In short
- Incoterms 2020 is a set of eleven three-letter trade terms published by the International Chamber of Commerce that says where a seller’s delivery obligation ends and a buyer’s begins.
- Each rule fixes three separate things: the delivery point, the transfer of risk, and the split of costs. They do not always sit at the same place on the route.
- Seven rules work for any mode of transport (EXW, FCA, CPT, CIP, DAP, DPU, DDP) and four are written for sea and inland waterway only (FAS, FOB, CFR, CIF).
- The single most expensive mistake in retail importing is treating a term as a price quote rather than a legal allocation of risk, insurance and customs duty.
- Incoterms do not transfer ownership, set payment terms, or decide which country’s law governs the contract. Those sit in the sales contract itself.
If you have ever found one supplier quote 18% cheaper than another, then watched the gap evaporate once the container landed, the explanation is usually three letters long. Incoterms are the shorthand sellers and buyers use to divide a shipment’s costs and risks, and misreading them is a reliable way to lose margin without ever making a bad buying decision.
This guide walks through what the 2020 edition actually says, how the eleven rules differ, and which questions tend to matter most for online sellers moving goods across a border. It sits alongside our broader modern retail logistics guide, which covers the warehouse and last-mile side of the same journey.
What Incoterms 2020 is and why it matters for online sellers
Incoterms is a contraction of “international commercial terms.” The rules are published by the International Chamber of Commerce, a private business organization founded in 1919, and the current edition took effect on 1 January 2020. According to the ICC, the rules have been revised roughly once a decade since the first set appeared in 1936, with earlier editions in 1953, 1967, 1976, 1980, 1990, 2000 and 2010.
The rules are not law. No government enacted them and no customs authority enforces them directly. They bind only because two parties write one into a contract, at which point the rule supplies an agreed definition of who does what. A term in a purchase order is a promise between buyer and seller, not a declaration to a customs authority.
What each rule fixes is narrower than most people assume. An Incoterm answers questions about carriage, risk, insurance and customs formalities. It is silent on price, payment method, currency, warranty, product conformity, intellectual property and dispute resolution. A contract that says only “CIF Los Angeles” and nothing else is missing most of what a commercial agreement needs.
Why the term shows up on your landed cost more than your unit price
For a retail importer, the practical significance is that the same physical goods carry very different total costs depending on the term. A quote of $4.10 per unit EXW at a factory gate in Shenzhen and a quote of $4.85 per unit DDP to a warehouse in New Jersey are not comparable numbers. The first excludes export packing at origin, inland trucking, terminal handling, ocean freight, insurance, import duty, customs brokerage, and delivery. The second folds all of it in.
Sellers who benchmark suppliers on unit price alone routinely pick the wrong one. The correction is to normalize every quote to the same delivery point before comparing, which is the same discipline we described in our breakdown of why cross-border shipping costs are not what you think.
Who actually uses these rules
Incoterms appear in commercial invoices, purchase orders, letters of credit, freight quotations and insurance certificates. Banks handling documentary credits reference them, forwarders quote against them, and customs brokers read them to work out who is meant to file an entry. If goods cross a border under a commercial sale, some Incoterm is in play, whether or not either side thought about it.
How Incoterms 2020 works in practice
Every rule in the 2020 edition is structured the same way. The ICC lays out ten paired obligations, labelled A1 to A10 for the seller and B1 to B10 for the buyer, covering general obligations, delivery, risk transfer, carriage, insurance, delivery and transport documents, export and import clearance, checking and packaging, cost allocation, and notices.
The three transfer points that do not always coincide
The most common conceptual error is assuming that delivery, risk and cost all switch hands at the same moment. Under several rules they do not.
Take CIF, one of the most widely used sea terms. The seller delivers when the goods are loaded on board the vessel at the origin port, and risk passes to the buyer at that same moment. But the seller is obliged to pay freight and a minimum level of insurance all the way to the named destination port. So the buyer carries the risk across an ocean on a voyage the seller paid for. If the container is lost mid-Pacific, that is the buyer’s loss to claim, notwithstanding that the seller’s name is on the freight bill.
CPT and CIP behave the same way for non-maritime shipments: risk passes when the goods are handed to the first carrier, while the seller’s cost obligation runs to the destination. Being clear on this split is the single highest-value thing an importer can take from the rules.
Any mode versus sea and inland waterway only
The 2020 edition splits the eleven rules into two families. Seven rules (EXW, FCA, CPT, CIP, DAP, DPU, DDP) can be used with any mode or combination of modes, including air, road, rail and containerized ocean freight. Four rules (FAS, FOB, CFR, CIF) are written specifically for sea and inland waterway transport, where the delivery point is tied to a vessel.
