Trade Insights
What Are Incoterms? A Practical Guide for International Buyers
Incoterms® 2020 comprises 11 ICC rules used in contracts for the sale of goods. Each selected rule identifies the seller’s delivery obligation, the point at which transport risk transfers, and how specified costs and formalities are allocated between seller and buyer. The International Chamber of Commerce publishes these rules. This guide covers Incoterms® 2020, effective from 1 January 2020. Source: International Chamber of Commerce, Incoterms® 2020, “Introduction to Incoterms® 2020.” Incoterms® are standardized rules incorporated into sales contracts to allocate delivery, transport, risk, customs, and—in limited cases—insurance responsibilities between sellers and buyers. They do not determine ownership, price, payment, product quality, governing law, or remedies for breach. Source: International Chamber of Commerce, Incoterms® 2020, “Introduction to Incoterms® 2020.”
For buyers, the practical purpose of Incoterms is to identify the delivery point, risk-transfer point, transport obligations, customs responsibilities, and any required seller-arranged insurance before a purchase is confirmed.
Incoterms® rules do not determine ownership, product specifications, payment terms, remedies for breach, governing law, or dispute resolution. Those matters must be addressed separately in the sales contract. Source: International Chamber of Commerce Digital Library, Incoterms® and Commercial Contracts.
Reviewed: 5 September 2026. The review covered the applicable ICC edition, descriptions of all 11 rules, delivery and risk-transfer points, insurance distinctions, the 2010–2020 changes summarized below, and the cited ICC references.
What do Incoterms® rules define?
Each Incoterms rule allocates specific delivery responsibilities between the seller and buyer. It helps the parties answer three central questions: Source: International Chamber of Commerce, Incoterms® 2020, “Introduction to Incoterms® 2020.”
Delivery: Where and how must the seller deliver the goods?
Risk: At what point does the risk of accidental loss or damage pass to the buyer?
Costs and formalities: Which party arranges and pays for transport, loading, unloading, insurance, and customs procedures?
The destination to which the seller pays freight is not always the point where risk transfers. Under CPT, CIP, CFR, and CIF, for example, the seller arranges carriage to a named destination, but risk passes at an earlier delivery point. Source: International Chamber of Commerce, Incoterms® 2020, CPT, CIP, CFR and CIF rules.
What do Incoterms® rules not cover?
An Incoterms rule is one part of a sales contract, not a replacement for it. It does not establish: Source: International Chamber of Commerce Digital Library, Incoterms® and Commercial Contracts.
the price, currency, payment method, or payment date;
when legal ownership of the goods transfers;
the agreed quantity, quality, or technical specifications;
warranties or liability for defective goods;
the governing law or dispute-resolution procedure;
remedies for delay, non-payment, or breach of contract;
sanctions, trade restrictions, or other regulatory consequences;
documentary-credit requirements; or
insurance protection beyond the obligation contained in the selected rule.
Writing “FOB” or “CIF” on a purchase order is therefore insufficient to create a complete commercial agreement.
What are the 11 Incoterms® 2020 rules?
Seven rules may be used for any mode or combination of transport. Four are reserved for sea and inland-waterway transport. Source: International Chamber of Commerce, Incoterms® 2020, “Rules for Any Mode or Modes of Transport” and “Rules for Sea and Inland Waterway Transport.”
Incoterms® 2020 rules for any mode or combination of transport Rule Full name Permitted transport mode Seller’s delivery point Risk-transfer point Main carriage arranged by Import clearance Seller-arranged insurance EXW Ex Works Any mode or combination Named place, normally before loading onto the collecting vehicle When the goods are placed at the buyer’s disposal at the named place Buyer Buyer Not required FCA Free Carrier Any mode or combination Agreed point where the goods are delivered to the buyer’s nominated carrier or other person On delivery at that agreed point Buyer Buyer Not required CPT Carriage Paid To Any mode or combination When the goods are delivered to the seller’s contracted carrier On delivery to that carrier Seller, to the named destination Buyer Not required CIP Carriage and Insurance Paid To Any mode or combination When the goods are delivered to the seller’s contracted carrier On delivery to that carrier Seller, to the named destination Buyer Required under CIP DAP Delivered at Place Any mode or combination Named destination, on the arriving means of transport and ready for unloading On delivery there, before unloading Seller Buyer Not required DPU Delivered at Place Unloaded Any mode or combination Named destination after unloading After the goods have been unloaded there Seller Buyer Not required DDP Delivered Duty Paid Any mode or combination Named destination after import clearance, on the arriving means of transport and ready for unloading On delivery there, before unloading Seller Seller Not required
Source for the table: International Chamber of Commerce, Incoterms® 2020, EXW, FCA, CPT, CIP, DAP, DPU and DDP rules in “Rules for Any Mode or Modes of Transport.”
