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. Every international sales contract should reference an Incoterm.
Terms for Any Transport Mode
EXW — Ex Works
Seller: Makes goods available at their premises.
Buyer: Pays everything from pickup onward.
Risk transfers: At seller’s warehouse.
Use when: Buyer has strong logistics capability in the seller’s country.
FCA — Free Carrier
Seller: Delivers to named carrier, handles export clearance.
Buyer: Pays main freight, insurance, import duties.
Risk transfers: When goods handed to carrier.
Use when: Most common for containerized freight and courier shipments.
CPT — Carriage Paid To
Seller: Pays freight to destination.
Buyer: Pays insurance and import duties.
Risk transfers: When handed to first carrier.
Use when: Seller wants to offer "free shipping" but risk stays with buyer during transit.
CIP — Carriage and Insurance Paid To
Same as CPT, plus seller pays insurance.
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.
Use when: Seller has unloading equipment at destination.
DDP — Delivered Duty Paid
Seller: Pays everything — freight, insurance, import duties, taxes — until goods delivered.
Buyer: Just receives the goods.
Risk transfers: At buyer’s delivery address.
Use when: E-commerce, where customer experience is paramount.
Terms for Sea and Inland Waterway Only
FAS — Free Alongside Ship
Seller: Delivers goods alongside the ship at 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 on the ship.
Use when: Seller wants control over shipping arrangements.
CIF — Cost, Insurance, Freight
Same as CFR plus seller pays insurance.
Use when: Seller wants full-service shipping with insurance but not import customs.
Which Incoterm Should I Use?
| Scenario | Recommended Incoterm |
|---|---|
| E-commerce B2C, zero-hassle for customer | 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 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 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. Always specify an Incoterm in your contract.
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