Incoterms 2020: The Complete Guide for E-Commerce and International Trade

Incoterms — short for International Commercial Terms — are a set of standardised trade terms published by the International Chamber of Commerce (ICC). They define, precisely, where the seller's responsibility ends and the buyer's begins in an international shipment.

The current edition, Incoterms 2020, contains 11 rules. If you've ever seen "FOB Shanghai" or "DDP Berlin" on a purchase order, that's an Incoterm.

This guide explains all 11 rules in plain English: what they mean, who pays for what, when risk transfers, and which term to use in which situation. Whether you're an e-commerce seller sourcing from China, an importer dealing with European suppliers, or a logistics manager writing contracts, this is the reference you need.

Why Incoterms matter

Incoterms answer three critical questions in any international shipment:

1. Who arranges and pays for transport? 2. Who arranges and pays for insurance? 3. At what point does the risk of loss or damage transfer from seller to buyer?

Without a clear Incoterm, these questions become contractual disputes. With a clear Incoterm, everyone knows what they're responsible for before the goods move.

Important: Incoterms do not determine who owns the goods, who pays import duties (that depends on customs law), or payment terms (that's in your sales contract). They only define delivery and risk obligations.

The two groups: any mode vs. sea/inland waterway only

Incoterms 2020 divides its 11 rules into two groups:

Group 1 — Any mode of transport (7 rules): EXW, FCA, CPT, CIP, DAP, DPU, DDP

Group 2 — Sea and inland waterway only (4 rules): FAS, FOB, CFR, CIF

The sea-only rules (FOB, CIF, CFR, FAS) are the terms most people know — but they're increasingly misused. For containerised cargo (which is most ocean freight today), the sea-only rules are problematic because risk should transfer when goods are handed to the carrier at the port, not when they're loaded "on board" the vessel. FCA is usually the better choice for containerised sea freight.

Let's go through all 11.

EXW — Ex Works

Who it favours: Seller Risk transfers: At the seller's premises (factory, warehouse) Who arranges main carriage: Buyer Who pays import duty: Buyer

EXW is the most seller-friendly Incoterm. The seller's only obligation is to make the goods available at their own premises. The buyer organises everything: collection, export clearance, loading, transport, insurance, and import clearance.

When to use it: EXW is appropriate for domestic trade or when the buyer has their own logistics infrastructure in the seller's country. It is rarely appropriate for international trade because the buyer must arrange export customs clearance in a foreign country — something they may not legally be able to do without a local representative.

Common mistake: Many Chinese factories quote EXW prices, which look cheaper. But the buyer then pays for everything including Chinese export duties and inland haulage to the port — costs that are often higher than expected.

FCA — Free Carrier

Who it favours: Balanced Risk transfers: When goods are handed to the carrier at the named place Who arranges main carriage: Buyer Who pays import duty: Buyer

FCA is the ICC's recommended alternative to FOB for containerised freight. The seller delivers goods to a named place (which can be their premises, a freight forwarder's warehouse, or a port container terminal). Risk transfers when the goods are in the carrier's hands.

New in Incoterms 2020: A specific provision allows the buyer to instruct their carrier to issue an on-board bill of lading to the seller — addressing a common problem with letters of credit that require on-board BL documentation.

When to use it: FCA is the recommended term for containerised ocean freight, air freight, and multimodal shipments. It's more precise than FOB because the transfer point (the named place) is defined up front.

CPT — Carriage Paid To

Who it favours: Buyer (risk), Seller (control) Risk transfers: When goods are handed to the first carrier Who arranges main carriage: Seller Who pays import duty: Buyer

CPT means the seller pays for carriage to the named destination, but risk transfers much earlier — when the goods are handed to the first carrier. This creates a split between "who pays" and "who bears risk" that can be confusing.

The seller pays freight to the destination but the buyer bears all risk during transit. If goods are damaged at sea, the buyer bears the loss — even though the seller arranged and paid for the shipment.

When to use it: CPT is useful when the seller has better freight rates or logistics relationships and wants to offer a landed price — but doesn't want to take on the risk or cost of insurance. It's common in manufacturing contracts.

CIP — Carriage and Insurance Paid To

Who it favours: Buyer Risk transfers: When goods are handed to the first carrier Who arranges main carriage: Seller Who pays import duty: Buyer

CIP is CPT plus insurance. The seller pays for carriage and must obtain insurance to the named destination.

Important change in Incoterms 2020: CIP now requires the seller to obtain Institute Cargo Clauses (A) coverage — the highest level of marine insurance. The previous version only required Clauses (C). This makes CIP significantly more protective for the buyer.