Incoterms® 2020 rules for sea and inland-waterway transport Rule Full name Permitted transport mode Seller’s delivery point Risk-transfer point Main carriage arranged by Import clearance Seller-arranged insurance FAS Free Alongside Ship Sea or inland waterway Alongside the buyer’s nominated vessel at the named port of shipment When placed alongside that vessel Buyer Buyer Not required FOB Free on Board Sea or inland waterway On board the buyer’s nominated vessel at the named port of shipment When placed on board Buyer Buyer Not required CFR Cost and Freight Sea or inland waterway On board at the port of shipment When placed on board at the port of shipment Seller, to the named destination port Buyer Not required CIF Cost, Insurance and Freight Sea or inland waterway On board at the port of shipment When placed on board at the port of shipment Seller, to the named destination port Buyer Required under CIF
Source for the table: International Chamber of Commerce, Incoterms® 2020, FAS, FOB, CFR and CIF rules in “Rules for Sea and Inland Waterway Transport.”
How do the E, F, C, and D groups differ?
This grouping is a useful explanation of the rules, although it is not the formal structure used to present Incoterms® 2020.
Practical comparison of the E, F, C and D groups Group Rules Practical distinction E EXW The seller places the goods at the buyer’s disposal at the named location. F FCA, FAS, FOB The buyer normally arranges the main carriage after the seller completes delivery at origin. C CPT, CIP, CFR, CIF The seller arranges the main carriage, but risk transfers before the goods reach the named destination. D DAP, DPU, DDP The seller retains risk until delivery at the named destination.
Source: International Chamber of Commerce, Incoterms® 2020, the individual EXW, FCA, FAS, FOB, CPT, CIP, CFR, CIF, DAP, DPU and DDP rules.
What is the difference between transport cost and risk?
The named destination is not necessarily the risk-transfer point. Under CPT, CIP, CFR, and CIF, the seller pays for carriage to destination, but risk transfers when delivery occurs earlier in the route. Source: International Chamber of Commerce, Incoterms® 2020, CPT, CIP, CFR and CIF rules.
Cost allocation identifies which party pays particular expenses. Risk allocation identifies which party bears an accidental loss or damage after a defined point.
The distinction is especially important under the C rules. A CIF seller may pay freight and arrange insurance to the destination port, but risk transfers when the goods are placed on board at the port of shipment. Likewise, under CPT or CIP, risk transfers when the goods are delivered to the seller’s contracted carrier rather than when they reach the named destination. Source: International Chamber of Commerce, Incoterms® 2020, CIF, CPT and CIP rules.
Which Incoterms® rules require the seller to arrange insurance?
CIF and CIP are the only Incoterms® 2020 rules that expressly require the seller to arrange insurance for the buyer’s risk. Source: International Chamber of Commerce, Incoterms® 2020, CIP and CIF rules, insurance provisions.
CIP: The default cover corresponds to Institute Cargo Clauses (A), or similar cover, unless the parties agree otherwise. Source: International Chamber of Commerce, Incoterms® 2020, CIP rule, insurance provision.
CIF: The default cover corresponds to Institute Cargo Clauses (C), or similar cover, unless the parties agree otherwise. Source: International Chamber of Commerce, Incoterms® 2020, CIF rule, insurance provision.
