What are Incoterms 2020?
Incoterms 2020 are the 11 delivery rules published by the International Chamber of Commerce (ICC) that define at which point cost, risk and customs obligations pass between buyer and seller. In a contract the rule is written together with a named place and the version year. The rules do not govern the transfer of ownership, the form of payment or the consequences of breach of contract.
In which rules do the transfer of cost and the transfer of risk separate?
Cost and risk are transferred at different points only in the C-group rules (CFR, CIF, CPT, CIP). In these four rules the seller pays for the carriage to the destination, but the risk of loss of or damage to the goods passes to the buyer at the loading end. For cargo sold CIF, damage that occurs after the goods are loaded on board the ship is at the buyer's risk, while the freight invoice stays with the seller. In the E, F and D groups the two transfers happen at the same physical point. Because this distinction decides who notifies the insurer and who recovers from the carrier in case of damage, the contract should state both the named place and "Incoterms 2020" next to the rule.
- E group (EXW): the seller's minimum obligation.
- F group (FCA, FAS, FOB): the buyer arranges the main carriage.
- C group (CFR, CIF, CPT, CIP): the seller pays for the main carriage, and risk passes early.
- D group (DAP, DPU, DDP): the seller's maximum obligation.
Which rule suits which mode of transport?
Four rules are used only for sea and inland waterway transport: FAS, FOB, CFR and CIF. The remaining seven (EXW, FCA, CPT, CIP, DAP, DPU, DDP) work for any mode of transport and for combined shipments in which several modes meet. What the sea rules have in common is that the point of delivery is the ship: alongside the ship in FAS, on board the ship in the other three. Writing FOB for an air or road shipment leaves the point of delivery undefined, because there is no ship; this vagueness causes problems in letter-of-credit examination and in damage claims. For a combined shipment the correct equivalents are FCA, CPT and CIP respectively.
- Sea and inland waterway only: FAS, FOB, CFR, CIF.
- Any mode, including combined transport: EXW, FCA, CPT, CIP, DAP, DPU, DDP.
Why should FCA be used instead of FOB for container cargo?
A container leaves the seller's control when it is delivered to the terminal or to the consolidation warehouse, not at the moment it is loaded on the ship. Under FOB, because the risk passes on board the ship, the goods are legally still at the seller's risk during the days the container waits at the terminal, is stacked and is moved by crane, although the seller has no practical control over the goods at that stage. For this reason the ICC recommends FCA for containerised and multimodal shipments. Under FCA the delivery is made to the buyer's carrier at the named place, and the risk passes exactly there. If a letter of credit calls for a bill of lading with an "on board" notation, the arrangement added to FCA in Incoterms 2020 allows the parties to agree that the buyer instructs its carrier to issue such a bill of lading to the seller.
What changed compared with Incoterms 2010?
The number of rules stayed at 11; the three main changes are DAT becoming DPU, a higher level of insurance under CIP and a new provision on the on-board notation under FCA. DAT (Delivered at Terminal) was replaced by DPU (Delivered at Place Unloaded), which makes clear that unloading is not limited to a terminal and can take place at any agreed place. DPU is the only rule in which the seller is obliged to unload. Under CIP, the minimum insurance that the seller has to arrange was raised from the Institute Cargo Clauses (C) level to the (A) level, while CIF kept the (C) level. The rules also state expressly that the parties may carry the goods with their own means of transport instead of giving the carriage to a third-party carrier.
Who bears the customs obligations under which rule?
Export clearance is with the seller in every rule except EXW, and import clearance is with the buyer in every rule except DDP. Under EXW the buyer has to arrange the export declaration; in exports from Türkiye the declaration is registered in the name of the exporting company, so EXW creates a mismatch in practice and makes it harder to document the export exemption. DDP is at the opposite end: the seller takes on the import duties and taxes in the country of arrival, but because it is not registered there as an importer, it often cannot put the VAT it has paid through a deduction or refund mechanism. Instead of these two extremes, FCA for exports and DAP where delivery at destination is wanted are the safer equivalents in most transactions.
Cost transfer, risk transfer and mode of transport in the Incoterms 2020 rules
| Rule |
Last cost taken on by the seller |
Point at which risk passes to the buyer |
Mode of transport |
| EXW |
Making the goods available at the premises (no loading) |
When the goods are placed at the buyer's disposal at the seller's premises |
Any mode |
| FCA |
Delivery to the carrier at the named place + export clearance |
On delivery to the carrier at the named place |
Any mode |
| FAS |
Placing the goods alongside the ship at the port of loading |
When the goods are placed alongside the ship |
Sea / inland waterway |
| FOB |
Loading the goods on board the ship |
When the goods are loaded on board the ship |
Sea / inland waterway |
| CFR |
Freight to the port of destination |
When the goods are loaded on board at the port of loading |
Sea / inland waterway |
| CIF |
Freight to the port of destination + minimum insurance (ICC C) |
When the goods are loaded on board at the port of loading |
Sea / inland waterway |
| CPT |
Carriage to the named place of destination |
On delivery to the first carrier |
Any mode |
| CIP |
Carriage to the place of destination + broad insurance (ICC A) |
On delivery to the first carrier |
Any mode |
| DAP |
Delivery at the place of destination, ready for unloading |
At the place of destination, on the arriving vehicle ready for unloading |
Any mode |
| DPU |
Delivery at the place of destination, including unloading |
When unloading is completed |
Any mode |
| DDP |
Delivery at the place of destination + import duties and taxes |
At the place of destination, on the arriving vehicle ready for unloading |
Any mode |
Frequently asked questions
Did Incoterms 2010 become invalid when Incoterms 2020 was published?
No. The rules enter a contract by reference, so whichever version the parties write is the one that applies; a contract that refers to the 2010 version is still valid today. For this reason the version year should be written next to the rule in the sales contract, the pro forma invoice and the letter of credit. If the version is not stated, which text applies is open to dispute.
Do Incoterms decide when ownership passes?
No. The rules govern the allocation of cost, risk and customs obligations. The transfer of ownership, the payment terms, interest on late payment and the consequences of breach of contract are outside Incoterms; they are left to the sales contract and the applicable law. The moment at which ownership passes should be written separately in the contract.
In which rules is insurance compulsory?
Only under CIF and CIP does the seller have an obligation to take out insurance for the buyer's benefit. The minimum cover is Institute Cargo Clauses (C) under CIF and (A) under CIP. In the other nine rules, taking out insurance is not a contractual obligation; the party that bears the risk arranges a policy at its own decision. Without knowing where the risk passes, the start and end points of a policy cannot be written correctly.
What happens if the seller pays the freight in an FOB sale?
The rule is broken, and the invoice and the transport document contradict each other. Under FOB the freight belongs to the buyer; if the seller pays the freight and passes it on to the buyer, the correct rule is CFR. This inconsistency leads to a discrepancy in letter-of-credit examination and to a difference that needs an additional declaration when the customs value is determined.