When to use it: CIP is the recommended term for air freight and multimodal transport where insurance is required. For sea freight, CIF is the traditional equivalent.

DAP — Delivered At Place

Who it favours: Buyer Risk transfers: At the named destination, before unloading Who arranges main carriage: Seller Who pays import duty: Buyer

Under DAP, the seller delivers the goods to a named destination — ready for unloading but without completing import clearance or paying import duties. The buyer handles customs clearance and duty payment at destination.

Risk transfers to the buyer only when goods arrive at the named place and are ready for unloading — not during transit.

When to use it: DAP is common in B2B e-commerce and direct-from-manufacturer shipments where the buyer is equipped to handle their own customs clearance. It's also used when the seller wants to retain control during transit but not handle destination customs.

DPU — Delivered at Place Unloaded

Who it favours: Buyer Risk transfers: After unloading at the named destination Who arranges main carriage: Seller Who pays import duty: Buyer

DPU (formerly DAT — Delivered at Terminal) is the only Incoterm under which the seller is responsible for unloading goods at the destination. Risk transfers once the goods are unloaded.

When to use it: DPU is used when delivery to a terminal or specific location where the seller will unload is agreed. It's relatively uncommon in e-commerce but useful for heavy machinery, bulk cargo, or shipments to named terminals.

Note: The name changed from DAT to DPU in Incoterms 2020 to make clear that any place can be named, not just a terminal.

DDP — Delivered Duty Paid

Who it favours: Buyer Risk transfers: At the named destination, before unloading Who arranges main carriage: Seller Who pays import duty: Seller

DDP is the most buyer-friendly Incoterm. The seller takes full responsibility for delivering the goods to the buyer's door — including export clearance, international freight, insurance, import clearance, and duty payment.

For the buyer, DDP is the simplest experience: a single price, no customs hassle, no surprise duty bills.

When to use it: DDP is standard in B2C cross-border e-commerce. When you buy from an international retailer and they quote a landed price with no extra charges at delivery, they're using DDP terms.

Critical warning: DDP requires the seller to act as importer of record in the destination country. This means the seller needs a legal entity, tax registration (VAT/GST), or a customs agent authorised to act on their behalf. Many sellers quote DDP without understanding this obligation — leading to delays, penalties, or shipments being returned.

EU context: Selling DDP into the EU as a non-EU company requires VAT registration (or use of the IOSS scheme for sub-€150 shipments). Post-Brexit, the same applies to UK.

FAS — Free Alongside Ship

[Sea/inland waterway only]

Risk transfers: When goods are placed alongside the vessel at the named port Who arranges main carriage: Buyer Who pays import duty: Buyer

FAS is rarely used in modern trade. The seller delivers goods alongside the named vessel at the port of shipment. The buyer then handles loading, freight, insurance, and everything onwards.

FAS is primarily used for bulk cargo (grain, minerals, oil) where goods are delivered to the port's quayside. For containerised cargo, FCA is the appropriate substitute.

FOB — Free On Board

[Sea/inland waterway only]

Risk transfers: When goods are loaded on board the vessel Who arranges main carriage: Buyer Who pays import duty: Buyer

FOB is the most widely used — and most widely misused — Incoterm. The seller delivers goods loaded on the vessel at the named port. Risk transfers once goods cross the ship's rail.

The problem with FOB for containerised cargo: In container shipping, the shipper hands goods to the freight forwarder or container terminal days before the vessel sails. If goods are damaged in the terminal (before loading), determining responsibility under FOB can be complex. FCA resolves this by transferring risk when goods are handed to the carrier — not when they're physically loaded.

When to use it: FOB remains appropriate for bulk cargo, breakbulk, and non-containerised sea freight. For containerised ocean freight, FCA is increasingly preferred.

"FOB China price": When Chinese factories quote "FOB Shenzhen" or "FOB Shanghai," this means the price includes all costs to load the goods on a vessel at that port. The buyer pays for ocean freight, insurance, and all costs beyond.

CFR — Cost and Freight

[Sea/inland waterway only]

Risk transfers: When goods are loaded on board the vessel Who arranges main carriage: Seller Who pays import duty: Buyer

CFR means the seller pays for freight to the destination port, but risk transfers at the origin port (same as FOB). The buyer bears risk during the voyage even though the seller paid for it.

This risk/cost split is the same issue as CPT (the any-mode equivalent). CFR is most appropriate for bulk cargo where the seller has better freight rates but wants the buyer to bear transit risk.