The ICC has been explicit that the four maritime rules are a poor fit for containerized cargo, because a shipper typically surrenders a container at a terminal days before it is loaded on board. Using FOB for a container leaves a gap where goods sit in a stack at the port, out of the seller’s control but still, on paper, at the seller’s risk. The ICC’s guidance points containerized shippers toward FCA instead. In practice FOB remains extremely common for containers anyway, largely through habit and because letters of credit have long been written that way.
Reading a term correctly on a quote
A properly written term has three parts: the three-letter code, a named place, and a reference to the edition. “FCA Shanghai” is ambiguous because Shanghai contains a port, an airport, hundreds of factories and dozens of container yards. “FCA Seller’s warehouse, Building 4, 128 Jiangchang Road, Shanghai, Incoterms 2020” is not.
The named place carries real money. Under FCA, if the named place is the seller’s premises, the seller loads the goods onto the buyer’s collecting vehicle. If the named place is any other point, the seller delivers when the goods are placed at the buyer’s disposal on the seller’s arriving vehicle, ready for unloading, and unloading is the buyer’s problem.
The eleven rules at a glance
The table below summarizes where each rule places delivery and who carries the main cost categories. Treat it as a map, not as a substitute for the rule text, which the ICC publishes in full and which contains the operative wording.
| Rule | Mode | Delivery point | Main carriage paid by | Insurance required | Export clearance | Import clearance and duty |
|---|---|---|---|---|---|---|
| EXW Ex Works | Any | Seller’s premises, not loaded | Buyer | Neither | Buyer | Buyer |
| FCA Free Carrier | Any | Named place, to the carrier | Buyer | Neither | Seller | Buyer |
| CPT Carriage Paid To | Any | To first carrier at origin | Seller | Neither | Seller | Buyer |
| CIP Carriage and Insurance Paid To | Any | To first carrier at origin | Seller | Seller, all risks level | Seller | Buyer |
| DAP Delivered at Place | Any | Named destination, not unloaded | Seller | Neither | Seller | Buyer |
| DPU Delivered at Place Unloaded | Any | Named destination, unloaded | Seller | Neither | Seller | Buyer |
| DDP Delivered Duty Paid | Any | Named destination, not unloaded | Seller | Neither | Seller | Seller |
| FAS Free Alongside Ship | Sea only | Alongside vessel at origin port | Buyer | Neither | Seller | Buyer |
| FOB Free On Board | Sea only | On board vessel at origin port | Buyer | Neither | Seller | Buyer |
| CFR Cost and Freight | Sea only | On board vessel at origin port | Seller | Neither | Seller | Buyer |
| CIF Cost, Insurance and Freight | Sea only | On board vessel at origin port | Seller | Seller, minimum level | Seller | Buyer |
What changed between the 2010 and 2020 editions
The 2020 revision was evolutionary rather than dramatic. According to the ICC, the headline changes were these. DAT (Delivered at Terminal) was renamed DPU (Delivered at Place Unloaded), widening the delivery point from a terminal to any agreed place where unloading can happen. The insurance level under CIP was raised to an all-risks standard, while CIF stayed at the older minimum cover level, reflecting that CIF is heavily used for bulk commodities where broad cover is not the norm.
The 2020 edition also added an option under FCA for the parties to agree that the buyer instructs its carrier to issue an on-board bill of lading to the seller, which solved a long-running friction with letters of credit that demand an on-board document. Security-related obligations and the allocation of their costs were made more explicit throughout, and the rules were reformatted with the cost allocations gathered into a single article per rule.
Why EXW and DDP sit at opposite ends
EXW places the maximum obligation on the buyer: the seller simply makes the goods available at its own premises, without loading them and without clearing them for export. DDP places the maximum obligation on the seller, including paying import duty and any applicable import taxes at destination.
Both extremes create practical problems, and for the same reason. Each asks one party to complete customs formalities in a country where it may have no legal presence, no registration and no ability to file. That is not a theoretical objection: it is the most common source of stuck shipments among small importers.
