Incoterms® 2020 in plain language for new exporters

Incoterms® are standard trade rules published by the International Chamber of Commerce. They define which party is responsible for transport, insurance, export and import clearance, and where the risk passes from seller to buyer. Quoting with an Incoterm makes your price comparable and avoids expensive misunderstandings. The current edition is Incoterms® 2020.

Rules for any mode of transport

• EXW (Ex Works): the buyer collects from the seller’s premises and handles almost everything, including export clearance.
• FCA (Free Carrier): the seller clears the goods for export and hands them to the buyer’s carrier at an agreed place.
• CPT (Carriage Paid To): the seller pays transport to the named destination; risk passes when the goods are handed to the first carrier.
• CIP (Carriage and Insurance Paid To): as CPT, with the seller also buying insurance, which under the 2020 rules must be at the higher “all risks” level.
• DAP (Delivered at Place): the seller delivers to the named destination, ready for unloading; the buyer handles import clearance and duties.
• DPU (Delivered at Place Unloaded): as DAP, but the seller also unloads the goods at the destination.
• DDP (Delivered Duty Paid): the seller delivers to the destination and pays import duties and taxes. This is the most demanding rule for the seller.

Rules for sea and inland waterway transport

• FAS (Free Alongside Ship): the seller places the goods alongside the vessel at the port of shipment.
• FOB (Free on Board): the seller loads the goods on board the vessel nominated by the buyer; risk passes once they are on board.
• CFR (Cost and Freight): the seller pays freight to the destination port; risk passes when the goods are on board at the origin port.
• CIF (Cost, Insurance and Freight): as CFR, with the seller also buying minimum-cover marine insurance.

Choosing a rule

If you are new to exporting and do not want to arrange international freight, FCA or FOB keeps your responsibilities limited. If you want to offer buyers a simpler landed price and have a reliable freight forwarder, CFR, CIF, CPT or DAP can make your quotation more attractive. Avoid DDP unless you understand the import taxes and registration rules in the buyer’s country.

Always name the exact place or port after the rule, for example “FOB Jebel Ali, Incoterms® 2020”, and make sure your sales contract and letter of credit use the same wording.

This guide is a summary for general information. For full definitions, refer to the official ICC Incoterms® 2020 publication or speak to your freight forwarder or trade adviser.