Incoterms® — short for International Commercial Terms — are a set of standardised, globally recognised rules published by the International Chamber of Commerce (ICC). They define the responsibilities, risks, and costs shared between a buyer (importer) and a seller (exporter) in the transportation and delivery of goods.
International Trade & Logistics
Understanding Incoterms 2020: The Complete Guide for International Trade
Incoterms are the universal language of international trade. Whether you are negotiating a supplier contract, opening a letter of credit, or planning a cross-border shipment, knowing which term governs your transaction — and what it means for your costs and risks — is not optional. This guide covers all 11 Incoterms 2020 rules, their buyer/seller responsibilities, risk transfer points, and the ocean freight terminology you need on the ground.
01 — What Are Incoterms?
Incoterms® — short for International Commercial Terms — are a set of standardised, globally recognised rules published by the International Chamber of Commerce (ICC). They define the responsibilities, risks, and costs shared between a buyer (importer) and a seller (exporter) in the transportation and delivery of goods.
At their core, Incoterms define three primary areas of responsibility:
- →Cost allocation — who pays for what: freight, insurance, customs duties, port charges.
- →Risk transfer — the precise moment when responsibility for loss or damage shifts from seller to buyer.
- →Delivery obligations — where and when the seller's delivery obligation is fulfilled.
Each Incoterm is expressed as a three-letter code followed by a named location — for example, FOB Shanghai or CIF Rotterdam. They are used in sales contracts, letters of credit, shipping documents, and customs filings worldwide.
Important: Incoterms do NOT cover transfer of title/ownership, method of payment, breach of contract, or product liability. These must be addressed separately in the contract of sale. Also, Incoterms cannot override mandatory national laws.
02 — History & Ownership
Incoterms were first published by the ICC in 1936 to eliminate confusion arising from different interpretations of trade terms across countries and languages. They have been revised multiple times — in 1953, 1967, 1976, 1980, 1990, 2000, 2010, and most recently in 2020.
The current Incoterms® 2020 edition came into effect on 1 January 2020. Key changes from 2010 include: DAT (Delivered at Terminal) was renamed to DPU (Delivered at Place Unloaded), FCA was updated to allow a bill of lading to be issued after loading on board, and security requirements were strengthened under A4 and A7.
Incoterms® is a registered trademark of the ICC. Their development involves ICC members from 130 countries, ensuring genuine global acceptance and consistency.
03 — The 4 Categories: E, F, C & D
Incoterms 2020 are grouped into four categories based on who bears cost and risk:
"E" Term — Departure
Seller makes goods available at their own premises. Buyer takes on all costs and risks from that point. Only 1 term: EXW.
"F" Terms — Main Carriage Unpaid
Seller delivers goods to a carrier named by the buyer. Main carriage costs are for the buyer. FCA, FAS, FOB.
"C" Terms — Main Carriage Paid
Seller arranges and pays for main carriage, but risk transfers before the voyage. CPT, CIP, CFR, CIF.
"D" Terms — Arrival
Seller bears all costs and risks until goods arrive at the destination country. DAP, DPU, DDP.
04 — All 11 Incoterms 2020 Explained
The following detail cards cover every Incoterm in the 2020 edition — covering the seller's delivery point, how freight and risk are split, and the exact moment risk transfers.
The seller places the goods at the buyer's disposal at the seller's premises (factory, warehouse, etc.). The buyer bears ALL costs and risks from that point — including export clearance, loading, main carriage, import duties, and final delivery. This is the most buyer-heavy term.
Seller Responsible For
- Making goods available at named premises
- Packaging goods
- Notifying buyer of availability
Buyer Responsible For
- Loading at seller's premises
- Export customs & duties
- All transportation costs
- Import customs & duties
- All insurance
The seller delivers the goods to a carrier or another party nominated by the buyer at the seller's premises or a named location. If delivery is at seller's premises, seller loads. If elsewhere, seller is not responsible for unloading. Risk transfers at that handover point.
Seller Responsible For
- Export clearance & duties
- Delivery to named carrier
- Loading at own premises (if applicable)
Buyer Responsible For
- Nominating the carrier
- Main carriage costs
- Insurance (optional but advised)
- Import customs & duties
The seller contracts and pays for carriage to the named destination. However, risk transfers to the buyer when the goods are handed to the first carrier — not at destination. The seller pays the freight but the buyer bears the risk during transit.