The buyer should still examine the policy terms, insured value, exclusions, claims process, geographical limits, and required documents. A seller’s obligation to arrange insurance does not automatically mean every commercial risk is covered.
Why is FOB not suitable for every sea shipment?
FOB defines delivery when the goods are placed on board the nominated vessel. In many container shipments, however, the seller hands the sealed container to a carrier or terminal before it is loaded onto the ship.
FCA may reflect that operational handover more accurately because delivery occurs when the carrier or another nominated person receives the goods at the agreed point. FOB remains relevant when the seller actually delivers the goods on board, including appropriate bulk or non-containerized shipments. Source: International Chamber of Commerce, Incoterms® 2020 FCA and CPT: Best Practice for Shipping Containers Through Ports; International Chamber of Commerce, Incoterms® 2020, FCA and FOB rules.
The parties should align the selected rule with the physical handover, terminal procedures, transport documents, and any banking requirement for an on-board bill of lading.
How should an international buyer choose an Incoterms rule?
Choose the rule by matching the transport mode and physical handover point first, then verify carriage control, customs capability, insurance, and payment-document requirements. Source: International Chamber of Commerce, Incoterms® 2020 Checklist + Flowcharts – Choosing the Right Incoterms® Rule, “A Decision-Making Checklist.”
Identify the transport mode.
Use FAS, FOB, CFR, or CIF only for sea or inland-waterway transport. Consider the multimodal rules when goods move by container or through several transport modes.
Define the physical delivery point.
Name the warehouse, terminal, berth, port, or other operational point as precisely as possible.
Confirm when risk transfers.
Do not assume that the party paying freight retains the transport risk until destination.
Decide who should control the main carriage.
Evaluate which party can obtain appropriate freight terms, manage the carrier, and respond to delays or claims.
Check export and import capabilities.
Under EXW, the buyer is responsible for export clearance. Under DDP, the seller is responsible for import clearance. The chosen allocation must be legally and operationally feasible. Source: International Chamber of Commerce, Incoterms® 2020, EXW and DDP rules, export/import clearance provisions.
Review insurance separately.
Confirm the required cover even when the selected rule does not oblige either party to arrange insurance.
Coordinate the rule with payment documents.
The delivery point and transport documents must work with the purchase contract, invoice, documentary credit, and bank requirements.
Related Hoorban topics to review include supplier sourcing, freight coordination, customs documentation, cargo insurance, documentary credits, and purchase-contract review.
Which rules may fit common sourcing scenarios?
The following table is an initial screening tool, not a final recommendation.
Incoterms® rules to examine for common sourcing scenarios Commercial scenario Rules to examine Why it may fit Key issue to verify A container is handed to the buyer’s carrier at origin. FCA FCA can match delivery to the carrier at the actual origin handover point. The exact terminal or handover point and the required carrier receipt. The seller arranges container transport to a destination. CPT or CIP The seller arranges main carriage; CIP also requires seller-arranged insurance. The earlier risk-transfer point and, for CIP, the insurance terms. Bulk cargo is delivered alongside or directly on board a vessel. FAS or FOB These sea rules distinguish delivery alongside the vessel from delivery on board. Whether delivery occurs alongside the vessel or on board. The seller arranges sea freight for bulk or suitable non-containerized cargo. CFR or CIF The seller arranges freight to the destination port; CIF also requires insurance. Risk transfers at shipment even though freight is paid to destination. Goods are delivered at destination before unloading. DAP Delivery occurs on the arriving means of transport, ready for unloading. The buyer normally handles unloading and import clearance. Goods are delivered after unloading at destination. DPU Delivery occurs only after the seller has unloaded the goods. The seller must be able to arrange unloading safely. The seller delivers after completing import formalities. DDP DDP assigns import clearance to the seller. The seller must be able to complete the destination country’s import procedures.
Source: International Chamber of Commerce, Incoterms® 2020 Checklist + Flowcharts – Choosing the Right Incoterms® Rule, “A Decision-Making Checklist”; International Chamber of Commerce, Incoterms® 2020, the cited FCA, CPT, CIP, FAS, FOB, CFR, CIF, DAP, DPU and DDP rules.
