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Incoterms 2020: the practical guide for exporters and importers
Incoterms 2020, the current set of 11 standard trade terms published by the International Chamber of Commerce, answer two questions on every international sale: who arranges and pays for transport, insurance and customs at each leg of the journey, and at what point does the risk of loss or damage pass from seller to buyer. Put the wrong one in a contract and you can end up paying for insurance you did not know you needed, or discover risk passed to you three weeks before you thought it did.
The two questions every Incoterm answers
Cost allocation and risk transfer are separate questions, and Incoterms sometimes answer them at different points in the journey, which is the single most common source of confusion. Under CFR and CIF, for example, the seller pays freight all the way to the destination port, but risk passes to the buyer much earlier, once the goods are loaded on board at origin.
Reading a term correctly means checking both: where does the cost obligation end, and separately, where does risk end. They are not always the same place.
The groups, in practice
EXW and the F-terms (FCA, FAS, FOB) put most of the cost and risk on the buyer early, useful when the buyer has strong freight relationships and wants control of the main transport leg. The C-terms (CFR, CIF, CPT, CIP) have the seller pay carriage to the destination while risk still passes early, at origin, which surprises buyers who assume paid freight means the seller is also on the hook if something happens in transit.
The D-terms (DAP, DPU, DDP) are the only rules where the seller carries both cost and risk all the way to the named destination; DDP goes furthest, with the seller even clearing import and paying duty, leaving the buyer to unload.
Picking the right one
FOB, CFR and CIF are written for sea and inland waterway transport only; for containerised or multimodal shipments, the ICC recommends FCA, CPT, CIP, DAP, DPU or DDP instead, since those terms do not assume a vessel rail as the risk-transfer point.
The safest habit is to state the exact named place after the term (e.g. "FOB Shanghai" or "DAP Chicago warehouse"), not just the three letters, since the term alone does not tell either party where the obligation actually ends.
Try the interactive Incoterms 2020 guide
Click through all 11 rules to see who pays what and where risk transfers, with a printable chart.
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