Incoterms 2020 Explained: A Complete Guide
Understand the 11 Incoterms, what they mean for buyers and sellers, and how to choose the right terms for your shipments.
Incoterms (International Commercial Terms) define the responsibilities of buyers and sellers in international trade. Published by the International Chamber of Commerce, the current version is Incoterms 2020.
Why Incoterms Matter
Incoterms answer critical questions: Who pays for shipping? Who handles customs? Where does risk transfer from seller to buyer? Using the wrong Incoterms can lead to unexpected costs, disputes, and even cargo left stranded at ports.
The 11 Incoterms 2020
Group E - Departure: EXW (Ex Works): Seller makes goods available at their premises. Buyer handles everything from there. Minimum seller obligation.
Group F - Main Carriage Unpaid: FCA (Free Carrier): Seller delivers to carrier at named place. Common for containerized cargo. FAS (Free Alongside Ship): Seller delivers alongside vessel at port. Maritime only. FOB (Free on Board): Seller delivers on board vessel. Risk transfers when goods are on ship. Maritime only.
Group C - Main Carriage Paid: CFR (Cost and Freight): Seller pays freight to destination port. Risk transfers at origin. CIF (Cost, Insurance, Freight): Like CFR plus seller provides insurance. Most common for imports. CPT (Carriage Paid To): Seller pays freight to destination. Any mode of transport. CIP (Carriage and Insurance Paid): Like CPT plus seller provides insurance.
Group D - Arrival: DAP (Delivered at Place): Seller delivers to destination, buyer handles import clearance. DPU (Delivered at Place Unloaded): Seller delivers and unloads at destination. DDP (Delivered Duty Paid): Seller handles everything including import duties. Maximum seller obligation.
Choosing the Right Incoterms
For new importers, FOB or CIF are good starting points. FOB gives you more control over shipping costs, while CIF simplifies things by having the seller arrange freight.
As you gain experience, DDP can simplify your operations but requires trust in your supplier's ability to handle destination logistics.
Always specify Incoterms clearly in your contracts: "CIF Los Angeles, Incoterms 2020"