How should an Incoterms rule be written in a contract?
State the three-letter rule, the precise named place, port, or point, and the applicable version:
[Rule] [Named place, port or point] Incoterms® 2020
For example: FCA [specified warehouse or terminal], Incoterms® 2020.
The contract should use the same wording across the quotation, purchase order, commercial invoice, documentary credit, and related instructions. A city or port name alone may be too broad when several warehouses, terminals, or berths are available. Source: International Chamber of Commerce, Incoterms® 2020, “Introduction to Incoterms® 2020”; International Chamber of Commerce, Incoterms® 2020 Checklist + Flowcharts – Choosing the Right Incoterms® Rule, “A Decision-Making Checklist.”
What changed between Incoterms® 2010 and 2020?
Selected changes and clarifications in Incoterms® 2020 Subject Incoterms® 2020 treatment Supporting ICC source DAT and DPU DAT was renamed DPU to clarify that delivery after unloading may occur at a place other than a terminal. International Chamber of Commerce Digital Library, Incoterms® and Commercial Contracts, “Incoterms® 2010 vs 2020”; Incoterms® 2020, DPU rule. CIP insurance The default insurance requirement corresponds to Institute Cargo Clauses (A), or similar cover, unless otherwise agreed. International Chamber of Commerce, Incoterms® 2020, CIP rule, insurance provision. CIF insurance The default requirement continues to correspond to Institute Cargo Clauses (C), or similar cover, unless otherwise agreed. International Chamber of Commerce, Incoterms® 2020, CIF rule, insurance provision. FCA transport document The parties may agree that the buyer will instruct the carrier to issue an on-board bill of lading to the seller. International Chamber of Commerce, Incoterms® 2020, FCA rule, transport-document provision. Allocation of costs Each rule consolidates the parties’ allocated costs in articles A9 and B9. International Chamber of Commerce, Incoterms® 2020, articles A9 and B9 of each rule. Security requirements Transport-related security obligations and associated costs are presented more explicitly. International Chamber of Commerce Digital Library, Incoterms® and Commercial Contracts, “Incoterms® 2010 vs 2020.”
The applicable edition should always be stated expressly. Changing the edition does not automatically change the delivery or risk-transfer point in every rule.
What common Incoterms mistakes should buyers avoid?
Confusing payment of freight with responsibility for transport risk.
Using a sea-only rule without checking where a container is physically handed over.
Writing only the three-letter abbreviation without a precise location and edition.
Assuming an Incoterms rule determines ownership or payment terms.
Accepting DDP without confirming that the seller can complete import clearance.
Using EXW without considering whether the buyer can complete export formalities.
Assuming the available insurance is sufficient without reviewing the policy.
Using different Incoterms wording in the quotation, contract, invoice, and documentary credit.
Example: If a sealed container is handed to the buyer’s nominated carrier at an inland terminal, FCA at that exact terminal may describe the operational handover more precisely than FOB at the seaport. Source: International Chamber of Commerce, Incoterms® 2020 FCA and CPT: Best Practice for Shipping Containers Through Ports.
Frequently asked questions
Are Incoterms® rules used only in international trade?
No. Incoterms rules can be incorporated into domestic and international contracts for the sale of goods. Source: International Chamber of Commerce, Incoterms® 2020, “Introduction to Incoterms® 2020.”
Are Incoterms® 2020 automatically binding?
No. They apply when the parties incorporate a rule into their agreement. The contract should identify the selected rule, named place or point, and edition. Source: International Chamber of Commerce, Incoterms® 2020, “Introduction to Incoterms® 2020.”
Can parties still use Incoterms® 2010?
Parties may agree to apply the 2010 edition, but they should state that edition expressly and avoid inconsistent references in related documents. Source: International Chamber of Commerce Digital Library, Incoterms® and Commercial Contracts, “Incoterms® 2010 vs 2020.”
What is the difference between DAP and DPU?
Under DAP, the seller delivers the goods on the arriving means of transport, ready for unloading. Under DPU, delivery occurs only after the seller has unloaded the goods at the named destination. Source: International Chamber of Commerce, Incoterms® 2020, DAP and DPU rules.
