismatch can still bite, which is why the term, the credit, and the transport document have to be reconciled before the goods ship, not after.

The fourth error is treating the insurance default as adequate cover. CIF obliges the seller to buy only Institute Cargo Clauses (C), a named-perils policy that does not respond to many ordinary transit losses a manufactured-goods buyer would expect to recover. A buyer who reads “CIF, insured” and assumes full protection can find a damaged cargo uncovered because the loss fell outside the Clauses (C) list. The fix is to specify the cover level in the contract or to buy a top-up policy, sized against the cargo insured value, rather than rely on the rule’s minimum.

The Incoterms 2020 changes from 2010

Incoterms 2020 is an evolution of Incoterms 2010, not a rewrite. Five changes carry across the eleven rules, and three of them are the high-stakes specifics worth committing to memory because contracts and insurance turn on them.

DAT renamed to DPU

The rule that was DAT, Delivered at Terminal, in Incoterms 2010 is DPU, Delivered at Place Unloaded, in 2020. The ICC made the change for two reasons. First, the old name implied delivery at a transport terminal, when in fact the rule always allowed delivery at any place where unloading is possible, so “terminal” was misleading and “place” is accurate. Second, in the 2020 listing DPU now sits after DAP rather than before it, reflecting the logical order: under DAP the seller does not unload, under DPU the seller does, so DPU is one step further in seller obligation and belongs after DAP. The substance of the rule, seller delivers unloaded at the named destination, is unchanged; only the name and the sequence moved.

CIP raised to Institute Cargo Clauses (A), CIF stays at Clauses (C)

This is the change most likely to catch out a buyer or an insurer. In Incoterms 2010 both CIF and CIP required only the minimum cover, Institute Cargo Clauses (C). In Incoterms 2020 the two diverge. CIF, the sea-only commodity rule, keeps Clauses (C), the minimum named-perils cover. CIP, the any-mode rule used for manufactured goods, now requires Clauses (A), the broad all-risks cover. The ICC’s reasoning is that CIP cargo, finished goods rather than bulk commodities, warrants the wider protection. The practical effect: a seller writing CIP must buy the more expensive Clauses (A) policy by default, and a seller writing CIF still satisfies the rule with the cheaper Clauses (C). Either way the parties remain free to agree a different level in the contract, and a CIF buyer who wants real protection should contract for higher cover rather than rely on the Clauses (C) floor.

FCA and the on-board bill of lading

Incoterms 2010 FCA created a documentary problem for sea shipments. An FCA seller delivers when it hands the goods to the carrier, before loading, so it couldn’t obtain the on-board bill of lading that a letter of credit typically demands, because the goods were not yet on board when the seller’s delivery obligation was complete. Incoterms 2020 fixes this in articles A6 and B6 of FCA: the parties may agree that the buyer will instruct the carrier to issue an on-board bill of lading to the seller once the goods are loaded, and the seller then tenders that document to the buyer, usually through the banking chain. This lets FCA, the correct rule for containers, work inside a documentary credit that requires an on-board bill, removing one of the main excuses for misusing FOB on container shipments.

Costs consolidated in article A9/B9

Incoterms 2020 reorganized where costs are listed within each rule. Every cost a party bears under a given rule is now gathered in one place, article A9 for the seller and B9 for the buyer, so a user can read the full cost allocation at a glance instead of hunting through the carriage, insurance, and clearance articles. The change is editorial, a presentation improvement rather than a shift in who pays, but it reduces the disputes that arose when a cost, an export terminal charge, a security surcharge, appeared in one article in one rule and a different article in another. Some costs are still cross-referenced from their substantive article, but A9/B9 is the consolidated list.

Security-related obligations

The 2020 edition spells out security-related requirements that the 2010 text left thin. Each rule now states the carriage-related security obligations in article A4 and the export and import clearance security obligations in article A7, with the associated costs picked up in A9/B9. This reflects a decade of tightened cargo-security regimes, advance manifest filings, container-screening rules, authorized-economic-operator programs, and makes explicit which party must meet and pay for those requirements. The allocation follows the logic of each rule: the party responsible for a given carriage or clearance step is responsible for its security obligations too.

Choosing the right rule

The choice of Incoterm is a commercial decision dressed as a documentary one, and a handful of questions settle it. The first is the mode: is the cargo containerized or multimodal, in which case the term must come from the any-mode group, EXW, FCA, CPT, CIP, DAP, DPU, or DDP, or is it bulk or break-bulk loaded over the rail, where the sea-only group, FAS, FOB, CFR, CIF, applies. Getting this wrong, FOB on a container, is the single most common error, and it leaves the seller on risk during the terminal gap with the insurance interest unclear.

