Incoterms 2020 Explained
If you’ve ever wondered who pays for what in an international shipment — the buyer or the seller — the answer is defined by Incoterms. This guide explains all 11 Incoterms 2020 rules in plain English, with examples of when to use each.
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What Are Incoterms?
Incoterms (International Commercial Terms) are standardized trade terms published by the International Chamber of Commerce (ICC). They define:
- Who pays for shipping, insurance, and customs clearance
- Where risk transfers from seller to buyer
- Who handles export and import documentation
The current version is Incoterms 2020, updated from 2010. Every international sales contract should reference an Incoterm — otherwise disputes arise.
All 11 Incoterms 2020 Explained
Terms for Any Transport Mode
These seven terms work for any mode — air, sea, road, rail, or multimodal.
EXW — Ex Works
Seller: Makes goods available at their premises.
Buyer: Pays everything from pickup onward — loading, transport, export clearance, freight, insurance, import duties.
Risk transfers: At seller’s warehouse.
Use when: Buyer has strong logistics capability in the seller’s country.
FCA — Free Carrier
Seller: Delivers goods to a named carrier or place (usually the seller’s local port or airport) and handles export clearance.
Buyer: Pays main freight, insurance, and import duties.
Risk transfers: When goods are handed to the carrier.
Use when: Most common term for containerized freight and courier shipments.
CPT — Carriage Paid To
Seller: Pays freight to the named destination.
Buyer: Pays insurance and import duties.
Risk transfers: When goods are handed to the first carrier (not at destination).
Use when: Seller wants to offer “free shipping” but risk stays with buyer during transit.
CIP — Carriage and Insurance Paid To
Same as CPT, but seller also pays insurance.
Risk transfers: When goods are handed to first carrier.
Use when: Seller wants to offer full-service shipping with insurance.
DAP — Delivered At Place
Seller: Delivers to buyer’s named address, pays freight and insurance.
Buyer: Pays import duties and taxes.
Risk transfers: When goods arrive at destination (before unloading).
Use when: Popular for e-commerce where seller handles shipping but buyer handles customs.
DPU — Delivered at Place Unloaded
Same as DAP but seller also unloads the goods.
Risk transfers: After unloading.
Use when: Seller has unloading equipment at destination.
DDP — Delivered Duty Paid
Seller: Pays everything — freight, insurance, import duties, taxes — until goods are delivered to buyer.
Buyer: Just receives the goods.
Risk transfers: At buyer’s delivery address.
Use when: E-commerce, where customer experience is paramount. Most D2C brands use DDP.
Terms for Sea and Inland Waterway Only
These four terms apply only to sea freight.
FAS — Free Alongside Ship
Seller: Delivers goods alongside the ship at the port of loading.
Buyer: Loads onto ship, pays freight, insurance, import duties.
Use when: Bulk cargo (grain, ore) loaded directly at port.
FOB — Free On Board
Seller: Delivers goods loaded onto the ship.
Buyer: Pays freight, insurance, and import duties.
Use when: Most common term for sea freight. Widely used in Asia-US trade.
CFR — Cost and Freight
Seller: Pays freight to destination port.
Buyer: Pays insurance and import duties.
Risk transfers: When goods are on the ship (not at destination).
Use when: Seller wants control over shipping arrangements.
CIF — Cost, Insurance, Freight
Same as CFR plus seller pays insurance.
Use when: Seller wants to offer full-service shipping with insurance but not handle import customs.
Which Incoterm Should I Use?
| Scenario | Recommended Incoterm |
|---|---|
| E-commerce B2C, want customer to have zero hassle | DDP |
| E-commerce B2C, customer OK with customs | DAP |
| Small business shipping by courier | FCA or DAP |
| Bulk sea freight, buyer experienced | FOB |
| Bulk sea freight, seller handles shipping | CIF |
| Buyer has strong logistics in seller’s country | EXW |
| Buyer wants seller to handle everything | DDP |
Frequently Asked Questions
What is the difference between DDP and DAP?
DDP: seller pays duties. DAP: buyer pays duties. Both have seller arranging shipping to buyer’s address.
Is FOB or EXW better?
FOB is better for buyers — the seller handles export clearance and loads the ship. EXW puts everything on the buyer, which can be a problem if the buyer has no logistics presence in the seller’s country.
Which Incoterm is best for Amazon FBA sellers?
DDP is most common for FBA sellers shipping from Asia to US/UK warehouses. It simplifies the process and ensures the shipment reaches Amazon without customs issues.
Do Incoterms define who pays customs duty?
Yes. Under DDP, the seller pays. Under DAP, the buyer pays. Under FOB and CIF, the buyer pays import duty.
Can I use Incoterms for domestic shipments?
Incoterms are designed for international trade. For domestic shipments, use standard shipping terms from your local courier.
What if I don’t specify an Incoterm?
Then disputes arise about who pays what. If a buyer refuses a shipment due to unexpected duties, the seller may have to pay return shipping or abandon the goods. Always specify an Incoterm in your contract.
Back to calculator → | Volumetric Weight Guide | Customs Duty Guide