Skip to Content

Incoterms 2020: International Trade Terms Explained

International trade involves multiple parties, transportation methods, customs procedures, and financial responsibilities. To avoid misunderstandings and disputes, businesses around the world use Incoterms® (International Commercial Terms), a globally recognized set of trade rules published by the International Chamber of Commerce (ICC).

Incoterms define the responsibilities of buyers and sellers during the shipment of goods, including transportation costs, risk transfer, export and import clearance, insurance obligations, and delivery terms. By clearly establishing who is responsible for each stage of the supply chain, Incoterms help create transparent and efficient international transactions.

Incoterms 2020 Terms Overview

EXW (Ex Works)

The seller makes the goods available at their premises, and the buyer assumes all transportation costs, risks, and export responsibilities from that point onward.

FCA (Free Carrier)

The seller delivers the goods to a carrier or another party nominated by the buyer at an agreed location, where the risk transfers to the buyer.

CPT (Carriage Paid To)

The seller pays for transportation to the specified destination, but the risk transfers to the buyer once the goods are handed over to the carrier.

CIP (Carriage and Insurance Paid To)

The seller pays for transportation and insurance coverage to the agreed destination while the risk transfers when the goods are delivered to the carrier.

DAP (Delivered At Place)

The seller is responsible for delivering the goods to the named destination, ready for unloading, with the buyer handling import formalities.

DPU (Delivered at Place Unloaded)

The seller bears responsibility for delivering and unloading the goods at the agreed destination before transferring them to the buyer.

DDP (Delivered Duty Paid)

The seller assumes maximum responsibility by delivering the goods to the destination and covering all transportation, customs duties, taxes, and import procedures.

FAS (Free Alongside Ship)

The seller delivers the goods alongside the vessel at the port of shipment, after which all costs and risks pass to the buyer.

FOB (Free On Board)

The seller is responsible for the goods until they are loaded onto the vessel at the port of departure, after which the risk transfers to the buyer.

CFR (Cost and Freight)

The seller pays for transportation to the destination port, but the risk transfers to the buyer once the goods are loaded onto the vessel.

CIF (Cost, Insurance and Freight)

The seller pays for freight and insurance to the destination port while the risk transfers to the buyer after loading the goods onto the vessel.

Why Are Incoterms Important?

Using Incoterms helps businesses:

  • Clearly define responsibilities between buyers and sellers.
  • Reduce misunderstandings and contractual disputes
  • Improve supply chain transparency.
  • Standardize international trade agreements.
  • Better manage transportation, customs, and insurance costs.
  • Minimize logistics and compliance risks.

How to Choose the Right Incoterm

Selecting the appropriate Incoterm depends on several factors, including the mode of transport, the experience of each party in handling logistics, customs requirements, insurance preferences, and the desired allocation of risk and responsibility.

Businesses should carefully evaluate their supply chain strategy and contractual obligations before selecting an Incoterms rule for international transactions.

Detailed Incoterms Guides

Learn more about each Incoterms 2020 rule:

  • EXW (Ex Works)
  • FCA (Free Carrier)
  • CPT (Carriage Paid To)
  • CIP (Carriage and Insurance Paid To)
  • DAP (Delivered At Place)
  • DPU (Delivered at Place Unloaded)
  • DDP (Delivered Duty Paid)
  • FAS (Free Alongside Ship)
  • FOB (Free On Board)
  • CFR (Cost and Freight)
  • CIF (Cost, Insurance and Freight)