Incoterms 2020 Explained
Eleven rules decide who pays for what, and where risk moves from seller to buyer. Here is all of them in one table, plus the two facts most summaries get wrong.
What Incoterms Are — and Are Not
Incoterms rules are published by the International Chamber of Commerce (ICC). They are a voluntary standard: they bind a contract only because the contract says they do, by naming a rule and a place — for example, FOB Shanghai or CIF Rotterdam. Incoterms 2020 is the current edition, in force since 1 January 2020.
An Incoterms rule settles three things and only three: what the seller must deliver, where risk transfers, and who pays which costs. It does not set the price, does not transfer ownership of the goods, does not excuse anyone from a contract that has become unprofitable, and does not override the law of the country where customs clearance happens. A rule is a shipping-terms shorthand, not a contract of sale.
All 11 Rules at a Glance
| Rule | Full name | Carriage paid to | Insurance paid by seller | Risk transfers |
|---|---|---|---|---|
| EXW | Ex Works | Seller's premises | No | At the seller's premises |
| FCA | Free Carrier | Named place, origin | No | When handed to the buyer's carrier |
| FAS | Free Alongside Ship | Alongside the vessel | No | Alongside the vessel |
| FOB | Free On Board | On board at origin | No | When goods are on board |
| CFR | Cost and Freight | Destination port | No | When goods are on board |
| CIF | Cost, Insurance and Freight | Destination port | Yes — minimum cover | When goods are on board |
| CPT | Carriage Paid To | Named destination | No | When handed to the first carrier |
| CIP | Carriage and Insurance Paid To | Named destination | Yes — all-risks cover | When handed to the first carrier |
| DAP | Delivered at Place | Named place, destination | No | On arrival, ready for unloading |
| DPU | Delivered at Place Unloaded | Named place, unloaded | No | After unloading at destination |
| DDP | Delivered Duty Paid | Named place, duty paid | No | On arrival, import cleared |
Two families, one restriction worth remembering: FAS, FOB, CFR and CIF are for sea and inland waterway transport only. Use them on an air or road shipment and the delivery point they describe — alongside or on board a vessel — does not exist. For any mode, use FCA, CPT, CIP, DAP, DPU or DDP instead.
The Two Facts Most Summaries Get Wrong
1. Cost and risk do not move together
Under CFR and CIF the seller pays the freight all the way to the destination port — but risk already passed to the buyer when the goods went on board at origin. If the vessel sinks mid-voyage, the buyer still owes the price and claims on insurance, even though the seller arranged and paid the carriage. Under DAP and DPU there is no such split: the seller carries the cost to the named place, and the risk passes there too, so the two end together. The cost obligation and the risk obligation are separate columns, and in four of the eleven rules they point at different places — CFR, CIF, CPT and CIP.
2. "Insurance paid by the seller" is not the same cover in every rule
Incoterms 2020 changed this deliberately. CIP now requires the seller to obtain all-risks cover (Institute Cargo Clauses (A) or equivalent). CIF still requires only minimum cover (Institute Cargo Clauses (C)), which is a named-perils policy — it does not pay out for every kind of loss. If you are the buyer on a CIF shipment and your goods are worth more than the minimum, buy your own cover on top rather than assuming the seller's policy protects you.
What Changed From Incoterms 2010
- DAT became DPU. The old "Delivered at Terminal" rule was renamed "Delivered at Place Unloaded" so it covers any place, not just a terminal.
- CIP insurance upgraded to all-risks cover (Clauses (A)). CIF was left at minimum cover (Clauses (C)).
- FCA gained an on-board bill of lading option. The parties may agree that the buyer instructs the carrier to issue an on-board bill of lading to the seller — this fixes a long-standing problem for sellers using FCA with a letter of credit that demands an on-board B/L.
- Costs are listed more explicitly in each rule, so it is easier to see which charges each side owes.
- Security requirements (scanning, screening, export-control checks) are now allocated between the parties in the rules themselves.
- The rules allow parties to agree their own transport — for example, using a buyer's own vehicle under FCA instead of a third-party carrier.
The Cost Ladder: How the Terms Stack
Read the sea-freight rules as one ladder. Each step adds a named block of cost to the one before it:
| Rule | What the seller's price covers |
|---|---|
| EXW | Goods at the seller's premises. Nothing else — not even loading the truck. |
| FCA | EXW + loading + carriage to the named place + export clearance |
| FOB | FCA-level costs + onward haulage to the port + terminal handling + loading on board |
| CFR | FOB + main carriage to the destination port |
| CIF | CFR + marine insurance (minimum cover, on at least 110% of the contract value) |
| DDP | CIF-level costs + import clearance + duty + delivery to the named place |
The ladder is why a quote can look cheap on one term and expensive on another without anything about the goods changing. Between EXW and CIF the difference is every cost from the factory gate to the destination port — on a low-value, bulky product it can be a large share of the unit price.
Put a Number on the Difference
- FOB & CIF calculator — build an export price from your own costs and see EXW, FOB and CIF side by side.
- How to calculate an FOB price — the cost build-up behind the FOB line, item by item.
- EXW vs FCA vs FOB — the origin end of the ladder in detail.
- FOB vs CFR vs CIF — the freight and insurance end.
- CIF vs DDP — what changes when the seller also clears customs and pays duty.
- Landed cost calculator — what the buyer pays once duty and destination charges are added.
A Note on Sourcing
Everything above describes the published Incoterms 2020 rules. This page is not affiliated with the ICC, and it is a summary — for a contract, use the official text of the rule you are naming, which the ICC publishes as Incoterms® 2020. The rules are revised roughly once a decade; if you are reading this after a new edition is issued, check which one your contract names, because the parties may agree to use an older edition.
Frequently Asked Questions
Do Incoterms determine who owns the goods?
No. Incoterms rules cover delivery, risk and cost allocation. Ownership and title transfer are set by the contract of sale and the applicable law, not by the Incoterms rule.
Can I use FOB for air freight?
No. FOB, FAS, CFR and CIF are written for sea and inland waterway transport, because their delivery point is a vessel. For air or road, use FCA, CPT or CIP.
Which Incoterms edition applies to my contract?
Whichever one the contract names. Incoterms 2020 applies only if the contract says so; a contract that names Incoterms 2010 is governed by those rules.
Is EXW the cheapest term for the buyer?
EXW shows the lowest seller price, but it leaves the buyer arranging everything including export clearance from a country where they may have no presence. Many buyers find FCA cheaper in total once they account for what EXW leaves them to organise.
Does CIF include unloading at the destination port?
No. CIF ends when the goods are on board at origin for risk purposes, and the seller's cost obligation ends at the destination port. Unloading, terminal charges and import clearance at destination are the buyer's.
The formulas and assumptions behind this site's calculators are written out on the methodology page.