INCOTERMS 2020

INCOTERMS (International Commercial Terms) are standardised three-letter trade terms published by the International Chamber of Commerce (ICC). The 2020 edition — the current version — defines 11 rules governing the division of costs, risks, and obligations between buyer and seller in a sales contract. They are not law, but once incorporated into a contract by reference they have contractual force.

INCOTERMS govern the buyer–seller relationship only. They do not govern the shipowner–charterer relationship (which is covered by the charterparty), nor do they define title to goods or payment terms. The bill of lading is a separate instrument — INCOTERMS determine who must procure it, not what it says. Demurrage allocation between buyer and seller is not addressed by INCOTERMS and must be expressly agreed in the sale contract.

Group E — Departure

Minimum obligation on the seller. Risk passes at seller's premises.

EXWEx Works

Risk transfers: At seller's named place (factory, warehouse) when goods are placed at buyer's disposal — not loaded.
Carriage: Buyer arranges and pays all carriage.
Insurance: Buyer's responsibility (no obligation on seller).
Customs clearance: Buyer handles export and import clearance.

Practically difficult for buyers outside the seller's country — they must arrange export customs in a foreign jurisdiction. Not recommended for containerised cargo crossing borders.

Group F — Main Carriage Unpaid by Seller

Seller delivers to a carrier nominated by the buyer. Main carriage cost falls to the buyer.

FCAFree Carrier

Risk transfers: At the named place of delivery — either seller's premises (loaded) or a named location (unloaded from seller's vehicle).
Carriage: Buyer pays main carriage.
Insurance: No obligation on either party; buyer's risk once goods are with the carrier.
Customs clearance: Seller handles export; buyer handles import.

The ICC-recommended term for containerised cargo. A 2020 amendment allows FCA to be used with a bill of lading: the carrier, at buyer's instruction, issues a shipped-on-board B/L to the seller — solving the problem of sellers under letters of credit who need a clean shipped B/L before goods leave their port.

FASFree Alongside Ship

Risk transfers: When goods are placed alongside the vessel at the named port of shipment.
Carriage: Buyer pays loading, freight, and all onward carriage.
Insurance: Buyer's responsibility from alongside.
Customs clearance: Seller handles export clearance (unlike earlier versions); buyer handles import.

Appropriate for bulk or break-bulk cargo where the buyer controls vessel selection. Rarely used in modern containerised trade.

FOBFree on Board

Risk transfers: When goods are on board the vessel at the named port of shipment.
Carriage: Buyer pays freight and all carriage from the named port.
Insurance: Buyer's responsibility once on board.
Customs clearance: Seller handles export; buyer handles import.

Historically designed for break-bulk cargo crossing the ship's rail. Still the dominant term in commodity trades (iron ore, coal, grain, crude oil). For containerised cargo, FCA is preferable — under FOB the seller retains risk during the often-lengthy period of container terminal handling before the vessel sails.

Group C — Main Carriage Paid by Seller

Seller pays for main carriage but risk of loss transfers to the buyer at the port or place of shipment, before the main carriage leg.

CFRCost and Freight

Risk transfers: On board the vessel at the port of shipment (same risk point as FOB).
Carriage: Seller pays freight to the named port of destination.
Insurance: Buyer's responsibility for the sea voyage — seller has no insurance obligation.
Customs clearance: Seller handles export; buyer handles import.

Sea and inland waterway only. Buyer is advised to arrange cargo insurance independently. Common in commodity trades where buyer's insurer is preferred.

CIFCost, Insurance and Freight

Risk transfers: On board the vessel at the port of shipment.
Carriage: Seller pays freight to the named port of destination.
Insurance: Seller must procure minimum cover. Under INCOTERMS 2020, CIF requires Institute Cargo Clauses (C) — the minimum. Contrast CIP below.
Customs clearance: Seller handles export; buyer handles import.

