Incoterms 2020 Guide

How to write the rule correctly

A complete term has three parts: the three-letter rule, the named place, and the edition. “CIP Nairobi, Incoterms 2020” is complete. “CIP” is not. For the four sea rules the named place is a port; for the seven multimodal rules it is a place — a factory gate, a terminal, a warehouse, an address. The more precise the point, the fewer arguments about who pays for the last kilometre.

The 11 rules at a glance

Seven rules for any mode of transport

Rule	Risk passes	Main carriage paid by	Insurance	Export / import clearance
EXW Ex Works	At the seller’s premises, goods placed at buyer’s disposal, not loaded	Buyer	Neither party obliged	Buyer does both — including export, which is often impractical
FCA Free Carrier	On delivery to the carrier named by the buyer (loaded, if at seller’s premises)	Buyer	Neither party obliged	Seller exports, buyer imports
CPT Carriage Paid To	On handover to the first carrier — early, at origin	Seller	Neither party obliged	Seller exports, buyer imports
CIP Carriage and Insurance Paid To	On handover to the first carrier	Seller	Seller must insure — all-risks level (Institute Cargo Clauses A or similar)	Seller exports, buyer imports
DAP Delivered at Place	At the named destination, on the arriving vehicle, ready for unloading	Seller	Neither party obliged	Seller exports; buyer imports and pays duty
DPU Delivered at Place Unloaded	At the named destination, once unloaded	Seller	Neither party obliged	Seller exports; buyer imports and pays duty
DDP Delivered Duty Paid	At the named destination, ready for unloading	Seller	Neither party obliged	Seller does everything, including import duty and taxes

Four rules for sea and inland waterway transport only

Rule	Risk passes	Main carriage paid by	Insurance	Export / import clearance
FAS Free Alongside Ship	When goods are placed alongside the vessel at the named port	Buyer	Neither party obliged	Seller exports, buyer imports
FOB Free on Board	When goods are on board the vessel	Buyer	Neither party obliged	Seller exports, buyer imports
CFR Cost and Freight	When goods are on board at the port of loading	Seller (to the destination port)	Neither party obliged	Seller exports, buyer imports
CIF Cost, Insurance and Freight	When goods are on board at the port of loading	Seller (to the destination port)	Seller must insure — minimum cover only (Institute Cargo Clauses C or similar)	Seller exports, buyer imports

The trap in CFR, CIF, CPT and CIP

In all four, the seller pays freight to a destination but risk transfers at origin. A buyer reading “CIF Durban” naturally assumes the seller carries the risk to Durban. They do not. If the container is lost mid-ocean, the goods were at the buyer’s risk from the moment they crossed the ship’s rail — the seller has still performed and is still entitled to payment. The insurance policy, not the Incoterms rule, is what protects the buyer. Explain this before the contract, not after a claim.

What changed from Incoterms 2010

• DAT became DPU. Delivery is no longer restricted to a terminal — it can be any place, provided the seller unloads. DPU remains the only rule under which the seller must unload.
• CIP now requires a higher level of insurance — all-risks cover — while CIF keeps the minimum-cover default. Parties may still agree otherwise in the contract.
• FCA gained an on-board bill of lading option. The parties can agree that the buyer instructs the carrier to issue an on-board bill of lading to the seller after loading, which lets exporters use FCA under letters of credit that demand a marine bill of lading. Historically this problem pushed sellers into FOB even when the goods travelled in containers.
• Cost allocation was consolidated into article A9/B9 of each rule, so each party can see their costs in one place.
• Own means of transport was recognised in FCA, DAP, DPU and DDP — carriage does not have to be contracted with a third party.
• Security-related obligations were made explicit throughout, reflecting screening and advance-declaration requirements.

Choosing a rule in practice

If you are exporting for the first time

FCA at your premises or at a named terminal is usually the cleanest choice. You handle export clearance — which only you can do, since the export declaration is filed in your name — and the buyer’s forwarder takes over from there. Avoid EXW: it obliges the buyer to complete an export declaration in a country where they may have no legal presence, and it leaves you without proof of export for your own tax purposes.

If the buyer is opening a letter of credit

CFR or CIF are still the most common for full container loads, because the credit usually calls for a marine bill of lading and freight prepaid. If you prefer FCA, use the on-board bill of lading option and make sure the credit is written to accept it. See letters of credit for small exporters.

If the buyer wants a single delivered price

DAP puts the goods at their door with import duty still on their side. DDP goes further and makes you responsible for import clearance and duty — which requires you to be able to register for tax and act as importer of record in the destination country. In many markets a foreign company simply cannot do that. Quote DDP only when you have verified you can.

Who pays what: a worked example

One 20-foot container of machine parts, factory in Izmir to a warehouse in Casablanca. Costs: inland haulage to Izmir port 300, export customs 120, ocean freight 900, marine insurance 150, import duty and VAT 2,400, destination terminal handling 250, delivery to the warehouse 350.

Rule	Seller’s cost	Buyer’s cost	Risk transfers
EXW Izmir factory	0	4,470	At the factory
FOB Izmir	420	4,050	On board at Izmir
CFR Casablanca	1,320	3,150	On board at Izmir
CIF Casablanca	1,470	3,000	On board at Izmir
DAP Casablanca warehouse	2,070	2,400	At the warehouse, before unloading
DDP Casablanca warehouse	4,470	0	At the warehouse, before unloading

Two lessons. First, the headline unit price means nothing without the rule — a CIF price that looks 12% higher than FOB may be cheaper once the buyer’s own freight is added. Second, only the D-rules move the risk downstream; CFR and CIF do not.

Incoterms and your documents

The rule you choose changes the customs value at destination, because freight and insurance are included or excluded accordingly. It also determines which transport document you will hold, and whether an insurance certificate belongs in your document set. Write the rule identically on the proforma invoice, the commercial invoice, the sale contract and the letter of credit. A mismatch between “CIF Casablanca” on the invoice and “CFR Casablanca” in the credit is a discrepancy, and the bank is entitled to refuse the documents.

Next: check what else the shipment needs in the export documents checklist, review classification in the HS code guide, compare supplier quotes properly with the landed cost method, or issue a proforma invoice online with the Incoterms rule and named place in its note.

Incoterms is a trademark of the International Chamber of Commerce. This guide is an independent summary for exporters and importers; the authoritative text is the ICC publication itself, and your sale contract governs anything the rules do not cover.