What is Incoterms 2020? All 11 delivery terms

What is Incoterms 2020?

Incoterms is a set of rules published by the International Chamber of Commerce (ICC) that standardises delivery conditions in international sales using three-letter codes. The name is short for “International Commercial Terms.” The first text was published in 1936; the current version, Incoterms 2020, took effect on 1 January 2020.

Each rule answers three questions: who arranges carriage, who pays which cost item, and at what point the risk of loss or damage to the goods passes from seller to buyer. The rules also determine which party is responsible for export and import customs formalities.

Incoterms is not law; it becomes binding only to the extent the parties refer to it in their contract. This is why how it is written matters. The code alone is not enough — a named place and the version must be added next to it: for example, “FCA Halkalı, Istanbul, Incoterms 2020.” The more precisely the place is described, the less room there is for differing interpretation. The release of a new version does not invalidate the old one; if the contract states “Incoterms 2010,” that text applies.

What Incoterms does not govern

The most common mistake is loading the entire contract onto the delivery rule. Incoterms does not govern:

• Transfer of title. When legal ownership of the goods changes hands is determined by the sales contract and the applicable law. Risk transfer and title transfer can occur at different moments.
• Method and timing of payment. Letter of credit, documents against payment, documents against acceptance, or advance payment are agreed separately. CIF does not mean “the seller collects payment on arrival.”
• Governing law and dispute resolution. A jurisdiction or arbitration clause must be written as a separate provision in the contract.
• Price, product specifications, the consequences of defects and delay, force majeure and penalty clauses.
• Insurance. Under the nine rules other than CIF and CIP, neither party is obliged to take out insurance.

11 rules: two groups and a comparison table

Incoterms 2020 has 11 rules, divided into two groups according to mode of transport.

7 rules for any mode of transport: EXW, FCA, CPT, CIP, DAP, DPU, DDP. These can be used for road, air, rail, sea, and intermodal transport combining them.

4 rules for sea and inland waterway transport only: FAS, FOB, CFR, CIF. Under three of these four rules (FOB, CFR, CIF), delivery is completed when the goods are loaded on board the vessel at the port of loading; under FAS, the delivery point is alongside the ship. Using them for air, road or container transport is technically incorrect.

Rule	Full name	Mode	Point of risk transfer	Who arranges carriage	Insurance obligation
EXW	Ex Works	Any mode	At the seller’s premises, when the goods are placed at the buyer’s disposal; loading onto the vehicle is not the seller’s obligation	Buyer	None
FCA	Free Carrier	Any mode	If at the seller’s premises, when loaded onto the vehicle; if elsewhere, when handed to the carrier on the seller’s vehicle, ready for unloading	Buyer	None
CPT	Carriage Paid To	Any mode	On handover to the first carrier	Seller	None
CIP	Carriage and Insurance Paid To	Any mode	On handover to the first carrier	Seller	Yes – minimum broad cover (Institute Cargo Clauses A)
DAP	Delivered at Place	Any mode	At the named destination, on the arriving vehicle, ready for unloading	Seller	None
DPU	Delivered at Place Unloaded	Any mode	At the named destination, once the goods are unloaded	Seller	None
DDP	Delivered Duty Paid	Any mode	At the named destination, import customs cleared, ready for unloading	Seller	None
FAS	Free Alongside Ship	Sea / inland waterway	When the goods are placed alongside the vessel at the port of loading	Buyer	None
FOB	Free on Board	Sea / inland waterway	When the goods are loaded on board the vessel at the port of loading	Buyer	None
CFR	Cost and Freight	Sea / inland waterway	When the goods are loaded on board the vessel at the port of loading	Seller	None
CIF	Cost, Insurance and Freight	Sea / inland waterway	When the goods are loaded on board the vessel at the port of loading	Seller	Yes – minimum narrow cover (Institute Cargo Clauses C)

EXW is the rule with the least obligation for the seller. DDP places the most obligation on the seller. Export customs formalities belong to the seller under every rule except EXW; import customs formalities belong to the buyer under every rule except DDP.

Cost and risk do not always transfer at the same point

This is the most critical distinction among the rules. Under the E, F and D groups, risk and cost change hands at the same point. Under the C group (CPT, CIP, CFR, CIF), the two points separate.

Take “CIF Izmir” as an example: the seller pays freight and insurance up to the port of Izmir, but the risk of damage to the goods passes to the buyer the moment the goods are loaded on board the vessel at the port of loading. If the goods are damaged during the voyage, it is the buyer who bears the loss of value; the seller’s delivery obligation has already been fulfilled. The same logic applies to CFR, CPT and CIP.

