What are Incoterms? A practical guide to the 2020 rules

Incoterms are a set of eleven standardised trade rules, published by the International Chamber of Commerce and currently in their 2020 edition, that define who does what in the physical delivery of goods: who arranges transport, who pays which costs, where risk of loss or damage passes from seller to buyer, and who clears customs on each side of a border.

They exist because international sales fail at the seams — the loading bay, the terminal gate, the customs office — where each party assumes the other was responsible. A three-letter rule plus a named place replaces those assumptions with a shared script that carriers, insurers, banks and customs brokers all recognise.

This guide explains what the rules decide, what they deliberately leave alone, how the eleven rules organise into families, and how to write them into a contract so they actually work.

What Incoterms decide

Every Incoterms rule answers the same four questions, just with different answers:

• Delivery — the precise point where the seller has fulfilled its obligation to deliver the goods.
• Risk — the point where loss of or damage to the goods stops being the seller's problem and becomes the buyer's.
• Costs — how the bill for transport, handling, clearance and related charges divides between the parties.
• Tasks — who arranges carriage, who loads and unloads at the handover, who files export and import declarations, and (in two rules) who must buy cargo insurance.

The answers range from EXW, where the seller does almost nothing beyond making goods available at its own premises, to DDP, where the seller delivers import-cleared and duty-paid at the buyer's door. The nine rules in between divide the journey at different points — a spread the hub page visualises as a responsibility spectrum.

What Incoterms deliberately don't decide

Just as important is the list of things no Incoterms rule touches. The rules do not transfer ownership or title to the goods. They do not set the price or the payment terms. They do not create the sales contract — they are incorporated into one. They do not allocate liability for late delivery, define product quality, or decide which country's courts hear a dispute.

A complete export contract therefore pairs an Incoterms rule with separate clauses on payment, title retention, applicable law and dispute resolution. The rule handles the physical journey; the contract handles everything else. Our costs and risks guide unpacks the cost-versus-risk distinction in detail.

The eleven rules at a glance

The four families: E, F, C and D

The first letter of each rule sorts the eleven into four families with a shared logic — a useful mental model when you meet an unfamiliar term.

• E — departure. EXW alone. The seller makes goods available at origin; everything else is the buyer's project.
• F — main carriage unpaid. FCA, FAS, FOB. The seller delivers to the buyer's carrier at origin and clears export; the buyer arranges and pays the main transport.
• C — main carriage paid. CFR, CIF, CPT, CIP. The seller books and pays transport to the destination — but risk still transfers at origin. Cost and risk part company; two of the four add mandatory insurance.
• D — arrival. DAP, DPU, DDP. The seller carries risk all the way to the named destination; the three rules differ on unloading and import clearance.

Any-mode vs sea-only rules

Seven rules (EXW, FCA, CPT, CIP, DAP, DPU, DDP) work for any transport mode, including multimodal container journeys. Four (FAS, FOB, CFR, CIF) are designed for sea and inland-waterway transport only, with delivery points defined around the vessel itself — alongside or on board.

The distinction matters most for containerised cargo, which is handed to carriers at inland depots and terminal gates rather than at a ship's rail. Using sea-only rules for container flows creates a custody gap that the container shipping guide examines closely — it is often the first thing worth reviewing in an established trade lane.

The named place matters as much as the rule

Every Incoterms rule is completed by a place name — and the place carries real consequences. 'FCA Lyon' could mean the seller's factory (seller loads the truck) or a forwarder's depot across town (buyer's carrier unloads). 'DAP Chicago' could be a rail ramp or the buyer's dock, hours apart in cost and risk.

• Name the place precisely: facility, terminal or address — not just a city.
• State the version: 'Incoterms 2020'. Older editions differ (DPU was DAT before 2020, and earlier FOB versions used the ship's rail).
• Check the place is consistent with the rule: sea-only rules need ports; an inland city after CIF is a contradiction.

A well-formed clause reads like: “FCA Kaunas, seller's warehouse at [address], Incoterms 2020.” Ambiguity in the named place is where a well-chosen rule quietly loses its value.

How to actually choose a rule

Choosing well is mostly a capability audit, not a legal exercise. Who has better freight rates on this lane? Who can file the export declaration, and who can act as importer? Who should insure, and from which point? Which party can absorb an origin-side or destination-side failure?

Buyers generally gain from controlling the main leg when they have freight capability (FCA, FOB); parties without it often prefer the seller to bundle carriage (CIP, CIF) or deliver outright (DAP, DDP). Our perspective guides for importers and exporters walk through the trade-offs rule by rule, and the Incoterms Assessment turns your answers into a shortlist in a few minutes.

Reviewed for practical procurement and logistics relevance by TradeIntel.

TradeIntel provides educational decision support and does not provide legal, tax, customs or contractual advice. Incoterms should be incorporated into a complete sales contract with a precisely named place or port.