Incoterms 2020 Explained: Complete Guide to All 11 Rules

Roughly $26.26 trillion of goods crossed borders in 2025 — and almost every shipment was governed by three letters on a contract: EXW, FOB, CIF or one of eight other codes. Those codes are Incoterms 2020, the eleven trade terms published by the International Chamber of Commerce that decide, for any cross-border sale, who pays the freight, who buys the insurance, who clears customs, and — the question that actually costs money when something goes wrong — exactly where risk passes from seller to buyer.

Get the term right and a deal is clean. Get it wrong and you discover, the day a container breaks in a port you'd never heard of, that you owned the cargo at that moment. This is the plain-English guide to all 11 rules grouped, a buyer-versus-seller breakdown with the exact risk-transfer point for each, what changed in 2020 versus 2010, and the mistakes that quietly wreck shipments. If you've read a bill of lading, you've already seen these terms — here's how to use them.

What are Incoterms — and why they decide who pays and who bears risk

Incoterms — "International Commercial Terms" — are standardised three-letter rules maintained by the International Chamber of Commerce. First published in 1936 and revised roughly every decade, they let a seller in Vietnam and a buyer in Germany agree, in three letters, on a division of responsibility that both sides — and their banks, insurers and forwarders — read the same way. The current edition is Incoterms 2020, in force since 1 January 2020.

Each rule answers three questions. Who pays the main carriage — the ocean or air freight that moves goods internationally? Who clears export and import, and pays the duties? And — most important — where does risk transfer: at what precise point does responsibility for loss or damage move from seller to buyer? The US government's export portal puts it plainly: Incoterms define "the responsibilities of sellers and buyers" for delivery, insurance, documentation and customs. Freight forwarders such as Kuehne+Nagel map each rule to its exact risk-transfer point for shippers.

Just as important is what Incoterms don't do: they don't set the price, transfer ownership or title, specify the payment method, or govern disputes — those live in the wider sales contract. An Incoterm is the delivery-and-risk clause, not the whole agreement.

The single most expensive misconception in trade is that "who pays freight" and "who bears risk" are the same line. They are not. Under CIF the seller pays the ocean freight — but the buyer carries the risk from the moment the goods are loaded at origin.

The 11 Incoterms 2020 rules, grouped

The eleven terms split into two families by transport mode — and within each, the seller's burden climbs from almost nothing (EXW) to nearly everything (DDP).

The 7 "any mode" rules (road, rail, air, sea or multimodal)

• EXW — Ex Works. Seller's minimum. Goods made available at the seller's premises; the buyer handles everything from there — loading, export clearance, freight. Risk passes at the seller's door.
• FCA — Free Carrier. Seller delivers, export-cleared, to a carrier named by the buyer (often the seller's warehouse or a terminal). The ICC's recommended replacement for FOB on containerised cargo.
• CPT — Carriage Paid To. Seller pays carriage to the destination — but risk passes much earlier, when goods are handed to the first carrier.
• CIP — Carriage and Insurance Paid To. Like CPT, plus the seller insures to destination. Under 2020 that cover must be the top "all-risks" level.
• DAP — Delivered at Place. Seller delivers, ready for unloading, at the destination; buyer handles import clearance and duties.
• DPU — Delivered at Place Unloaded. Like DAP but the seller also unloads — the only Incoterm where the seller unloads at destination.
• DDP — Delivered Duty Paid. Seller's maximum: delivery to the buyer's door with export, freight, import clearance and duties all paid.

The 4 sea / inland-waterway rules

These four assume goods cross water over the "ship's rail" at the load port — meant for bulk and break-bulk cargo, not containers handed over at an inland depot.

• FAS — Free Alongside Ship. Seller delivers goods alongside the vessel at the named port (e.g. on the quay). Risk passes there.
• FOB — Free on Board. The classic. Seller delivers when goods are loaded on board the vessel at the port of shipment; risk transfers across the ship's rail.
• CFR — Cost and Freight. Seller pays freight to the destination port — but risk still passes once goods are on board at origin.
• CIF — Cost, Insurance and Freight. CFR plus the seller buys marine insurance to the destination port. Risk transfers on board at origin; insurance is the seller's, for the buyer's benefit.

A warning the ICC stresses: do not use FOB, CFR or CIF for containerised goods. A container is handed over at a terminal, not loaded "on board" by the seller — so the seller can bear risk for cargo already out of their control. For containers, FCA, CPT or CIP are the right equivalents.

Buyer vs seller: cost, carriage and the exact risk-transfer point

Here's the whole framework in one view — what mode each term suits, who pays the main international carriage, and the precise point where risk crosses from seller to buyer (the transfer-of-risk detail per rule matters more than any other clause). Bills of lading and customs records routinely print the agreed term, so reading this table is also how you decode a shipment record.