Seller Responsible For
- Export clearance & duties
- Main carriage costs to destination
- Delivery to first carrier
Buyer Responsible For
- Insurance during transit
- Import customs & duties
- Unloading at destination
Same as CPT, but the seller also arranges and pays for insurance in the buyer's name. In Incoterms 2020, CIP requires the seller to obtain maximum-cover insurance (Institute Cargo Clauses "A" or equivalent) — a significant upgrade from the 2010 minimum coverage.
Seller Responsible For
- Export clearance & duties
- Main carriage costs
- Minimum ICC(A) insurance cover
Buyer Responsible For
- Risk from first carrier onward
- Import customs & duties
- Unloading at destination
The seller delivers the goods — ready for unloading — at a named place in the buyer's country. The seller bears all costs and risks until arrival. The buyer handles import clearance and pays import duties. Unloading is the buyer's responsibility.
Seller Responsible For
- All transport costs to named place
- Export customs clearance
- All risks until delivery
Buyer Responsible For
- Import customs & duties
- Unloading at named place
Previously called DAT (Delivered at Terminal). The seller delivers the goods already unloaded at the named place of destination. This is the only Incoterm where the seller is responsible for unloading — making it the most demanding delivery obligation short of DDP.
Seller Responsible For
- All transport to named place
- Unloading at destination
- Export clearance
Buyer Responsible For
- Import customs & duties
- Onward carriage after unloading
The maximum obligation for the seller. The seller is responsible for all costs and risks — including import duties and customs clearance in the buyer's country — until the goods are made available at the named destination. The buyer only needs to unload.
Seller Responsible For
- All transport costs
- Export AND import customs
- All import duties & taxes
- All risks to destination
Buyer Responsible For
- Unloading at named destination
The seller delivers when the goods are placed alongside the vessel at the named port of shipment. From that moment, the buyer bears all costs and risks. The buyer nominates the vessel and is responsible for loading.
Seller Responsible For
- Export clearance
- Delivery alongside vessel at port
Buyer Responsible For
- Nominating & booking the vessel
- Loading onto vessel
- All sea freight & insurance
- Import clearance & duties
One of the most widely used Incoterms globally. The seller delivers when goods are loaded on board the vessel at the named port of shipment. Risk transfers to the buyer once goods are on board. The buyer arranges and pays for the main sea freight.
Seller Responsible For
- Export clearance
- Loading goods on board vessel
- All costs until on-board
Buyer Responsible For
- Sea freight from origin port
- Marine insurance
- Import clearance & duties
- Destination charges
The seller pays the freight cost to the named destination port but risk transfers when goods are loaded on board the vessel at origin. The buyer bears the risk during the voyage even though the seller paid for it. Insurance is the buyer's responsibility.
Seller Responsible For
- Export clearance
- Loading on board
- Sea freight to destination port
Buyer Responsible For
- Marine insurance (critical!)
- Import clearance & duties
- Unloading & destination charges
Same as CFR but the seller also procures marine insurance for the buyer's risk during the voyage. Note: in Incoterms 2020, CIF only requires minimum insurance (ICC Clause C), unlike CIP which requires maximum coverage. Risk still transfers at loading.
Seller Responsible For
- Export clearance
- Loading on board
- Sea freight to destination
- Minimum ICC(C) marine insurance
Buyer Responsible For
- Risk from loading at origin
- Import clearance & duties
- Destination charges & unloading
05 — Master Buyer & Seller Responsibility Table
The table below provides a comprehensive at-a-glance view of who is responsible for each cost and obligation under all 11 Incoterms 2020 rules. Use this as your daily reference.
