Incoterms 2020
Incoterms are rules published by the International Chamber of Commerce (ICC). They set out who arranges and pays for transport, who clears export and import, and where risk passes from seller to buyer. There are 11 rules in the 2020 edition. This guide sets them side by side.
The 11 rules
| Rule | Mode | Risk passes | Main carriage arranged by | Export clearance | Import clearance |
|---|---|---|---|---|---|
| EXW Ex Works | Any | When goods are made available at the seller's premises | Buyer | Buyer | Buyer |
| FCA Free Carrier | Any | When goods are handed to the carrier named by the buyer, at the named place | Buyer | Seller | Buyer |
| CPT Carriage Paid To | Any | When goods are handed to the first carrier | Seller | Seller | Buyer |
| CIP Carriage and Insurance Paid To | Any | When goods are handed to the first carrier | Seller | Seller | Buyer |
| DAP Delivered at Place | Any | At the named place of destination, ready for unloading | Seller | Seller | Buyer |
| DPU Delivered at Place Unloaded | Any | At the named place, once unloaded | Seller | Seller | Buyer |
| DDP Delivered Duty Paid | Any | At the named place of destination, ready for unloading | Seller | Seller | Seller |
| FAS Free Alongside Ship | Sea only | When goods are alongside the vessel at the port of shipment | Buyer | Seller | Buyer |
| FOB Free On Board | Sea only | When goods are on board the vessel at the port of shipment | Buyer | Seller | Buyer |
| CFR Cost and Freight | Sea only | When goods are on board the vessel at the port of shipment | Seller | Seller | Buyer |
| CIF Cost, Insurance and Freight | Sea only | When goods are on board the vessel at the port of shipment | Seller | Seller | Buyer |
In CPT, CIP, CFR and CIF the seller pays for main carriage, but risk passes earlier, at origin. That is the most common point of confusion. CIP and CIF also require the seller to buy insurance for the buyer's benefit. CIP requires a higher level of cover than CIF under the 2020 edition.
Which rules suit containers
FAS, FOB, CFR and CIF are for sea and inland waterway transport only. Containers are usually handed to the carrier at a terminal or depot, before the ship is loaded. The rules written for sea cargo place delivery "on board", which does not match what happens for a container. For containers, FCA, CPT or CIP, which work for any mode, usually describe the real handover better. Many contracts still say FOB for containers. It is common and often works, but it can leave risk and cost unclear between handover and loading.
Why FCA often suits containers better than FOB
- The handover happens where the container actually changes hands, such as the seller's door or a named terminal or depot.
- Risk and cost move at that point, not at a moment on the ship that the seller cannot see or control.
- Under FCA in the 2020 edition, buyer and seller can agree that the buyer tells its carrier to issue an on-board bill of lading to the seller. That can help with a letter of credit that asks for one.
Common mistakes
- Naming the rule but not the place. Always write the named place or port, for example "FCA [named place]".
- Using a sea-only rule for air or road cargo.
- Assuming "freight paid" means the seller carries risk to the destination. For CPT, CIP, CFR and CIF it does not.
- Treating EXW as simple. The buyer must export the goods and handle loading, which can be hard from abroad.
- Using DDP without checking that the seller can register and pay import tax in the destination country.
- Forgetting that Incoterms do not cover price, payment, transfer of ownership or the contract of sale. Your sales contract does that.
- Mixing editions. Say "Incoterms 2020" in the contract.
How it affects your quote
The rule tells us which legs you pay for and where the quote should stop. Give us the rule and the place when you ask. See Reading a freight quote and the shipping terms.
Questions
Which Incoterm should I use?
It depends on who is better placed to arrange transport and clearance. For containers, FCA is a common starting point. Agree it with your buyer or supplier and have your contract adviser check the wording.
Do Incoterms say who owns the goods?
No. They cover delivery, costs and risk, not ownership or payment.
Can Ayer Shipping act for me under any rule?
We arrange transport and coordinate paperwork for the legs you are responsible for. Customs declarations go through licensed customs brokers.