If you handle international shipments, Incoterms determine two things that matter more than almost anything else in the contract: who is responsible for the goods at each stage of the journey, and who pays for what. Get them wrong — or simply leave them ambiguous — and it’s a common source of disputes, unexpected costs and delayed shipments. This guide sets out what the Incoterms® 2020 rules actually cover, in plain terms.
What Incoterms Are (And Aren’t)
Incoterms® (International Commercial Terms) are a set of standard trade terms published by the International Chamber of Commerce (ICC). The current version, Incoterms® 2020, sets out 11 rules that define, for a given point in a shipment’s journey, who is responsible for arranging and paying for transport, insurance and export/import clearance, and at what point risk transfers from seller to buyer. Incoterms don’t cover the transfer of ownership of goods, payment terms, or governing law — those are separate matters that still need to be agreed in the underlying sales contract.
The Two Groups of Rules
The 11 Incoterms 2020 rules split into two groups, depending on how the goods will travel.
Rules for Any Mode or Modes of Transport
- EXW – Ex Works: the seller makes the goods available at their own premises; the buyer takes on responsibility (and cost) for everything from that point, including export clearance.
- FCA – Free Carrier: the seller delivers the goods to a carrier or other party nominated by the buyer, at a named place.
- CPT – Carriage Paid To: the seller arranges and pays for carriage to a named destination, but risk transfers to the buyer once the goods are handed to the first carrier.
- CIP – Carriage and Insurance Paid To: as CPT, but the seller must also arrange insurance cover — and under Incoterms 2020, to a higher minimum level than previously required.
- DAP – Delivered at Place: the seller delivers the goods, ready for unloading, at a named destination.
- DPU – Delivered at Place Unloaded: as DAP, but the seller is also responsible for unloading the goods at the destination. (DPU replaced the Incoterms 2010 term DAT.)
- DDP – Delivered Duty Paid: the seller takes on the maximum responsibility of any term, covering delivery, import clearance and duties, right up to the named destination.
Rules for Sea and Inland Waterway Transport
- FAS – Free Alongside Ship: the seller delivers the goods alongside the vessel at the named port.
- FOB – Free on Board: the seller delivers the goods on board the vessel; risk transfers once the goods are on board.
- CFR – Cost and Freight: the seller pays for carriage to the named port of destination, but risk transfers once the goods are on board at the port of shipment.
- CIF – Cost, Insurance and Freight: as CFR, but the seller must also arrange insurance cover.
A Common Practical Mistake
One of the most common mistakes we see is using FOB or CIF for containerised cargo that’s handed over at a container terminal rather than loaded directly onto a vessel. FOB and CIF were designed for break-bulk cargo loaded over a ship’s rail, and can create genuine ambiguity about exactly when risk transfers for containerised shipments. For containerised freight, FCA or CPT/CIP are usually a better fit, since they define the handover point more clearly. If you’re currently using FOB or CIF terms for container shipments, it’s worth checking with your freight forwarder or logistics adviser whether an alternative term would reduce ambiguity for your operation.
Choosing the Right Term
There’s no single “correct” Incoterm for every shipment. The right choice depends on which party is better placed to arrange transport and insurance, who has more control or leverage with carriers on a given lane, and how much responsibility each party is willing and able to take on. What matters most is that the term is stated clearly and consistently across the sales contract, invoice and shipping documents, and that both parties understand exactly what it means for their specific shipment.
Next Steps
For a fuller breakdown of each Incoterms 2020 rule, including a quick-reference comparison, see our Practical International Shipping Terms Guide. If you’d like an independent review of how your business is currently using Incoterms — and where it might be creating unnecessary cost, risk or ambiguity — that’s exactly the kind of question our Freight Optimisation & Implementation service is built to answer.