Incoterms 2020 explained: the 11 rules and how buyers should choose

Trade, law & sustainability · By the Buyer's Ledger editorial team · Published 2026-10-10

Silhouette of a ship-to-shore container crane with its boom lowered, against a pale blue sky over a harbour breakwater — A container crane at Lyttelton, New Zealand. Under several Incoterms rules, risk passes when goods are loaded on board at a port like this.

Incoterms are three-letter trade terms published by the International Chamber of Commerce (ICC) that say, for a sale of goods, who arranges and pays for transport, insurance and customs clearance, and at what point the risk of loss or damage passes from seller to buyer. The current edition, Incoterms 2020, has applied since 1 January 2020. Choosing the right rule affects landed cost, insurance and who carries the consequences of a delayed or damaged shipment.

How to write an Incoterm in a contract

An Incoterm only works if it is written precisely: the rule, a named place (as specific as possible) and the edition. For example: FCA Seller's warehouse, 12 Example Road, Rotterdam, Incoterms® 2020. Without the named place, the rule is ambiguous; without the edition, parties may argue about which version applies. Earlier editions (2010, 2000) can still be used if the contract says so, but mixing them by accident is a classic source of disputes. The official text is published by the ICC and is the reference to consult for any detail.

The 11 rules

The rules fall into two groups: seven that can be used for any mode of transport, including multimodal shipments in containers, and four that are reserved for sea and inland waterway transport.

Rules for any mode of transport

Rule	Seller delivers (risk passes)	Main carriage paid by	Notes
EXW Ex Works	At seller's premises, goods made available, not loaded	Buyer	Minimum obligation for the seller. Buyer handles export clearance, which can be impractical for a foreign buyer.
FCA Free Carrier	To the buyer's carrier at the named place (loaded if at seller's premises)	Buyer	Seller clears for export. Often the better choice than EXW or FOB.
CPT Carriage Paid To	To the first carrier, at origin	Seller, to named destination	Risk passes early, cost later: the buyer bears transit risk on a shipment the seller has booked.
CIP Carriage and Insurance Paid To	To the first carrier, at origin	Seller, to named destination	As CPT, plus seller insures for the buyer, by default at the higher Institute Cargo Clauses (A) level.
DAP Delivered at Place	At named destination, ready for unloading	Seller	Buyer unloads and clears import.
DPU Delivered at Place Unloaded	At named destination, unloaded	Seller	The only rule where the seller must unload. Replaced DAT from the 2010 edition.
DDP Delivered Duty Paid	At named destination, ready for unloading, cleared for import	Seller	Maximum obligation for the seller, including import duties and taxes, which may be difficult for a non-resident seller.

Rules for sea and inland waterway transport

Rule	Seller delivers (risk passes)	Main carriage paid by	Notes
FAS Free Alongside Ship	Alongside the vessel at the port of shipment	Buyer	Used mainly for bulk and break-bulk cargo.
FOB Free on Board	On board the vessel at the port of shipment	Buyer	Designed for goods loaded directly on a ship, not for containers handed over at a terminal.
CFR Cost and Freight	On board the vessel at the port of shipment	Seller, to port of destination	Risk passes at origin, as with CPT.
CIF Cost, Insurance and Freight	On board the vessel at the port of shipment	Seller, to port of destination	Seller insures, by default at the minimum Institute Cargo Clauses (C) level.

The key idea: risk and cost do not always move together

For the E, F and D rules, risk and the cost of main carriage pass at the same point. The four C rules (CPT, CIP, CFR, CIF) are different: the seller pays for transport to the destination, but risk passes to the buyer at origin when the goods are handed to the first carrier or loaded on board. A buyer purchasing on CIF terms therefore carries the risk of the sea voyage, which is why insurance is part of the rule, and why buyers should check that the insurance level is adequate for their goods.

What changed in Incoterms 2020

DAT became DPU, reflecting that the place of delivery and unloading need not be a terminal.
Insurance under CIP was raised to Institute Cargo Clauses (A), "all risks" subject to exclusions, while CIF stayed at the more limited clauses (C). Parties can agree otherwise.
FCA and bills of lading: the parties can agree that the buyer instructs its carrier to issue the seller an on-board bill of lading, which letters of credit often require.
Own means of transport: FCA, DAP, DPU and DDP now acknowledge that the seller or buyer may carry the goods with its own vehicles rather than a third-party carrier.
Security costs, such as screening requirements, are allocated explicitly between the parties.
Costs are listed in one article of each rule, making it easier to see who pays what.

Choosing a rule as a buyer

Containers: prefer FCA to FOB, and CPT or CIP to CFR or CIF. With containerised cargo, the seller hands the container to the carrier at an inland depot or terminal, often days before it is loaded on the ship. Under FOB, the seller remains at risk during that period though it no longer controls the goods. The ICC's guidance itself points users of container transport to the multimodal rules.
Control of freight. Buying on F terms (FCA, FOB) lets you choose the carrier and negotiate freight across many suppliers, which large buyers often prefer. Buying on C or D terms is simpler but makes freight a hidden part of the price.
Customs capability. Avoid EXW if the seller is better placed to clear exports, and avoid DDP if the seller cannot register for and pay import taxes in your country. In those cases, FCA and DAP are the usual compromises.
Insurance. Under C rules, check the insurance level and the named beneficiary; under F rules, arrange your own cover from the point risk passes.
Compare offers on the same basis. When suppliers quote on different Incoterms, convert all offers to the same delivery point before comparing. This is part of total cost of ownership.

What Incoterms do not do

Incoterms are not a complete contract. They do not determine when ownership (title) of the goods passes, the price or payment terms, what happens if the goods are defective, the consequences of breach, or which law governs the contract. Those must be covered elsewhere in the sale contract, for instance by the governing law or, for many international sales, the UN Convention on Contracts for the International Sale of Goods (CISG) unless excluded. Nor do Incoterms deal with the contract of carriage itself, which has its own terms set by the carrier.

Incoterms and disruption

When routes are disrupted and ships diverted, the Incoterm decides who bears the extra freight and who carries the risk while goods are at sea. Under C rules the seller has paid freight at the outset, but surcharges imposed later and delays fall into the gaps between the sale contract and the carriage contract. Under F rules, the buyer bears those costs directly. Reviewing the Incoterms in your main contracts is a quick, concrete step in mapping exposure; see geopolitics and supply chains.