Choosing between FOB, CIF, DAP and DDP as a retail importer
Most retail import conversations converge on four terms. The comparison below frames them the way a merchandising or operations lead would evaluate them.
| Consideration | FOB origin port | CIF destination port | DAP your warehouse | DDP your warehouse |
|---|---|---|---|---|
| Who books the ocean carrier | Buyer | Seller | Seller | Seller |
| Who controls freight rate negotiation | Buyer | Seller | Seller | Seller |
| Where risk passes to the buyer | On board at origin | On board at origin | At the named destination | At the named destination |
| Who files the import entry | Buyer | Buyer | Buyer | Seller |
| Who pays import duty | Buyer | Buyer | Buyer | Seller |
| Visibility into true freight cost | High | Low | Low | Very low |
| Exposure to destination terminal charges | Buyer, but negotiated | Buyer, often unexpected | Seller | Seller |
| Typical fit | Regular volume, own forwarder | Occasional buyer, simple lanes | Buyer wants a door price, keeps duty control | Small test orders, low value |
The case for FOB when you ship regularly
Buyers with steady volume tend to move toward FOB or FCA because it puts carrier selection in their hands. Controlling the booking means controlling the rate, the routing, the carrier’s reliability record and the visibility feed. It also means destination charges arrive from your own forwarder on your own contract rather than as a surprise invoice from an agent you never chose.
The tradeoff is administrative. You need a forwarder relationship, someone to manage bookings, and enough volume that the effort pays back. For a seller importing four containers a year, that overhead may not be worth it.
Why CIF often disappoints first-time importers
CIF looks attractive because it quotes a single number to a destination port. The complication is what happens after the vessel arrives. The seller’s obligation typically ends at the port, but the goods still need terminal handling, customs entry, possible examination, and inland delivery, and those charges land on the buyer through the seller’s nominated agent at destination.
Because the buyer did not select that agent and has no commercial leverage over it, destination charges under CIF are frequently higher than what the same buyer would pay through its own forwarder. This is not misconduct by anyone; it is the predictable result of a party being invoiced by a vendor it did not choose. Buyers who find these charges consistently high often move to FOB precisely to regain that leverage.
When DDP makes sense, and when it quietly does not
DDP is genuinely convenient for small parcels, samples and low-value test orders where a supplier already has an established cross-border parcel channel. The buyer gets a door price with no customs work.
At scale it gets more complicated. Under DDP the seller is responsible for import clearance, which in the United States generally requires acting as importer of record with the associated bond and compliance exposure, a topic covered in more depth in our explainer on importer of record and customs bonds. A foreign supplier without a US presence may not be positioned to take that role properly, and arrangements where a supplier nominally clears goods in the buyer’s name without the buyer’s informed involvement can create real compliance questions for the party named on the entry.
There is also a duty-recovery angle. If a tariff is later refunded or a classification is corrected, the refund generally flows to whoever paid the duty. Under DDP that is the seller, not you.
What sellers need to check before importing or shipping
The rules are only as useful as the specificity around them. A short pre-shipment checklist tends to catch most of the value.
Name the place precisely, and name the edition
Write the term as code, place and edition: “DAP 4400 Distribution Way, Dock 12, Edison, NJ 08817, Incoterms 2020.” Because multiple editions remain in circulation and older ones are still valid if the parties choose them, naming the edition removes an entire category of argument. A term without an edition reference invites a dispute about which rule set applies.
Establish who is insured and to what level
Only two rules oblige anyone to buy cargo insurance: CIP requires the seller to carry all-risks cover, and CIF requires only a minimum level. Under every other rule, insurance is a commercial decision, and the party bearing risk on a given leg is the party with an insurable interest in it.
Under FOB or CFR that means the buyer’s exposure begins at the origin port even though the goods are still weeks from arriving. Buyers who assume the supplier’s insurance covers them across the ocean are frequently wrong.
Confirm each side can actually perform the customs role
Before agreeing to a term, it is worth checking that whoever is assigned export or import clearance is legally able to do it. For US imports, US Customs and Border Protection sets out who may act as importer of record and what bond requirements apply, and those requirements are published on the CBP website. For UK imports, HMRC publishes equivalent guidance on who can be the importer and what registrations are needed. Analogous rules exist in the EU and most other jurisdictions.
An EXW purchase asks a foreign buyer to handle export clearance in the seller’s country, which in China and several other markets is difficult or impossible for a non-resident entity. FCA solves this by moving export clearance to the seller while leaving the rest of the structure intact, which is why many experienced importers treat FCA as the sensible default rather than EXW.
Align the term with your payment instrument
If payment runs through a letter of credit, the documents the bank demands must be documents the chosen term actually produces. A credit requiring an on-board bill of lading pairs awkwardly with FCA unless the parties use the 2020 edition’s on-board notation option. Mismatches here cause document discrepancies, and discrepancies delay payment.