CIF — Cost, Insurance and Freight

[Sea/inland waterway only]

Risk transfers: When goods are loaded on board the vessel Who arranges main carriage: Seller Who pays import duty: Buyer

CIF is CFR plus insurance. The seller pays freight and arranges cargo insurance to the destination port.

Important: Unlike CIP, CIF only requires Institute Cargo Clauses (C) — the minimum coverage. This is one reason the ICC recommends CIP over CIF for air and multimodal freight.

When to use it: CIF is the traditional term for bulk ocean freight. Many commodity trades (oil, metals, agricultural goods) use CIF.

For e-commerce: If you're importing goods by sea and the supplier offers CIF, verify the insurance coverage is adequate. Clauses (C) exclude many common risks including theft, washing overboard, and damage from seawater ingress.

Quick comparison: all 11 Incoterms

The table below summarises who is responsible for each cost/risk element under each Incoterm. S = Seller, B = Buyer.

Which Incoterm should you use?

The right Incoterm depends on your situation:

You're a small e-commerce seller buying from China (ocean freight): FOB or FCA. Your freight forwarder will arrange ocean freight from the port. FOB is fine if your supplier loads containers. If they deliver to a forwarder's warehouse, use FCA.

You're buying from China and want a simple all-in price: DDP — but verify your supplier can legally import on your behalf in your country. Many freight forwarders offer "DDP" as a service.

You're selling B2C across borders: DDP. Your customers expect a landed price with no customs surprises. In the EU for sub-€150 shipments, use the IOSS scheme. Above €150, you need proper import clearance.

You're importing bulk or breakbulk by sea: FOB or CIF depending on whether you want to arrange freight yourself.

You're shipping by air: FCA or CIP. The sea-only terms don't apply. CIP gives the buyer insurance coverage; FCA leaves insurance to the buyer.

You're a supplier selling to large retailers: DAP or DDP depending on what's negotiated. Retailers often prefer DDP so they have zero customs burden.

Common mistakes with Incoterms

1. Using FOB for containerised cargo As explained above, FCA is more appropriate for containers because risk transfers when goods are in the carrier's hands — before the vessel loads.

2. Confusing Incoterms with payment terms FOB does not mean "payment before shipment." Incoterms say nothing about when or how payment happens. Payment terms (30 days net, letter of credit, etc.) are separate.

3. Thinking DDP means "no VAT" DDP includes import duty but does not necessarily mean VAT is included. VAT treatment depends on the destination country's rules and whether the seller is VAT-registered there.

4. Not specifying the named place Every Incoterm requires a named place or port. "FOB" without "FOB Shanghai" or "FOB Felixstowe" is incomplete. The more specific the named place, the clearer the contract.

5. Using old Incoterms editions Always specify "Incoterms 2020" in your contract. Previous editions (2010, 2000, 1990) differ in important ways. If you don't specify the edition, disputes about which version applies can arise.

Incoterms and import duty calculation

Incoterms affect how customs authorities calculate the taxable value of imported goods — the customs value.

Most countries use the WTO Customs Valuation Agreement, which bases customs value on the transaction value of goods. Crucially, the customs value typically includes freight and insurance costs to the port of entry.

This means: - If you import on FOB terms (buyer pays freight), you add freight cost to calculate customs value - If you import on CIF terms (seller includes freight and insurance in price), the CIF price is closer to the customs value - DDP prices include duties — so you need to back them out to get the customs value

For EU imports, the customs value is the CIF value at the EU border. For US imports, it's FOB value at the foreign port of export. This is why the same shipment can have different customs values in different countries.

Understanding this matters for accurate duty calculation. A $1,000 FOB price for goods shipped from Shanghai to Rotterdam might have a customs value of $1,080 (adding $80 ocean freight) — and EU duty would be calculated on $1,080, not $1,000.

Key takeaways

- Incoterms define delivery, risk, and responsibility — not ownership or payment - There are 11 rules in Incoterms 2020: 7 for any transport mode, 4 for sea only - For containerised ocean freight, FCA is generally preferable to FOB - DDP is the most buyer-friendly term and standard in B2C cross-border e-commerce - Always specify the edition ("Incoterms 2020") and the named place in contracts - Incoterms affect customs valuation and therefore the duty you pay - The ICC publishes the official Incoterms rules — country-specific adaptations are not official

If you're classifying goods for customs purposes, the Incoterm you use will affect your landed cost calculations. Use the import duty calculator at Dutiable to see the full landed cost including duties and VAT for EU, US, and UK shipments.