What is the difference between CFR and CIF?
Under both rules, the seller arranges freight to the destination port while risk transfers when the goods are placed on board at the port of shipment. CIF also requires the seller to arrange the insurance specified by that rule. Source: International Chamber of Commerce, Incoterms® 2020, CFR and CIF rules.
Which Incoterms rule is best for importing?
No single rule is best for every import. The appropriate choice depends on the transport mode, physical delivery point, customs capabilities, insurance needs, payment arrangement, and the level of control each party requires.
Does Incoterms determine when ownership transfers?
No. The sales contract must define when legal ownership transfers, taking account of the governing law. Source: International Chamber of Commerce Digital Library, Incoterms® and Commercial Contracts.
Does Incoterms apply to services?
Incoterms rules are designed for contracts involving the delivery of goods. Service scope, performance, acceptance, and liability should be defined through appropriate contractual terms. Source: International Chamber of Commerce, Incoterms® 2020, “Introduction to Incoterms® 2020.”
Who pays customs duties under Incoterms?
Responsibility depends on the selected rule. Under DDP, the seller handles import clearance and applicable import formalities; under the other rules, the buyer generally handles import clearance. Export responsibilities also vary, with EXW placing export clearance on the buyer. Source: International Chamber of Commerce, Incoterms® 2020, DDP, EXW and the other individual rules, export/import clearance provisions.
Do Incoterms determine who pays freight?
Yes, each rule allocates specified transport costs, but the party paying freight may not bear the risk for the entire journey. Under the C rules, the seller pays for main carriage while risk transfers at an earlier delivery point. Source: International Chamber of Commerce, Incoterms® 2020, CPT, CIP, CFR and CIF rules.
What should a buyer confirm before accepting an Incoterms rule?
transport mode and route;
precise delivery point;
risk-transfer point;
party responsible for the main carriage;
export and import formalities;
loading and unloading responsibilities;
insurance type and level of cover;
transport and banking documents; and
the Incoterms edition used throughout the transaction.
Source: International Chamber of Commerce, Incoterms® 2020 Checklist + Flowcharts – Choosing the Right Incoterms® Rule, “A Decision-Making Checklist.”
How can Hoorban support an initial trade review?
Hoorban examines proposed purchasing terms from a sourcing and trade-support perspective, including the transport method, named delivery point, allocation of customs responsibilities, insurance requirements, and required shipping documents.
Hoorban’s review focuses on whether the proposed rule matches the shipment’s physical handover, transport mode, customs allocation, insurance requirement, and document flow; it does not replace transaction-specific legal, tax, customs, banking, or insurance advice.
To request an initial review or sourcing inquiry, provide the product description, origin, destination, proposed transport method, delivery point, customs responsibilities, insurance needs, and any documents required by the buyer’s bank. The review should be coordinated with transaction-specific legal, customs, insurance, and banking advice where necessary.
References
International Chamber of Commerce, Incoterms® 2020, including “Introduction to Incoterms® 2020,” “Rules for Any Mode or Modes of Transport,” and “Rules for Sea and Inland Waterway Transport.”
Supports the definition and scope of Incoterms® 2020, the number and transport categories of the rules, and the delivery, risk, carriage, customs and insurance allocations stated for each rule.
International Chamber of Commerce, Incoterms® 2020 Checklist + Flowcharts – Choosing the Right Incoterms® Rule, including “A Decision-Making Checklist.”
Supports the buyer-selection process, scenario screening, named-point analysis and pre-acceptance checklist.
International Chamber of Commerce Digital Library, Incoterms® and Commercial Contracts, including “Incoterms® 2010 vs 2020.”
Supports the distinction between an Incoterms rule and the wider sales contract, as well as the summarized changes between the 2010 and 2020 editions.
International Chamber of Commerce, Incoterms® 2020 FCA and CPT: Best Practice for Shipping Containers Through Ports.
Supports the container-shipping guidance, including consideration of FCA where goods are handed to a carrier or terminal before loading aboard a vessel.