Model the landed cost before you sign
Build a simple landed-cost sheet with a line for every cost category: unit price, export packing, origin inland, origin terminal handling, ocean or air freight, bunker and currency surcharges, insurance, destination terminal handling, customs brokerage, duty, any applicable trade-remedy tariffs, delivery, and demurrage risk. Then mark which side pays each line under the proposed term. Where duties are involved, current rates for a given product depend on classification and origin, and those change: US rates under Section 301 and Section 232 programs, for instance, have been adjusted repeatedly, as our Section 301 tariffs primer describes.
Common mistakes and compliance risks to avoid
Using a maritime rule for a container
FOB, CFR, CIF and FAS place delivery at or alongside the vessel. Containerized cargo leaves the shipper’s control at a container yard or terminal gate, often several days earlier. That gap sits with the seller under a maritime term even though the seller can no longer do anything about the goods. The ICC’s recommendation is to use FCA, CPT or CIP for containers.
Assuming the term decides who owns the goods
Incoterms allocate risk and cost. They say nothing about when title passes. Ownership transfer is governed by the sales contract and by whichever national law applies to it. A buyer bearing risk from the origin port under FOB may not own the goods until payment clears, and a seller retaining title under a retention-of-title clause may still have passed risk long before.
Treating the term as a customs valuation instruction
Customs authorities have their own valuation rules. US CBP generally applies transaction value under its published regulations, and the EU and UK operate their own valuation frameworks. The Incoterm influences what is included in the invoice price, which in turn feeds valuation, but it does not itself determine the dutiable value. Sellers who assume a DDP invoice automatically settles the valuation question tend to be surprised during an audit.
Leaving unloading undefined
DAP delivers the goods ready for unloading at the destination, with unloading the buyer’s responsibility. DPU delivers them unloaded. For a full container arriving at a small warehouse without a dock leveller or forklift, that difference can mean an extra several hundred dollars and a rescheduled delivery. It is worth settling before the container is on a truck.
Copying a term from a template you never read
A meaningful share of Incoterm problems trace back to a purchase order template that has said “CIF” since someone set it up years ago, applied unchanged to air freight, samples and markets it was never designed for. Reviewing what the template says against what you actually ship is cheap insurance.
Ignoring demurrage and detention exposure
Whoever controls the destination leg carries the risk of storage and equipment charges when a container sits at a terminal or when the delivery window slips. Under CIF and FOB that is the buyer. Under DAP and DDP it is nominally the seller, though many supply contracts push it back through separate clauses. Reading that allocation before a port congestion event is considerably easier than reading it during one.
What Incoterms 2020 does not cover
Knowing the boundary of the rules is as useful as knowing their content. According to the ICC’s own framing, the rules do not address the following.
- Transfer of title or ownership. Governed by the sales contract and applicable national law.
- Price and payment terms. The rule allocates costs but does not set the price or specify when payment falls due.
- Governing law and forum. Which country’s law applies, and where disputes are heard, must be stated separately.
- Product conformity and warranty. Quality, specification and remedies for defects sit outside the rules entirely.
- Force majeure and sanctions. The rules do not excuse performance or address restricted-party screening, export controls or embargoes.
- Consequences of breach. Remedies for late or non-delivery come from the contract and the governing law.
Some movements sit outside the commercial-sale framing altogether. Goods travelling temporarily for a trade show or a sales sample, for example, are often handled under a customs procedure rather than a sale, using instruments such as the ATA carnet, which we cover separately in our guide to the ATA carnet for temporary imports.
How the rules can change and where to confirm the current details
Two separate things change over time, and it helps to keep them apart.
The first is the Incoterms rules themselves. These are revised by the ICC on a roughly ten-year cycle, and the 2020 edition is current as of this writing in 2026. When a new edition appears, older editions do not become invalid; contracts referencing Incoterms 2010 continue to operate under that text. This is exactly why naming the edition in the contract matters.
The second, and far more volatile, is everything the rules point at: duty rates, tariff programs, de minimis thresholds, filing requirements and clearance procedures. These can change with a Federal Register notice, an executive action, an EU implementing regulation or an HMRC update, sometimes with only days of lead time. Recent years have seen repeated adjustments to US trade-remedy tariffs and to low-value import treatment in both the US and the EU.
Where to verify current figures
Any specific rate, threshold or deadline should be confirmed at the official source before you rely on it commercially. The relevant primary sources include the following.
- Incoterms rule text: the International Chamber of Commerce, which publishes the authoritative wording.
- US import requirements, duty and entry procedures: US Customs and Border Protection, and the Harmonized Tariff Schedule published by the US International Trade Commission.
