Incoterms 2020 Explained: EXW, FOB, CIF, DDP and More

What Incoterms do (and do not do)

Incoterms cover three things: who does and pays for transport, insurance and export/import clearance; where delivery happens; and where risk transfers. They do not cover when ownership of the goods passes, payment terms, or what happens if there is a contract dispute. Those belong in your sales contract.

Always write the term with the named place and the version, for example "FCA Los Angeles, Incoterms 2020". The place is what makes the term meaningful.

The 11 rules of Incoterms 2020

Seven rules work for any mode of transport, including containers, and four are only for sea and inland waterway transport.

Rules for any mode of transport

• EXW (Ex Works): the seller makes the goods available at its own premises. The buyer handles almost everything, including loading and export clearance. Minimum obligation for the seller.
• FCA (Free Carrier): the seller delivers the goods, cleared for export, to the carrier or place the buyer names. Risk passes at that point. A common, balanced choice for containerized cargo.
• CPT (Carriage Paid To): the seller pays transport to a named destination, but risk passes to the buyer as soon as the goods are handed to the first carrier.
• CIP (Carriage and Insurance Paid To): like CPT, and the seller also buys insurance. Under Incoterms 2020 the insurance must be broad cover (Institute Cargo Clauses A).
• DAP (Delivered at Place): the seller delivers to the named destination, ready for unloading, and bears the risk until then. The buyer handles import clearance and duties.
• DPU (Delivered at Place Unloaded): like DAP, but the seller also unloads at the destination. New in 2020, replacing DAT.
• DDP (Delivered Duty Paid): the seller delivers to the destination and also handles import clearance and pays import duties and taxes. Maximum obligation for the seller.

Rules for sea and inland waterway only

• FAS (Free Alongside Ship): the seller delivers the goods alongside the vessel at the named port. Risk passes there.
• FOB (Free On Board): the seller delivers the goods on board the vessel at the named port of shipment. Risk passes when they are on board.
• CFR (Cost and Freight): the seller pays the freight to the destination port, but risk passes when the goods are on board at the origin port.
• CIF (Cost, Insurance and Freight): like CFR, plus the seller buys minimum insurance cover (Institute Cargo Clauses C under Incoterms 2020).

Which Incoterm should you choose?

There is no universally best term. A practical way to think about it:

• If you are a new exporter and want minimum responsibility, EXW looks attractive, but it leaves you dependent on the buyer's forwarder and export clearance. FCA is usually the better minimum-risk term because you control the export clearance and hand over at a clear point.
• If you ship containers, prefer FCA, CPT or CIP over FOB, CFR or CIF. The ICC itself recommends this, because the sea-only terms assume the goods are loaded on board a vessel, while containers are normally handed to a carrier at a terminal before loading.
• If your buyer wants a delivered price, DAP or DDP fits, but make sure you can actually handle destination logistics and, for DDP, import duties and taxes, which can be complicated in some countries.
• If you are the importer and want control over freight cost and carrier choice, EXW or FCA give you that control.

Common mistakes to avoid

• Using FOB for containerized cargo, where FCA is the intended term.
• Naming only a country instead of a specific port, terminal or address.
• Using EXW when the seller must handle export formalities (the buyer normally does under EXW; FCA fixes this).
• Assuming DDP means "no more costs": it means the seller bears them, so price it in.
• Forgetting to state the Incoterms version.

Frequently asked questions