Incoterms 2020: Risk and Cost Points of All 11 Rules

Key takeaways

• Incoterms are the ICC’s rules for trade terms; the current Incoterms 2020 has 11 rules — seven for any mode of transport and four for sea and inland waterway only.
• They set the delivery point, transfer of risk, cost split and customs responsibilities, but not transfer of title or payment terms.
• Under the C terms (CPT, CIP, CFR, CIF) the seller pays carriage to destination, but risk has already passed in the export country.

The first term most people meet in trade, and the one they meet most often, is Incoterms. Quotes, proforma invoices and contracts all carry three letters such as FOB Busan or CIF Rotterdam. Those three letters decide where the goods change hands, who carries the risk from that moment, and who pays which costs.

What Incoterms are

Incoterms are rules for international trade terms published by the International Chamber of Commerce (ICC). The current edition is Incoterms 2020, in use since 1 January 2020. It has 11 rules.

Buying a teddy bear at a local shop is simple: you pay and carry it home. But when a Korean company buys teddy bears from a factory in the UK, the sea voyage takes more than a month, and damage, delays or customs problems can happen along the way. Incoterms fix the handover point and the cost split in standard abbreviations, so the parties don’t have to negotiate “whose fault is it” from scratch every time.

What Incoterms cover and what they don’t

They cover:

• The delivery point and the risk of loss or damage that passes at that moment
• Cost allocation for freight, insurance, and export and import clearance
• Who handles export and import clearance, and who contracts for carriage and insurance

They don’t cover:

• When ownership (title) passes
• Payment method (T/T, L/C and so on) and price
• Remedies for breach, governing law and dispute resolution

So if a contract names an Incoterm but leaves payment terms blank, half the deal is missing. Always write payment terms as a separate clause.

All 11 rules at a glance

Incoterms 2020 splits the rules into two groups by transport mode.

• Any mode of transport (7): EXW, FCA, CPT, CIP, DAP, DPU, DDP
• Sea and inland waterway only (4): FAS, FOB, CFR, CIF

Rule	Where risk passes	Main extra costs paid by the seller
EXW Ex Works	When placed at the buyer’s disposal at the seller’s premises (not loaded)	None. Export clearance is the buyer’s job too
FCA Free Carrier	When handed to the buyer’s nominated carrier at the named place	Export clearance
CPT Carriage Paid To	When handed to the first carrier in the export country	Freight to the named destination
CIP Carriage and Insurance Paid To	Same as CPT	Freight + insurance (ICC (A) level)
DAP Delivered at Place	When placed at destination on the arriving vehicle, ready for unloading	Freight to destination (import clearance and duty are the buyer’s)
DPU Delivered at Place Unloaded	After unloading at destination	Freight to destination + unloading
DDP Delivered Duty Paid	When placed at destination ready for unloading	Freight + import clearance, duties and import taxes
FAS Free Alongside Ship	When placed alongside the vessel at the port of shipment	Export clearance
FOB Free on Board	When loaded on board the vessel at the port of shipment	Export clearance + costs up to loading
CFR Cost and Freight	Same as FOB (on board)	Ocean freight to the port of destination
CIF Cost, Insurance and Freight	Same as FOB (on board)	Ocean freight + insurance (minimum ICC (C))

C rules have two critical points

Under CPT, CIP, CFR and CIF, the seller pays freight to the destination, but risk has already passed in the export country. With CIF Rotterdam, for example, the risk of an accident at sea belongs to the buyer from the moment the goods are loaded on board in Busan. Assuming that whoever paid the freight is responsible all the way is the single most common mistake.

What changed in the 2020 edition

Compared with Incoterms 2010, these changes matter most in practice.

1. DAT became DPU: delivery “unloaded” can now be at any place, not just a terminal.
2. Higher insurance under CIP: CIP now defaults to ICC (A), close to all-risks cover. CIF still requires only ICC (C) at minimum.
3. FCA on-board bill of lading option: in L/C deals the parties can agree that the buyer instructs its carrier to issue an on-board B/L to the seller, even under FCA.
4. Own transport allowed: FCA, DAP, DPU and DDP now recognise carriage with the parties’ own vehicles, without a third-party carrier.
5. Security-related costs are now allocated rule by rule.

Common mistakes in practice

Using FOB or CIF for container cargo

Under FOB, CFR and CIF, risk passes when the goods are on board. Container cargo, however, is usually handed to the carrier at the container yard (CY) days before loading. If something goes wrong at the terminal in between, it is unclear who carries the risk. The ICC itself says FCA, CPT and CIP suit container cargo. In practice many traders still use FOB and CIF out of habit, so at the very least negotiate knowing the difference.

Treating EXW as the “easiest” rule

EXW looks like the lightest load for the seller, but export clearance is the buyer’s job. A foreign buyer can rarely file an export declaration in Korea itself, so the seller often ends up doing it anyway and the line of responsibility blurs. If you want to hand over at your factory gate, FCA (seller’s premises) is usually cleaner.

Promising DDP too easily

Under DDP the seller handles import clearance, duties and VAT in the buyer’s country. If you quote DDP without knowing whether you can act as importer there, or without a firm duty rate and HS classification, duties can wipe out the margin. For checking HS codes, see What Is an HS Code?.

Leaving out the version or place

The correct form is rule + named place + version.

• Good: FCA Busan New Port, XX Terminal, Incoterms® 2020
• Bad: FOB Korea

A vague place blurs the delivery point, and a missing version invites a dispute over 2010 versus 2020. The 2010 edition can still be used if the contract says so.

Theory versus reality

The textbook lists 11 rules, but each company ends up using only a few. In my experience, when trading steel, the goods were heavy and saving on sea freight was everything, so we used only FOB-type terms. At a precision parts company, freight was a small share of the product price and fast transport that cut damage risk mattered more, so we mainly used terms where the seller arranged freight and insurance.

In long-standing relationships, an incident is often settled by the relationship and bargaining power rather than the Incoterm wording. Still, when a dispute escalates, the term written in the contract becomes the reference point. Writing the term precisely at the quotation stage is the cheapest insurance there is.

Unit prices change with the term. The same product priced EXW and priced DDP differ by freight, insurance and duty, so break your costs down line by line as in SME export costs. Minimum order negotiations are covered in MOQ meaning in purchasing.

Incoterms 2030 revision timeline

The ICC has started work on the next edition, Incoterms 2030. According to ICC Austria and ICC Germany, national committees are collecting comments in 2026, new drafts follow from 2027, and publication is planned for late 2029. The content has not been published, and participants are under confidentiality obligations. Until then, Incoterms 2020 remains the current set of rules. Treat any material that claims to know the 2030 changes with caution until the official release.

Summary

Incoterms are not abbreviations to memorise but a three-line contract on risk point, costs and clearance duties. When you quote, check four things: (1) the rule fits the transport mode, (2) the named place is specific, (3) the version is stated, and (4) payment terms are written separately. That alone heads off most disputes.

FAQ

What do Incoterms not cover?

Transfer of ownership, payment method and price, and remedies, governing law and dispute resolution. Payment terms need their own clause.

Should FOB or CIF be used for containerised cargo?

FOB, CFR and CIF pass risk when goods are loaded on board, but containers are handed to the carrier earlier at the terminal. The ICC recommends FCA, CPT or CIP for container cargo.

What changed in Incoterms 2020?

DAT became DPU, CIP insurance moved up to ICC (A) cover, and FCA gained an on-board bill of lading option and allowed the use of the parties’ own transport.

When will Incoterms 2030 be published?

The ICC has started the revision and aims to publish at the end of 2029. Until then Incoterms 2020 remains the current rule set.