All 11 Incoterms 2020 Explained: The Complete Reference Guide for Importers
By Jason Kim · Branch Manager · 15 years in freight forwarding · Los Angeles · Frankfurt · Chicago
In 15 years of managing freight across Los Angeles, Frankfurt, and Chicago, the single most expensive mistake I see importers make is not understanding exactly where their responsibility begins and their supplier's responsibility ends.
That line is defined by one thing: the Incoterm on your contract.
Most importers know FOB. Some know CIF. A few know DDP. But there are 11 Incoterms rules in total, and the one your supplier quietly inserts into your purchase order could be costing you thousands of dollars per shipment in ways you never see coming.
This is the complete reference guide. All 11 rules. Every cost and risk responsibility explained. Use it every time you review a new supply contract.
What Incoterms Are — and What They Are Not
Incoterms — International Commercial Terms — are a set of standardized trade rules published by the International Chamber of Commerce. The current edition is Incoterms 2020, which remains the governing standard in 2026. When a contract specifies "FOB Shanghai, Incoterms 2020," both parties have a legally defined understanding of who pays for what and who bears the risk at every point in the journey.
What Incoterms do not cover is equally important. They do not govern transfer of ownership or title to the goods. They do not cover payment terms. They do not replace your contract of sale — they are incorporated into it.
One critical rule before we go through all 11: always specify the named place. "FOB" alone is incomplete and unenforceable. "FOB Shanghai, Incoterms 2020" is a complete, legally meaningful term. Never sign a contract that omits the named place.
The 11 Incoterms Rules — Complete Reference
The 11 rules are divided into two groups. Rules for any mode of transport — EXW, FCA, CPT, CIP, DAP, DPU, and DDP — can be used for ocean, air, rail, road, or multimodal shipments. Rules for sea and inland waterway only — FAS, FOB, CFR, and CIF — apply exclusively to ocean freight. Using a sea-only rule for air freight is one of the most common and costly Incoterms mistakes importers make.
GROUP 1 — Rules for Any Mode of Transport
EXW — Ex Works [Named Place of Delivery]
Under EXW, the seller's responsibility ends at their factory gate. The buyer — you, the importer — is responsible for absolutely everything from that point forward: loading the goods, export customs clearance in the origin country, all freight costs, import customs clearance, duties, and final delivery.
The critical operational problem with EXW is export customs clearance — in many countries, including China, the exporter is legally required to be the entity that files the export declaration. Use FCA instead for containerized shipments.
Best for: Sophisticated importers with established freight forwarder networks and local agents in the origin country.
Risk transfers: At the seller's premises, when goods are made available to the buyer.
FCA — Free Carrier [Named Place of Delivery]
FCA is the most flexible and most underused Incoterm in international trade. The seller delivers the goods to a named carrier or nominated party at a specified location. FCA is the correct rule for air freight and containerized ocean freight — the goods are handed to the freight forwarder before they reach the ship's rail.
A key update in Incoterms 2020: an option was added for the buyer to instruct their bank to issue an on-board bill of lading notation to the seller after loading, addressing letter of credit requirements.
Best for: Air freight shipments, containerized ocean freight, letter of credit transactions.
Risk transfers: When goods are delivered to the named carrier at the named place.
CPT — Carriage Paid To [Named Place of Destination]
The seller contracts and pays for carriage to the named destination. However — and this is the critical point most importers miss — risk transfers to the buyer at the point the goods are handed to the first carrier in the origin country, not at the destination. CPT does not include insurance as a seller obligation.
Best for: Transactions where the buyer wants the seller to arrange freight but the buyer will arrange their own cargo insurance independently.
Risk transfers: When goods are handed to the first carrier at origin — not at the destination.
CIP — Carriage and Insurance Paid To [Named Place of Destination]
CIP is identical to CPT with one significant difference: the seller is required to provide cargo insurance. Under Incoterms 2020, CIP requires the seller to obtain Institute Cargo Clauses (A) — All Risk coverage. This is the most comprehensive seller-arranged terms available for multimodal shipments.
Best for: High-value goods where the buyer wants the seller to arrange both freight and comprehensive insurance.
Risk transfers: When goods are handed to the first carrier at origin — same as CPT.
DAP — Delivered at Place [Named Place of Destination]
The seller delivers the goods to the named destination — your warehouse, your distribution center, your port of entry — ready for unloading. The seller bears all costs and risks of getting the goods to that named place. The buyer is responsible for import customs clearance and duties at destination.
DAP places the logistics risk on the seller right up until the goods arrive at your door — while leaving you in control of your own customs clearance and duty payments.
Best for: Importers who want the seller to manage logistics but want to retain control of US customs clearance and duty calculations.
Risk transfers: When goods arrive at the named destination ready for unloading, before import clearance.
DPU — Delivered at Place Unloaded [Named Place of Destination]
DPU is the only Incoterm under which the seller is required to unload the goods at the destination. DPU replaced the previous rule "DAT — Delivered at Terminal" in Incoterms 2020. The key change is that DPU can name any place — not just a terminal — as the delivery point.
