Incoterms 2020 Explained: A Practical Guide for Shippers

Trade Terms

🕐 7 min read📄 Updated August 2026

Incoterms — short for International Commercial Terms — are the standardised trade terms published by the International Chamber of Commerce (ICC) that define exactly where cost and risk shift from seller to buyer in an international sale. Get the wrong one into a contract and you can end up paying for insurance you didn't need, or holding risk for a leg of the journey you assumed the other party covered.

The current edition, Incoterms 2020, contains 11 rules. Seven can be used for any mode of transport (including multimodal and containerized shipments); the remaining four apply only to sea and inland waterway transport.

Rules for any mode of transport

Term	Meaning	Who arranges main carriage	Risk transfers to buyer
EXW — Ex Works	Seller makes goods available at their own premises	Buyer	At seller's premises
FCA — Free Carrier	Seller delivers to a carrier named by the buyer	Buyer	When handed to the carrier
CPT — Carriage Paid To	Seller pays freight to the named destination	Seller	When handed to the first carrier (not at destination)
CIP — Carriage and Insurance Paid To	Like CPT, plus seller must insure to ICC-A (all risks) level	Seller	When handed to the first carrier
DAP — Delivered at Place	Seller delivers, ready for unloading, at the named destination	Seller	On arrival, before unloading
DPU — Delivered at Place Unloaded	Like DAP, but seller also unloads at destination	Seller	After unloading
DDP — Delivered Duty Paid	Seller delivers, import-cleared, duties paid, ready for unloading	Seller	On arrival, before unloading

Rules for sea and inland waterway transport only

Term	Meaning	Who arranges main carriage	Risk transfers to buyer
FAS — Free Alongside Ship	Seller delivers goods alongside the vessel at the port of shipment	Buyer	Once placed alongside the ship
FOB — Free on Board	Seller delivers goods on board the vessel	Buyer	Once loaded on board
CFR — Cost and Freight	Seller pays freight to destination port, no insurance obligation	Seller	Once loaded on board (at origin)
CIF — Cost, Insurance and Freight	Like CFR, plus seller must insure to ICC-C (minimum cover) level	Seller	Once loaded on board (at origin)

The most common mistake: using FOB or CIF for containerized cargo. These sea-only terms were designed for break-bulk goods loaded directly onto a vessel — risk transfers "once on board." But containerized cargo is normally handed to a carrier at an inland depot or container terminal well before the vessel, creating a gap in coverage. For containers, FCA (in place of FOB) or CIP (in place of CIF) are almost always the correct choice.

A quick way to think about it

Incoterms are ordered roughly by how much responsibility shifts to the seller: EXW puts almost everything on the buyer; DDP puts almost everything on the seller. Somewhere in the middle, FCA and CPT/CIP are the most commonly used terms for modern containerized and multimodal freight, because they align cleanly with how cargo actually changes hands in a supply chain that isn't purely port-to-port.

What Incoterms don't cover

It's worth being clear on the limits: Incoterms govern delivery point, cost allocation, and risk transfer. They do not govern transfer of legal title/ownership, the price of the goods, or payment terms — those need to be specified separately in the sales contract. Always state the edition explicitly in a contract (e.g. "FCA Shanghai, Incoterms® 2020"), since older editions remain usable if both parties agree to them.

Not sure which Incoterm fits your shipment? Our specialists factor this into every quote — request a quote and mention your preferred (or uncertain) trade term, and we'll flag anything that doesn't fit your cargo type or mode.