| Obligation / Cost | EXW | FCA | CPT | CIP | DAP | DPU | DDP | FAS | FOB | CFR | CIF |
|---|---|---|---|---|---|---|---|---|---|---|---|
| EXPORT & ORIGIN | |||||||||||
| Export Packaging | S | S | S | S | S | S | S | S | S | S | S |
| Loading at Origin | B | S | S | S | S | S | S | S | S | S | S |
| Export Customs Clearance | B | S | S | S | S | S | S | S | S | S | S |
| Origin Terminal / Port Charges | B | B | S | S | S | S | S | S | S | S | S |
| MAIN CARRIAGE | |||||||||||
| Main Freight Cost | B | B | S | S | S | S | S | B | B | S | S |
| Cargo Insurance | B | B | B | S | B | B | B | B | B | B | S |
| Risk During Main Carriage | B | B | B | B | S | S | S | B | B | B | B |
| DESTINATION / IMPORT | |||||||||||
| Destination Terminal Charges | B | B | B | B | S | S | S | B | B | B | B |
| Unloading at Destination | B | B | B | B | B | S | B | B | B | B | B |
| Import Customs Clearance | B | B | B | B | B | B | S | B | B | B | B |
| Import Duties & Taxes | B | B | B | B | B | B | S | B | B | B | B |
| Final Delivery Costs | B | B | B | B | B | B | S | B | B | B | B |
Note: CIF/CFR — seller pays freight but risk transfers at loading; buyer bears risk during voyage. DPU — seller is the only term responsible for unloading at destination.
06 — Risk Transfer at a Glance
The bars below illustrate how much of the journey the Seller (blue) bears risk vs. the Buyer (from origin factory to final destination). The longer the blue bar, the more seller-friendly the term.
07 — Which Incoterm for Which Transport Mode?
Not all Incoterms work for all modes of transport. Using a sea-only term (like FOB) for airfreight or multimodal shipments is a common mistake that can create gaps in coverage.
| Incoterm | Road | Rail | Air | Sea/Inland Water | Multimodal | Note |
|---|---|---|---|---|---|---|
| EXW | ✓ | ✓ | ✓ | ✓ | ✓ | ANY MODE |
| FCA | ✓ | ✓ | ✓ | ✓ | ✓ | ANY MODE |
| CPT | ✓ | ✓ | ✓ | ✓ | ✓ | ANY MODE |
| CIP | ✓ | ✓ | ✓ | ✓ | ✓ | ANY MODE |
| DAP | ✓ | ✓ | ✓ | ✓ | ✓ | ANY MODE |
| DPU | ✓ | ✓ | ✓ | ✓ | ✓ | ANY MODE |
| DDP | ✓ | ✓ | ✓ | ✓ | ✓ | ANY MODE |
| FAS | — | — | — | ✓ | — | SEA / WATERWAY ONLY |
| FOB | — | — | — | ✓ | — | SEA / WATERWAY ONLY |
| CFR | — | — | — | ✓ | — | SEA / WATERWAY ONLY |
| CIF | — | — | — | ✓ | — | SEA / WATERWAY ONLY |
Common Mistake: Using FOB or CIF for containerised cargo is technically incorrect when the container is handed over at a container freight station (CFS) before being loaded on the vessel. In such cases, FCA or CIP are the correct terms because risk and cost transfer at the CFS, not at the ship's rail.
08 — Essential Ocean Freight Terminology
When working with Incoterms in practice, you will encounter a range of ocean freight abbreviations in shipping documents, invoices, and quotations. Here is a comprehensive reference:
09 — The 10+2 Importer Security Filing (ISF)
The Importer Security Filing (ISF), commonly called the "10+2 Rule", is a US Customs and Border Protection (CBP) requirement for all ocean cargo destined for the United States. It must be filed at least 24 hours before vessel loading at the foreign port.
The 10 Importer Data Elements
- Manufacturer (or supplier) name and address
- Seller (or owner) name and address
- Buyer (or owner) name and address
- Ship-to name and address
- Container stuffing location
- Consolidator (stuffer) name and address
- Importer of record number (or FTZ applicant ID)
- Consignee number(s)
- Country of origin
- Commodity HTSUS number (to the 6th digit)
The 2 Carrier Data Elements
The ocean carrier provides two additional elements through the Automated Manifest System (AMS): vessel stow plans and container status messages.
Incoterms & ISF: Under FOB, FCA, CFR, or CIF, the ISF importer is usually the US buyer. Under DDP, it is the seller. Always clarify ISF responsibility in your trade contracts — penalties for non-compliance can be significant.