Read the "C" terms carefully: under CPT, CIP, CFR and CIF the seller pays the freight but the buyer carries the risk from the origin handover. That split — cost and risk parting company — is exactly where unprepared buyers get caught.

What changed in Incoterms 2020 vs 2010

The 2020 revision was evolutionary, but four changes matter in practice, per the ICC Academy:

• DAT became DPU. "Delivered at Terminal" was renamed "Delivered at Place Unloaded" because "terminal" confused people — delivery can be at any place, covered or not.
• CIP insurance was upgraded. Under 2010, CIF and CIP both needed only minimum Institute Cargo Clause (C) cover. Under 2020, CIP now requires top Clause (A) "all-risks" cover — fitting for manufactured goods — while CIF stays at minimum Clause (C), which suits commodities.
• FCA got an on-board bill-of-lading option. Banks issuing letters of credit often demand an "on board" bill of lading, which historically pushed exporters to FOB even for containers. 2020 lets the buyer instruct the carrier to issue an on-board bill of lading to the seller after loading — so FCA can now satisfy the bank.
• Own-transport recognised. The rules now explicitly allow buyers or sellers to move goods in their own vehicles, not only a third-party carrier — relevant to FCA, DAP, DPU and DDP.

2020 also folded clearer security and cost obligations into each rule. Crucially, both editions remain valid — a contract can still specify "Incoterms 2010" if both parties agree and name the edition. As for what's next: the ICC revises on a roughly ten-year cycle, so a future edition is anticipated around 2030 — but as of mid-2026 no successor has been published, and Incoterms 2020 is the rule set in force.

Why the sea-only terms still dominate — and the trade numbers behind it

Four of eleven terms are reserved for water because water still carries the trade. UNCTAD reports over 80% of world merchandise trade by volume moves by sea — which is why FOB and CIF stay the default language of commodity and bulk contracts even as containerised goods migrate to FCA and CIP.

The value of that seaborne-heavy trade keeps climbing. World merchandise exports were worth roughly $23.78 trillion in 2023, rose about 2% to $24.43 trillion in 2024, and jumped about 7% to a record $26.26 trillion in 2025, per the WTO. Every one of those dollars rode on a contract with an Incoterm attached.

Those terms aren't invisible — the agreed Incoterm frequently prints on the commercial invoice and the bill of lading, the document that proves a consignment moved. Our guide to reading a bill of lading and trade data shows where these terms surface in the records, and the beginner's guide to import-export trade data covers the wider document set.

Common Incoterms mistakes that wreck shipments

Most Incoterms disasters come from a handful of repeat errors:

• Using FOB/CFR/CIF for containers. A container leaves the seller's control at the terminal, but FOB-family risk only transfers once it's on board — so the seller can be liable for yard damage, uninsured. Use FCA/CPT/CIP instead.
• Confusing "pays freight" with "bears risk." Under the C-terms the seller pays the carriage, but risk has already passed to the buyer at origin. "Seller paid freight, so it's their problem" is one damaged shipment from a hard lesson.
• Choosing EXW or DDP without counting the customs cost. An EXW buyer must clear export where they may have no standing; a DDP seller must clear import and pay duties in a market they may not know.
• Naming a vague place — or no edition. "FOB Asia" is meaningless; "FOB Ningbo, Incoterms 2020" is enforceable. Always pair the term with a precise named port and the edition year.
• Forgetting the insurance gap. Only CIF and CIP oblige the seller to insure. Under every other term, if the party bearing risk hasn't arranged cover, the goods travel uninsured.

How ShipScout helps you negotiate from a position of knowledge

Incoterms decide how you split risk with a counterparty — but you negotiate far better when you know who that counterparty is and what they really ship. ShipScout turns 11 billion-plus shipment records across 240+ countries into ranked, named buyer and supplier lists, so the term you agree sits on real intelligence:

• Vet the supplier before you argue EXW vs DDP. Confirm an exporter's real shipment history, buyers and volumes first — the heart of verifying a supplier before you pay.
• Find buyers, then talk terms. Surface importers in your category by real volume and pitch them — the playbook in finding buyers for export.
• Decode records by HS code. Match shipments to products with our guide to finding and using HS codes, so you read the bill of lading — Incoterm and all — correctly.
• Research any company fast. Browse companies across 240+ countries to size up a buyer or supplier before you trade a container.

You don't need a $20,000 enterprise contract to research the people you'll negotiate Incoterms with. ShipScout is the affordable SME alternative — the same global shipment depth, a fraction of the price. Start a free trial and look up your next buyer or supplier before you sign on a single term.