- US trade-remedy actions: the Office of the United States Trade Representative and notices in the Federal Register.
- EU customs and VAT on imports: the European Commission’s taxation and customs union directorate.
- UK import procedures: HMRC guidance published on GOV.UK.
- Trade statistics and background: the US Census Bureau foreign trade division and the World Trade Organization.
General background on the history and structure of the rules is also summarized on Wikipedia’s Incoterms entry, which is useful for orientation but is not a substitute for the ICC text or for official guidance. Whatever figure you find, note the date you checked it, because a duty rate that was accurate last quarter may not be accurate this one.
Building the habit into your process
A short quarterly review usually covers it: re-check duty treatment on the top SKUs by import value, confirm the term on your standard purchase order still matches how goods actually move, and re-verify any threshold a pricing decision leans on. Folding that into the operating rhythm described in our retail logistics playbook keeps it from becoming an annual scramble.
Important: this is general information, not legal, tax or customs advice
Everything above is written as general education about how a widely used set of commercial trade terms works. It is not legal advice, tax advice or customs advice, and it is not a recommendation about what any particular business should do in its own circumstances.
Trade terms interact with contract law, customs regulation, tax law and sanctions regimes that differ by country and that change frequently. The correct term for a given shipment depends on facts this article cannot know: your entity structure, your registrations, your product’s classification and origin, your payment instrument, and the law governing your contract.
For decisions with real money attached, a licensed customs broker, a trade attorney or a qualified tax advisor in the relevant jurisdiction can assess your specific situation. Rates, thresholds and procedures cited here reflect general published guidance rather than verified current figures for any specific product, and should be confirmed against the official source before you rely on them.
FAQ
What is the difference between Incoterms 2020 and Incoterms 2010?
According to the ICC, the main changes were renaming DAT to DPU and widening its delivery point beyond a terminal, raising the required insurance level under CIP to an all-risks standard while leaving CIF at the older minimum, adding an option for an on-board bill of lading under FCA, and making security-related obligations and their costs more explicit. The 2010 edition remains usable if a contract specifically references it.
Which Incoterm is best for a small online retailer importing from Asia?
There is no universally best term, and the right answer depends on volume, entity structure and whether you have a forwarder. Small, occasional importers often start with DAP or DDP for simplicity, while sellers with recurring container volume commonly move to FCA or FOB to control carrier selection and destination charges. A customs broker can assess which fits your specific setup.
Does the Incoterm decide who pays import duty?
It allocates responsibility for import clearance and duty between the parties as a contractual matter. Under DDP the seller takes that responsibility; under every other rule it sits with the buyer. However, the customs authority’s own rules determine who may act as importer of record and who is legally liable on the entry, and those rules are set by the authority rather than by the contract.
Is FOB appropriate for containerized cargo?
The ICC’s guidance is that it is not a good fit, because delivery under FOB happens when goods are on board the vessel, while a container typically leaves the shipper’s control at a terminal days earlier. That creates a period where goods are out of the seller’s hands but still at the seller’s risk. FCA is the recommended alternative for containers, though FOB remains widely used in practice.
Who is required to buy cargo insurance under Incoterms 2020?
Only two rules impose an insurance obligation. CIP requires the seller to obtain all-risks cover, and CIF requires the seller to obtain a minimum level of cover. Under the other nine rules, neither party is obliged to insure, so the party carrying risk on a given leg generally arranges its own cover if it wants protection.
Do Incoterms transfer ownership of the goods?
No. The rules address delivery, risk, cost and customs formalities. Title transfer is determined by the sales contract and by the national law that governs it, and it can pass at a completely different moment from risk.
What happens if a contract names an Incoterm without naming a place?
The term becomes ambiguous, because the named place is what fixes the delivery point and therefore the cost and risk split. In a dispute the parties would fall back on contract interpretation under the governing law, which is slower and less predictable than simply writing the place, and the edition, into the contract at the outset.
Can Incoterms be used for domestic shipments?
Yes. Although the rules are designed for international trade, the ICC notes they can be applied to purely domestic sales, and the 2020 edition reflects that. In a domestic context the export and import clearance obligations simply do not engage, leaving the delivery, risk and cost allocations to do the work.
How often do the underlying duty rates change?
Considerably more often than the Incoterms rules do. Tariff programs, de minimis thresholds and clearance procedures can change through regulatory notices with short lead times, and several such changes have occurred in recent years in both the US and the EU. Any rate you plan to price against should be verified at the official source on the day you use it.