Incoterms 2020: A Beginner's Guide

Incoterms — short for International Commercial Terms — are the three-letter codes that decide who pays for what, who owns the cargo at each moment, and who is responsible if something goes wrong. They are published by the International Chamber of Commerce (ICC) and the current version is Incoterms 2020. There are 11 of them. You'll realistically deal with about 6.

Picking the wrong Incoterm is one of the most expensive rookie mistakes in international trade. A favorable rate on an EXW quote can become 30% more expensive once you've added origin trucking, export customs, terminal handling, ocean freight, destination handling and import customs. This guide explains each Incoterm in plain English so you can quote confidently.

How to read an Incoterm

Every Incoterm answers three questions:

• Who arranges and pays for each leg of transport?
• Where does risk transfer from seller to buyer?
• Who clears customs on each side?

EXW — Ex Works

Maximum responsibility for the buyer, minimum for the seller. The seller just has to make the goods available at their factory or warehouse. You (the buyer) arrange pickup, export customs, freight, import customs and last-mile delivery. EXW quotes always look cheap because they exclude everything. As a new importer, avoid EXW unless you have an experienced forwarder.

FCA — Free Carrier

The seller delivers the goods to a carrier or location you nominate, and handles export customs. Better than EXW for buyers because export clearance is the seller's problem. FCA is now the recommended container term — the ICC actively suggests it over FOB for containerized cargo.

FOB — Free On Board (sea/inland waterway only)

The seller delivers the goods on board the vessel at the named port of shipment and handles export customs. Risk transfers when the goods are on the ship. FOB is still the most-used Incoterm in China-to-everywhere trades — even though it's technically only meant for bulk and break-bulk, not containers. Easy to quote, easy to compare. Asks: "FOB Shenzhen" for example.

CFR — Cost and Freight (sea only)

Like FOB but the seller also pays the main ocean freight to your destination port. Risk still transfers when the goods cross the ship's rail at origin, so insurance is on you between origin port and destination port.

CIF — Cost, Insurance and Freight (sea only)

Same as CFR but the seller also buys insurance for the ocean voyage (minimum cover only — Institute Cargo Clauses C). Convenient for new importers but the seller usually chooses the cheapest carrier and minimum insurance. Many forwarders recommend CFR + your own insurance instead.

CPT and CIP — Carriage Paid To / Carriage and Insurance Paid To

Multimodal versions of CFR and CIF — they work for any mode (air, ocean, road, rail). Under Incoterms 2020, CIP requires the seller to buy a higher level of insurance (ICC A) than CIF (ICC C). Useful for air freight and intermodal moves.

DAP — Delivered at Place

Seller delivers to a named address in your country, ready for unloading. Import customs and duties are still on you. DAP is increasingly popular for e-commerce drop-shipping because it lets the seller control the whole physical delivery but keeps import duties out of their accounts.

DPU — Delivered at Place Unloaded

New in Incoterms 2020 (replaced DAT). Like DAP, but the seller also has to unload the goods at the destination. Niche — mostly used for heavy machinery delivered to a job site.

DDP — Delivered Duty Paid

Maximum responsibility for the seller. They handle everything: freight, insurance, import customs, duties, taxes and last-mile delivery to your door. Looks easy because it's one number on the invoice — but you're trusting the seller's customs broker, the duty classification, and any local compliance. Use DDP for low-risk lanes and small parcels.

Quick comparison table

• EXW — Buyer does everything. Hard mode.
• FOB / FCA — Seller handles export. Most common.
• CFR / CIF — Seller adds ocean freight (and insurance for CIF).
• DAP / DDP — Seller delivers to your door (DDP also pays duties).

Which Incoterm should I ask for?

For your first 1–10 imports: FOB origin port. It lets you compare apples to apples between suppliers, use your own forwarder, and control the freight cost without taking on export customs risk. Once you have a regular freight partner, FCA is technically more correct for containerized cargo. Save DDP for low-value parcels and DAP for proven suppliers.