Best for: Situations where the seller has operational capability to unload at the destination.
Risk transfers: Once goods are unloaded at the named place of destination.
DDP — Delivered Duty Paid [Named Place of Destination]
DDP represents maximum obligation for the seller and maximum convenience for the buyer. The seller is responsible for everything — origin charges, main carriage, insurance, import customs clearance, duties and taxes, and delivery to the named destination.
Use DDP with caution: it is typically the most expensive option, and even under DDP, if the seller misclassifies the goods or undervalues the shipment, CBP may still pursue the importer of record. DDP also removes your visibility into freight and duty costs.
Best for: E-commerce businesses, occasional importers, or situations where logistics complexity justifies paying the premium.
Risk transfers: When goods are made available to the buyer at the named place, import cleared and duties paid.
GROUP 2 — Rules for Sea and Inland Waterway Only
Important: Do not use these four rules for air freight, road freight, or multimodal containerized shipments.
FAS — Free Alongside Ship [Named Port of Shipment]
The seller delivers the goods alongside the vessel at the named port of shipment. The seller handles export customs clearance. From that point, the buyer bears all costs and risks. FAS is used primarily for bulk cargo — grain, coal, ore — and is rarely used in standard import transactions.
Best for: Bulk commodity trading.
Risk transfers: When goods are placed alongside the vessel at the named port of shipment.
FOB — Free on Board [Named Port of Shipment]
FOB is the most widely used Incoterm in global trade. The seller delivers the goods on board the named vessel at the named port of shipment. Under FOB, you choose the freight forwarder, you book the vessel, and you control the main carriage cost — eliminating hidden freight markups from the seller's forwarder.
Technical note: FOB refers to goods on board the vessel. For containerized trade where goods are handed to a carrier at an inland depot, FCA is technically more accurate — but FOB is the dominant commercial term and widely understood in this context.
Best for: Most standard ocean freight import transactions. The gold standard for experienced importers.
Risk transfers: When goods are on board the vessel at the named port of shipment.
CFR — Cost and Freight [Named Port of Destination]
The seller contracts and pays for ocean freight to the named destination port. However, risk transfers to the buyer when the goods are loaded on board the vessel at origin — the same point as FOB. The seller pays the freight but the buyer bears the transit risk. CFR does not include insurance.
Best for: Transactions where the buyer wants the seller to arrange ocean freight but will arrange their own cargo insurance.
Risk transfers: When goods are on board the vessel at origin — same as FOB, despite the seller paying freight to destination.
CIF — Cost, Insurance and Freight [Named Port of Destination]
The seller pays ocean freight and provides cargo insurance to the named destination port. Risk transfers when the goods are on board the vessel at origin.
Critical limitation: CIF only requires the seller to obtain minimum cargo insurance — Institute Cargo Clauses (C), which excludes many common causes of loss. This is significantly less coverage than CIP's All Risk requirement. On a high-value shipment, always verify the coverage level or arrange your own all-risk policy independently.
Best for: Smaller importers who want simplicity of one invoice covering freight and insurance. Not ideal for high-value goods.
Risk transfers: When goods are on board the vessel at the origin port.
The Complete Incoterms Reference Table
| Term | Mode | Export Clearance | Origin Charges | Main Freight | Cargo Insurance | Import Clearance | Duties & Taxes | Risk Transfers At |
|---|---|---|---|---|---|---|---|---|
| GROUP 1 — Any Mode of Transport (Ocean · Air · Road · Rail · Multimodal) | ||||||||
| EXW Ex Works |
Any | Buyer | Buyer | Buyer | Buyer | Buyer | Buyer | Seller's premises when goods made available |
| FCA Free Carrier |
Any | Seller | Seller | Buyer | Buyer | Buyer | Buyer | Named place at origin when handed to carrier |
| CPT Carriage Paid To |
Any | Seller | Seller | Seller | Buyer | Buyer | Buyer | First carrier at origin — NOT at destination |
| CIP Carriage & Insurance Paid |
Any | Seller | Seller | Seller | Seller (All Risk) | Buyer | Buyer | First carrier at origin — NOT at destination |
| DAP Delivered at Place |
Any | Seller | Seller | Seller | Seller | Buyer | Buyer | Named destination, ready for unloading |
| DPU Delivered at Place Unloaded |
Any | Seller | Seller | Seller | Seller | Buyer | Buyer | Named destination after unloading completed |
| DDP Delivered Duty Paid |
Any | Seller | Seller | Seller | Seller | Seller | Seller | Named destination, import cleared, duties paid |
| GROUP 2 — Sea & Inland Waterway Only (Do NOT use for Air or Multimodal) | ||||||||
| FAS Free Alongside Ship |
Sea only | Seller | Seller | Buyer | Buyer | Buyer | Buyer | Alongside vessel at named port of shipment |
| FOB Free on Board |
Sea only | