Incoterms 2020 Explained for Importers and Exporters
Incoterms decide who pays for freight, who carries the risk, and where responsibility transfers. Here is a plain-language tour of the 2020 rules.
Incoterms — the International Commercial Terms published by the ICC — are the three-letter codes (EXW, FOB, CIF…) that sit at the heart of every trade contract. Get them right and responsibilities are crystal clear. Get them vague and you end up arguing over a damaged shipment.
What Incoterms do and do not cover
They define three things: who arranges and pays for transport, where risk passes from seller to buyer, and who handles export/import formalities.
They do not cover payment terms, transfer of ownership, or what happens if goods are defective — those live elsewhere in your contract.
The terms you will actually use
- EXW (Ex Works) — the buyer collects from the seller's premises and bears almost everything. Maximum buyer responsibility.
- FOB (Free On Board) — the seller delivers onto the vessel; risk passes at the ship's rail. Common for sea freight.
- CIF (Cost, Insurance, Freight) — the seller pays freight and insurance to the destination port, but risk passes at origin. A frequent source of confusion.
- DAP (Delivered At Place) — the seller delivers to a named place, ready for unloading. Buyer handles import clearance.
- DDP (Delivered Duty Paid) — the seller delivers everything, duties included. Maximum seller responsibility.
The CIF trap
Under CIF the seller buys insurance and pays the freight, so buyers assume they are covered end to end. In fact risk transfers when the goods are loaded at origin — if they are damaged in transit, it is the buyer who claims on the insurance. Read the term, not the intuition.
Sea-only vs any-mode terms
Four terms (FAS, FOB, CFR, CIF) are only for sea and inland waterway transport. The rest (EXW, FCA, CPT, CIP, DAP, DPU, DDP) work for any mode, including containers handed over at a terminal — where FCA, not FOB, is technically the correct choice.
Choosing the right term
- New to importing? DAP or DDP push complexity onto the seller.
- Want control and the best freight rate? FOB or FCA let you arrange the main carriage.
- Always pair the term with a named place — "FOB Shanghai", not just "FOB".
Cargo365 quotes assume a clear Incoterm, so the price you compare is the price you pay. Request a quote.