Sea and inland waterway only. The most widely used term in bulk commodity trade and crude oil. The policy is for the buyer's benefit; the buyer may want to top up to ICC (A) cover at their own cost. Note: seller has a split duty — cost and insurance to destination but risk transfers at origin.

CPTCarriage Paid To

Risk transfers: When goods are handed to the first carrier at the place of shipment.
Carriage: Seller pays carriage to the named destination.
Insurance: No obligation on seller; buyer's risk from the first carrier.
Customs clearance: Seller handles export; buyer handles import.

Multimodal equivalent of CFR. Risk transfers earlier than cost — a key point buyers often miss.

CIPCarriage and Insurance Paid To

Risk transfers: When goods are handed to the first carrier at the place of shipment.
Carriage: Seller pays carriage to named destination.
Insurance: Seller must procure Institute Cargo Clauses (A) — the broadest cover. This is a change from the 2010 version, which required only ICC (C) for CIP.
Customs clearance: Seller handles export; buyer handles import.

Multimodal equivalent of CIF but with a higher insurance obligation on the seller. Appropriate for high-value manufactured goods in containers.

Group D — Arrival

Seller bears risk all the way to the named destination. Maximum obligation on the seller.

DAPDelivered at Place

Risk transfers: When goods are made available at the named place of destination, ready for unloading, but not unloaded.
Carriage: Seller pays all carriage to named destination.
Insurance: Seller's risk to destination; no formal insurance obligation but seller is exposed.
Customs clearance: Seller handles export; buyer handles import duties and clearance.

Replaced DDU from INCOTERMS 2010. Buyer is responsible for unloading at destination. Widely used in multimodal trade.

DPUDelivered at Place Unloaded

Risk transfers: When goods are unloaded at the named place of destination.
Carriage: Seller pays all carriage and unloading.
Insurance: Seller's risk until unloading is complete.
Customs clearance: Seller handles export; buyer handles import.

New in INCOTERMS 2020, replacing DAT (Delivered at Terminal). "Unloaded" replaces "terminal" because the delivery location need not be a terminal — it can be a construction site, warehouse, etc. This is the only rule where the seller is responsible for unloading.

DDPDelivered Duty Paid

Risk transfers: When goods are made available at the named destination, cleared for import, not unloaded.
Carriage: Seller pays all carriage.
Insurance: Seller's risk to destination; no formal obligation but exposure requires cover.
Customs clearance: Seller handles both export and import clearance, including duties and VAT.

Maximum seller obligation. The mirror image of EXW. Problematic where the seller cannot act as importer of record in the buyer's country. Commonly used in e-commerce shipments to consumers in regulated markets.

Maritime relevance

Seven of the 11 terms can be used for any mode of transport; only four — FAS, FOB, CFR, and CIF — are restricted to sea and inland waterway transport. In commodity trades (crude oil, dry bulk, LNG), FOB and CIF remain dominant. The shipowner selling freight will typically encounter FOB cargo (buyer nominates the vessel) or CIF cargo (seller nominates). Understanding which term applies determines who is the shipper on the bill of lading, who bears the freight obligation, and who holds the insurance policy.

A key 2020 change: under FCA, the parties may agree that the buyer instructs the carrier to issue a shipped-on-board bill of lading to the seller. This resolves a long-standing problem in letter-of-credit transactions where containerised cargo is booked under FCA but the seller needs a shipped B/L to present to the bank.

Common pitfalls

Using FOB for containerised cargo — the seller's risk extends through the container terminal until the ship sails. FCA to the container terminal is cleaner.
CIF insurance is minimum (ICC C only) — buyers in CIF contracts should top up independently if they need broader cover. CIP requires ICC (A).
Demurrage is not covered — a CIF or CFR seller who nominates a vessel that incurs laytime overrun has no INCOTERMS protection; the sale contract must allocate demurrage separately.
Customs obligations under DDP — a seller who cannot legally act as importer of record in the buyer's country should not agree DDP; DAP is a safer alternative.