A second area of uncertainty in the C group is unloading and terminal charges at the port of destination. Whether these items are included in the freight depends on the contract of carriage. If it is not explicitly written in the sales contract who bears which cost, both parties tend to attribute the same item to the other on arrival.

Insurance obligation exists only under CIF and CIP

Only two of the 11 rules impose an obligation on the seller to arrange insurance. In both, the minimum insured sum is 110% of the contract value, in the contract currency.

Incoterms 2020 introduced a difference in scope between the two rules. Under CIP, the minimum cover is the broad Institute Cargo Clauses (A). Under CIF, the narrow Institute Cargo Clauses (C), covering the listed risks, is considered sufficient. These are insurance-market cargo clauses and have nothing to do with the International Chamber of Commerce (ICC), which publishes Incoterms. This distinction was preserved because CIF is traditionally used in bulk cargo trade. In a CIF transaction involving manufactured goods, Institute Cargo Clauses (C) cover is often inadequate; the parties may agree on broader cover in the contract.

What changed with Incoterms 2020?

• The DAT rule from the 2010 version was removed and replaced by DPU. The place of delivery is no longer limited to a terminal, and DPU is the only rule under which the seller is obliged to perform unloading on arrival.
• The minimum insurance cover under CIP was raised to Institute Cargo Clauses (A), while CIF was left at Institute Cargo Clauses (C).
• An option was added to FCA allowing the buyer to instruct its carrier to issue an on-board bill of lading to the seller.
• Under FCA, DAP, DPU and DDP, it was made explicit that a party may carry out carriage with its own means of transport instead of a third-party carrier.
• Cost items were consolidated into a single list under each rule, and obligations relating to security requirements were allocated more clearly.

Why FCA instead of FOB for container cargo?

Under FOB, risk passes the moment the goods are loaded on board the vessel. A container, however, is delivered to the terminal or container yard days before it is loaded onto the vessel. During the time between delivery and loading, the container is not under the seller’s control, yet risk still lies with the seller. If damage occurs at the terminal, if it is mis-stowed, or if the vessel skips the loading, the seller cannot actually intervene; proving at which stage the damage occurred and recovering from the terminal and the carrier is also often difficult.

Under FCA, risk passes the moment the container is handed to the carrier at the named place. The contract matches the actual situation. For the same reason, it is appropriate to use CPT and CIP instead of CFR and CIF. The main reason for insisting on FOB used to be that letters of credit required an on-board bill of lading; the option added to FCA in 2020 can meet this need; however, it is optional (the parties must have agreed on it), requires the buyer to instruct its carrier, and carriers do not always agree to issue an on-board bill of lading before the goods are actually loaded on the vessel. Whether the need is actually met should therefore be confirmed up front.

Common mistakes and points of attention

• Not writing the version and the place. “CIF” alone is incomplete. The code, the named place and the phrase “Incoterms 2020” should be written together.
• Using FOB, CFR or CIF for containers. These three rules treat loading on board the vessel as the moment of delivery. A container, however, is dropped at the terminal days before it is loaded; during that interval the goods are not under the seller’s control even though risk still lies with the seller. FCA, CPT or CIP should be used for container cargo.
• Writing FOB for air or road transport. The four sea-group rules are not suited to these modes; the points of delivery and risk become unclear, and disputes arise over damage and insurance claims.
• Assuming CIF means “delivered to the door.” CIF covers freight and insurance cost only up to the port of destination; inland transport, import customs and duties belong to the buyer. Unloading at the port of destination is for the buyer unless the contract of carriage has put it on the seller’s account.
• Assuming CIF insurance is broad cover. The minimum Institute Cargo Clauses (C) scope is limited to the listed risks.
• Accepting DDP without thinking it through. It is not always possible for the seller to act as importer of record in the destination country.
• Using EXW for exports from Türkiye. Since export declaration and records in practice run through the seller, FCA is more compatible.
• Leaving unloading, terminal and storage charges undefined. These items vary by route and carriage contract; they should be written out item by item in the contract.
• Overlooking demurrage and detention responsibility. If a container is returned late, who bears the cost is determined by the carriage contract, not by the Incoterms rule.
• Not cross-checking the letter of credit against the delivery term. If the required document type does not match the chosen rule, the documents come out with a discrepancy.

The choice of rule should be made by looking together at the mode of transport, which party can carry out customs formalities, and the payment method. Consulting customs brokerage and regulatory advisory services before signing the contract can help clarify cost items and customs responsibility.