Incoterms 2020 explained: who pays, who is liable, who clears customs
The Incoterms of the International Chamber of Commerce (ICC) define where risk passes from seller to buyer and who takes care of transport, insurance and customs. Choosing them correctly avoids disputes and unexpected costs.
Incoterms 2020 are the rules in force. The ICC has started work on Incoterms 2030, but there is no date yet. Always state the rule, the exact place and the year in the contract, for example “FCA Düsseldorf Airport, Incoterms 2020”.
Which Incoterm fits your deal?
Answer up to four questions from the seller’s point of view. The selector suggests the matching rule and shows who bears risk, costs and customs.
The eleven rules at a glance
Seven rules apply to any mode of transport, including air freight and containers. Four rules are intended for sea and inland waterway transport only.
| Rule | Name | Risk passes | Main carriage paid by | Mode |
|---|---|---|---|---|
| EXW | Ex Works | Goods made available at the seller’s premises, not loaded | Buyer | any |
| FCA | Free Carrier | Handover to the carrier at the named place | Buyer | any |
| CPT | Carriage Paid To | Handover to the first carrier | Seller | any |
| CIP | Carriage and Insurance Paid To | Handover to the first carrier | Seller, with insurance | any |
| DAP | Delivered at Place | At destination, ready for unloading | Seller | any |
| DPU | Delivered at Place Unloaded | At destination, after unloading | Seller | any |
| DDP | Delivered Duty Paid | At destination, including import duties and taxes | Seller | any |
| FAS | Free Alongside Ship | Alongside the ship at the port of shipment | Buyer | sea |
| FOB | Free on Board | On board the ship at the port of shipment | Buyer | sea |
| CFR | Cost and Freight | On board the ship at the port of shipment | Seller | sea |
| CIF | Cost, Insurance and Freight | On board the ship at the port of shipment | Seller, with insurance | sea |
Costs and risk do not always pass together
Under the C rules (CPT, CIP, CFR, CIF) the seller pays for the main carriage, but risk passes to the buyer in the country of departure. If the goods are lost in transit, the buyer bears the loss even though the seller booked the transport. Under CIP the seller must take out comprehensive cover under the Institute Cargo Clauses (A); under CIF minimum cover under clause (C) is enough.
Common mistakes
- FOB for air freight or containers: FOB is meant for goods loaded directly on board a ship. For air freight and containers handed over at a terminal, FCA is a better fit.
- EXW for exports: the seller has to neither load the goods nor file the export declaration. That makes it hard for the seller to obtain proof of export for VAT purposes. FCA is usually the better choice.
- DDP without preparation: the seller then owes duty and import VAT in the destination country and often needs a registration there.
- Vague place: “FCA Germany” is not enough. Name the address, airport or terminal.
Incoterms and customs
The delivery term belongs in every customs declaration. On import into the EU, freight and insurance to the EU border are part of the customs value. Under EXW or FOB these costs must therefore be added to the invoice amount. More on customs clearance is on our customs page.
Sources: ICC Incoterms 2020 · DHL: Next Incoterms revision
Which rule fits your shipment?
We help you choose and organise transport and customs to match.