The second question is how far each party wants to carry the goods and the risk. EXW keeps the seller at its own gate; the D-rules carry the seller all the way to the buyer’s destination. The C-rules sit in between with their characteristic trap, the seller pays freight to destination but risk passes at origin, so a buyer on CFR or CIF or CPT must understand it is on risk for the voyage it didn’t arrange. The third question is who is positioned to clear customs at each end: a seller can’t realistically do import clearance in a country it doesn’t operate in, which is why DDP is a heavy commitment and EXW is a poor export term.

Insurance is the fourth question, and the term only places two insurance obligations: CIF (Clauses C) and CIP (Clauses A). Every other rule is silent on insurance, which doesn’t mean no insurance is needed; it means the party on risk should arrange its own. A CFR buyer, a CPT buyer, an FOB buyer all carry uninsured risk unless they buy their own cover. The cargo insured value and the level of cover, named-perils Clauses (C) versus all-risks Clauses (A), should be matched to the cargo, not left to the term’s default.

Worked allocation: FOB Shanghai versus CIF Rotterdam

Take a bulk steel cargo sold two ways. Under FOB Shanghai Incoterms 2020, the seller loads the steel on board the buyer’s nominated vessel at Shanghai and clears it for export; from the moment it is on board, the buyer carries the cost and the risk, arranges and pays the ocean freight, buys any insurance it wants, and clears the steel for import at the destination. Under CIF Rotterdam Incoterms 2020, the seller loads at the origin port, pays the freight through to Rotterdam, and buys Clauses (C) cargo insurance for the buyer; risk still passes at the load port on loading, so a casualty on the voyage is the buyer’s loss, paid by the seller’s Clauses (C) policy to the extent that minimum cover responds. The buyer clears for import at Rotterdam either way. The two terms move the freight and the insurance cost between the parties, but both pass risk at the same on-board point, which is the feature that distinguishes the F and C maritime rules from the D rules.

Limitations

Incoterms allocate delivery, risk, and cost; they don’t settle the questions parties most often assume they do. They are silent on transfer of title and ownership, on the price, on the method and timing of payment, on retention-of-title clauses, on the consequences of breach, and on force majeure. A contract that names an Incoterm and nothing else is incomplete; the term is one clause among many, and the governing law and the sales contract decide everything the term does not. Reading an Incoterm as the whole bargain is the error behind a large share of trade disputes.

The rules also don’t name a specific point with the precision a contract needs unless the parties supply it. “FOB” alone is not enough; “FOB Shanghai Incoterms 2020” is the minimum, and even then a vague named place, “DAP Mumbai” without a specified delivery address, leaves the exact risk-transfer point open. The ICC advises naming the place as precisely as possible. Where the named place is ambiguous, the cost and risk boundary becomes a matter of interpretation, which defeats the purpose of using a standardized term.

Three rules carry traps that the abbreviation hides. The C-rules, CPT, CIP, CFR, CIF, split the cost point from the risk point, so a buyer who reads “seller pays freight to destination” and assumes the seller is on risk to destination is wrong; risk passed at origin. CIF and CFR are routinely written on container shipments where CIP and CPT are correct, leaving the seller exposed during terminal handling. And the insurance defaults, Clauses (C) on CIF, Clauses (A) on CIP, are minimums and defaults, not statements of adequate cover for a particular cargo; the right level is a separate judgment matched to the goods and the route, sized against the cargo insured value.

Finally, the specifics here, the eleven rules, the two groups, the risk-transfer points, and the five 2020 changes, follow the ICC’s Incoterms 2020 publication and its official guidance. The ICC owns the rules and revises them roughly every decade; the next revision will restate some of this. For a contract that turns on an exact obligation, the controlling text is the ICC’s Incoterms 2020 rule book itself, not a summary, and the customs-valuation consequences of the chosen term should be checked against the destination country’s implementation of the WTO Customs Valuation Agreement.

See also

• Freight forwarding and Incoterms: the cluster hub that places this Incoterms layer inside the full ex-works-to-landed-cost shipment chain.
• Incoterms risk-transfer calculator: returns the delivery point, risk-transfer point, and cost allocation for any of the eleven Incoterms 2020 rules.
• Landed cost and import duty: how the chosen term feeds the customs value and the duty-and-tax stack on import.
• Cargo insured value: the CIF-plus-ten-percent insured sum and the Clauses (A) versus Clauses (C) cover that CIP and CIF require.
• Ocean freight cost and surcharges: the base rate plus BAF, THC, and other surcharges that the C-rules bundle into the seller’s price.
• Bill of lading: the transport document and document of title the FCA on-board notation change in Incoterms 2020 was written to accommodate.