10 — Best Practices When Choosing Incoterms
Always Name a Specific Location
Write the full location: "FOB Port of Chittagong" not just "FOB". Vague locations create disputes about exactly where risk and cost shift.
Use the Year: "Incoterms® 2020"
Always specify the edition. "FOB Incoterms® 2020" makes it unambiguous which version's rules govern your contract.
Match the Term to Your Transport
FOB, CFR, CIF, and FAS are for sea/waterway only. For containerised, multimodal, or air shipments, use FCA, CIP, or CPT.
Understand Who Insures What
Under CFR and CPT, the seller pays freight but the buyer bears risk and must insure. Don't confuse "pays for" with "bears risk of".
Consider Your Leverage
Buyers often prefer FOB or FCA to control freight costs. Sellers may prefer CIF or DDP for higher invoice value. Negotiate accordingly.
Align with Your Letter of Credit
Banks interpret Incoterms strictly. The term in your L/C must exactly match the term in your invoice and transport documents.
Use EXW Carefully
The ICC recommends EXW only for domestic transactions. For international trade, FCA is almost always more appropriate and legally cleaner.
Confirm ISF & Customs Responsibilities
For US-bound cargo especially, confirm in writing who is responsible for the 10+2 ISF filing. Violations can attract heavy penalties.
— ICC / Velotrade
11 — Conclusion
Incoterms are the foundation of every international trade contract. Getting them right — choosing the correct term, specifying the right location, and aligning with your transport mode — is not a formality. It directly determines who is financially exposed when goods are damaged, delayed, or lost in transit.
For procurement and trade professionals, a solid working knowledge of all 11 Incoterms 2020 rules is essential — not just the popular ones like FOB and CIF, but the full spectrum from EXW to DDP. The right term for your transaction depends on your negotiating position, your ability to organise freight and insurance, and the regulatory environment at both origin and destination.
Use this guide as your daily reference, bookmark the responsibility table, and always specify your Incoterm in full: the code, the named place, and the edition year.
Official Source: For the authoritative Incoterms® 2020 text and official publication, visit the International Chamber of Commerce website at iccwbo.org. Online training is also available at icc.academy.
Sources & References
- International Chamber of Commerce (ICC). Incoterms® 2020 Official Rules. https://iccwbo.org/business-solutions/incoterms-rules/
- Inecta. Incoterms 2020 Explained – Complete Guide. https://www.inecta.com/blog/incoterms-2020-explained-complete-guide
- Credlix. Incoterms 2020 Simplified: Key Trade Responsibilities, Risks, and Updates. https://www.credlix.com/...
- GW World. Incoterms 2020: Your Comprehensive Guide to International Trade Terms. https://www.gw-world.com/us/incoterms
- Inbound Logistics. Incoterms Explained: Definition, Rules, and Incoterms 2020 Guide. https://www.inboundlogistics.com/...
- Incodocs. Incoterms Guide [Updated 2025] — Complete Guide. https://incodocs.com/blog/incoterms-2020-explained-the-complete-guide/
- Velotrade. Incoterms 2020 Defined – Guide on the Latest Changes. https://velotrade.com/blog/what-is-incoterms-2020
- AIT Worldwide. Incoterms 2020 Overview: Breakdown of Seller's and Buyer's Responsibilities. https://www.aitworldwide.com/...
- Expeditors International. Incoterms 2020 Chart with Table. https://info.expeditors.com/...
- Georgia Tech / DHL. Basic Overview of the Incoterms® 2020 Rules — DGF Brochure. https://www2.isye.gatech.edu/...
- US Customs and Border Protection (CBP). Importer Security Filing and Additional Carrier Requirements (10+2). https://www.cbp.gov/...
- Onship Logistics. Shipping Guidance Incoterms Charts (as supplied in source material by Safayat Hoque).
🔗 Recommended Reading
Master international procurement by exploring these related guides.
🚢 Incoterms 2020 GuideUnderstand FOB, CIF, CFR, EXW, DDP and other Incoterms used in international trade. Read More → |
📦 HS Code GuideLearn product classification, customs duty calculation and import compliance requirements. Read More → |
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