Every international sale of goods needs a shared answer to three questions: who arranges shipping, who bears the risk if something goes wrong in transit, and who pays for what. Incoterms® 2020 — the current set of rules published by the International Chamber of Commerce (ICC) — answers exactly that, in a standard vocabulary that customs brokers, freight forwarders, banks, and courts around the world recognize.
Key Functions of Incoterms 2020
• Obligations: Defines which tasks are handled by the seller versus the buyer (e.g., arranging carriage, insurance, shipping documents, export/import licenses).
• Transfer of Risk: Pinpoints exactly where and when delivery happens — marking the transfer of risk from the seller to the buyer.
• Costs: Allocates financial responsibility between parties for transport, packaging, loading/unloading, and security checks.
Classification of Terms
The 11 rules split into two groups, based on how the goods are shipped.
Rules for Any Mode (or Modes) of Transport
• EXW – Ex Works: The seller's only job is to make the goods available at its own premises. The buyer handles loading, export clearance, carriage, and everything else from there — minimum obligation for the seller, maximum for the buyer.
• FCA – Free Carrier: The seller delivers the goods, cleared for export, to a carrier (or other person) nominated by the buyer at an agreed place. Risk transfers at that handover — the ICC's recommended choice for containerized cargo.
• CPT – Carriage Paid To: The seller pays to bring the goods to the named destination, but risk passes to the buyer as soon as the goods are handed to the first carrier — cost and risk transfer at different points.
• CIP – Carriage and Insurance Paid To: Identical to CPT, except the seller must also insure the goods, at a minimum of 110% of their value under Institute Cargo Clauses (A) — the highest available level of cover.
• DAP – Delivered at Place: The seller bears all risk and cost until the goods arrive, ready for unloading, at the named destination. Unloading itself is the buyer's job.
• DPU – Delivered at Place Unloaded: The only Incoterms rule requiring the seller to unload the goods at destination. DPU replaced DAT (Delivered at Terminal) in the 2020 revision, so delivery can now happen at any place, not just a terminal.
• DDP – Delivered Duty Paid: The seller handles everything — transport, export and import clearance, duties, and taxes — right up to the buyer's door. Maximum obligation for the seller.
Rules for Sea and Inland Waterway Transport
These four rules apply only where goods are loaded onto or discharged from a vessel — typically bulk commodities. The ICC advises against using them for containerized cargo, since risk would transfer before the container ever reaches the ship; FCA, CPT, or CIP are the recommended alternatives there.
• FAS – Free Alongside Ship: The seller delivers once the goods are placed alongside the vessel (e.g., on a quay or barge) at the named port of shipment.
• FOB – Free on Board: The seller delivers once the goods are loaded on board the vessel nominated by the buyer. Risk transfers at that point.
• CFR – Cost and Freight: The seller pays the cost of carriage to the named port of destination, but risk still transfers once the goods are loaded on board at the port of shipment.
• CIF – Cost Insurance and Freight: Like CFR, but the seller must also insure the goods — at minimum, Institute Cargo Clauses (C), the lowest standard level of cover.
What Changed in the 2020 Edition
The ICC's own introduction to Incoterms 2020 highlights seven changes from the 2010 rules:
• FCA gets a bill-of-lading option: Under FCA, the buyer and seller can now agree that the buyer's carrier will issue an on-board bill of lading to the seller once loading is finished — useful when a letter of credit requires proof the goods are on board.
• All costs consolidated in one place: Every rule now lists its full set of allocated costs in a single A9/B9 article, rather than scattering cost items across several clauses as the 2010 rules did.
• Split insurance levels for CIF vs. CIP: CIF — mostly used in bulk maritime commodity trade — keeps the lower Institute Cargo Clauses (C) minimum cover by default. CIP — more common for higher-value manufactured goods — now defaults to the fuller Institute Cargo Clauses (A) cover. Either can still be adjusted by agreement.
• Own transport now allowed: FCA, DAP, DPU, and DDP no longer assume a third-party carrier. A seller or buyer can now fulfil the carriage obligation using its own vehicle instead of contracting one out.
• DAT renamed DPU: The rename to Delivered at Place Unloaded makes clear that delivery can happen at any place, not only a recognized transport terminal, as long as the seller is able to unload there.
• Security built into A4 and A7: Explicit transport-security obligations (screening, documentation, and related requirements) were added to the carriage (A4) and export/import clearance (A7) articles of every rule, with the associated costs surfaced in A9/B9.
• Explanatory Notes replace Guidance Notes: The short introductory notes at the start of each rule were renamed "Explanatory Notes for Users" and expanded, alongside a longer general introduction to the whole publication.
Key Takeaways
• Clear Division of Roles: Incoterms establish precise obligations between the seller and buyer regarding shipping, insurance, document acquisition, and customs clearance.
• Risk vs. Cost: Transfer of risk (where delivery occurs) does not always happen at the same location as transfer of costs, making it essential to understand the specific term used.
• 11 Standard Terms: The 2020 rules comprise 11 total rules split into two categories: 7 usable for any mode of transport and 4 strictly for sea and inland waterway transport.
• Structured Obligations: Each rule is set out in the official ICC text as 10 seller obligations (A1–A10) mirrored by 10 buyer obligations (B1–B10) — covering delivery, risk, transport, insurance, customs, and cost.
• Global Standard: Published by the International Chamber of Commerce (ICC), these terms prevent costly misunderstandings in both international and domestic contracts.
Frequently Asked Questions (FAQ)
Q: Do Incoterms 2020 transfer ownership or title of the goods?
A: No. Incoterms only cover the obligations, risks, and costs related to delivery. They do not define when ownership or title transfers, nor do they specify payment terms, price, or remedies for breach of contract.
Q: What is the main difference between CIP and CPT?
A: Under both terms, the seller pays for freight to the agreed destination. However, CIP requires the seller to purchase a higher level of insurance coverage (Institute Cargo Clauses A) for the buyer, whereas CPT does not mandate seller-provided insurance at all.
Q: What changed from DAT to DPU in Incoterms 2020?
A: In the 2020 update, the term DAT (Delivered at Terminal) was renamed DPU (Delivered at Place Unloaded) to clarify that the delivery destination can be any place, not just a transport terminal, as long as the goods are unloaded there.
Q: Which term imposes the minimum obligation on the seller?
A: EXW (Ex Works) places maximum responsibility on the buyer and minimal obligation on the seller, who only needs to make the goods available at their own premises.
Q: Which term places the maximum obligation on the seller?
A: DDP (Delivered Duty Paid) requires the seller to handle all costs, export/import clearances, duties, taxes, and delivery to the buyer's named destination.
Q: Can I use FOB or CIF for a container shipment?
A: You can, but the ICC recommends against it. Risk under FOB/CFR/CIF transfers when goods are loaded on board the vessel — for containers, that's often days after the container has already left the seller's control at a container yard, leaving a risk gap. FCA, CPT, or CIP track container handovers more accurately.
Incoterms® is a registered trademark of the International Chamber of Commerce. This article has been checked for accuracy against the official ICC Incoterms® 2020 rules (ICC Publication No. 723E, © 2019 ICC) but is a general summary for educational purposes only — it is not a substitute for the official rulebook. For contract drafting, always refer to the official ICC Incoterms® 2020 publication or consult a qualified trade advisor.