Guide · Trade
Incoterms 2020for commodity trade.
Incoterms 2020 are the eleven rules of the International Chamber of Commerce (ICC) that define who arranges carriage, who pays which costs and where risk passes from seller to buyer. In commodity trade, the rule in the contract decides who books the vessel or container, who insures the cargo and who carries a loss in transit.
The basics
What an Incotermdoes and does not do.
An Incoterm is three letters plus a named place and the version, for example FOB (named port of shipment) Incoterms 2020 or CIF (named port of destination) Incoterms 2020. It sets the delivery point, the split of costs, the moment risk passes, who clears the goods for export and import and, under CIF and CIP only, who must insure the cargo.
It does not set the price, the payment method, the moment ownership passes, the quality of the goods or the remedies for a breach. Those belong in the written sales contract: see commodity trade documents, explained and how we work.
The rules at a glance
Who does whatunder each rule.
| Rule | Main carriage arranged by | Risk passes to the buyer | Insurance | Typical use, bulk and containers |
|---|---|---|---|---|
| EXW (Ex Works) | Buyer | Goods made available at the seller's premises, not loaded | None required | Small lots collected by the buyer; rarely suits export, as the buyer must clear export |
| FCA (Free Carrier) | Buyer | Goods handed to the buyer's carrier at the named place | None required | Containers, road and rail where the buyer books the carriage |
| FAS (Free Alongside Ship) | Buyer | Goods placed alongside the buyer's vessel at the port of shipment | None required | Break-bulk and heavy cargo loaded from the quay |
| FOB (Free On Board) | Buyer | Goods on board the vessel at the port of shipment | None required | Dry and liquid bulk where the buyer charters the vessel |
| CFR (Cost and Freight) | Seller | Goods on board at the port of shipment, although the seller pays freight to destination | None required; the buyer usually insures | Bulk where the seller books the freight |
| CIF (Cost, Insurance and Freight) | Seller | On board at the port of shipment, as under CFR | Seller insures, minimum Institute Cargo Clauses (C) | Bulk where the buyer wants freight and insurance arranged |
| CPT (Carriage Paid To) | Seller | Goods handed to the first carrier | None required | Containers and multimodal; the any-mode version of CFR |
| CIP (Carriage and Insurance Paid To) | Seller | Goods handed to the first carrier | Seller insures, minimum Institute Cargo Clauses (A) | Containers and multimodal; the any-mode version of CIF |
| DAP (Delivered at Place) | Seller | At the named destination, on the arriving vehicle, ready for unloading | None required; the seller carries the transit risk | Containers or trucks delivered to a terminal, warehouse or site |
| DPU (Delivered at Place Unloaded) | Seller | At the named destination, once unloaded | None required; the seller carries the transit risk | The only rule where the seller unloads, for example at a named terminal |
| DDP (Delivered Duty Paid) | Seller | At the named destination, cleared for import, ready for unloading | None required; the seller carries the transit risk | Rare in commodity trade, as the seller must clear import and pay duties and taxes |
Sea or any mode
Four rules for sea,seven for any mode.
EXW, FCA, CPT, CIP, DAP, DPU and DDP work for any mode of transport, including sea and combined transport. FAS, FOB, CFR and CIF are for sea and inland waterway only. They suit cargo that goes straight from the quay onto the vessel, as with ores and concentrates in the Metals and minerals family, or liquid bulk.
Container cargo is different. A container is handed to a terminal, often days before loading, and from then on the seller no longer controls it. That is why the ICC advises the any-mode rules for containers.
Sea-only rules and their counterparts
Which rule to usefor containers.
| Sea and inland waterway only | Any-mode counterpart | The practical difference |
|---|---|---|
| FAS | FCA | FCA works at any handover point, not only alongside a vessel |
| FOB | FCA | Risk passes when the carrier or terminal takes the goods, not when they are on board |
| CFR | CPT | Risk passes at handover to the first carrier, for containers usually at the terminal |
| CIF | CIP | CIP requires broader insurance, Institute Cargo Clauses (A), against the minimum (C) under CIF |
Common mistakes
Where Incotermsgo wrong.
- FOB or CIF for containers. The seller carries the risk until the container is on board, although the terminal has had it for days. FCA, CPT or CIP match the real handover point.
- Assuming CIF means full cover. CIF requires only minimum cover, Institute Cargo Clauses (C), for at least 110% of the contract price. All-risks cover, Institute Cargo Clauses (A), or war and strikes cover must be written into the contract.
- A vague named place. "CIF Asia" or "FOB main port" does not work. Name the exact port and, where it matters, the terminal or berth, because the named place decides where costs and risk change hands.
- Forgetting where risk passes under the C rules. Under CFR, CIF, CPT and CIP the seller pays carriage to destination, but the risk passes at shipment. A buyer whose cargo is damaged at sea claims under the insurance, not against the seller.
- EXW for exports, DDP for imports. Under EXW the buyer must clear export in the seller's country; under DDP the seller must act as importer in the buyer's country. FCA and DAP are usually the workable alternatives.
- No version. Write "Incoterms 2020". An earlier edition applies only if the contract names it, and a clause without a version invites dispute.
Your checklist
What to put inthe contract clause.
- 01The rule, for example FCA, FOB, CFR or CIF
- 02The exact named place or port, and the terminal where it matters
- 03The version: Incoterms 2020
- 04For CIF and CIP: the cover (Institute Cargo Clauses A, B or C), the insured amount and the currency
- 05Extra cover if needed: war, strikes, or cover to the final warehouse
- 06The loading period or laycan for bulk, or the shipment date for containers
- 07Who pays terminal handling, loading and unloading where the rule leaves doubt
- 08The transport document required, for example an on-board bill of lading, matching the payment instrument
Questions
Common questionsabout Incoterms.
What is the difference between FOB and CIF?
Under FOB the buyer books and pays the sea freight and decides on insurance; under CIF the seller pays freight to the destination port and buys minimum insurance for the buyer. In both, the risk passes to the buyer when the goods are on board at the port of shipment.
Is CFR or CIF better for the buyer?
Neither is better in itself. CIF is convenient when the buyer wants freight and insurance arranged, but the seller only has to buy minimum cover; under CFR the buyer chooses the cover and the insurer.
Why use FCA instead of FOB for containers?
Because a container is handed to a terminal before loading, and under FCA the risk passes at that handover. FCA in Incoterms 2020 also lets the parties agree that the buyer's carrier issues an on-board bill of lading to the seller, which helps under a letter of credit.
How much insurance does CIF require?
At least 110% of the contract price, in the currency of the contract, under Institute Cargo Clauses (C) or similar minimum cover. CIP requires the broader Institute Cargo Clauses (A), and under either rule the contract can require more.
Do Incoterms decide when ownership of the goods passes?
No. Incoterms deal with delivery, costs, risk and clearance only. Ownership, price and payment are set by the sales contract and the law that governs it.
Which Incoterms version should a contract name?
Name "Incoterms 2020", the edition in use since 1 January 2020. An earlier edition applies only if the contract names it expressly.
Please note
Orientation only.
This guide explains the Incoterms 2020 rules as commonly used in international trade, for orientation. It is not legal advice, an offer or a statement of available goods, and the official ICC text is the reference. Every deal sets its own Incoterm, named place and specification in the written contract.
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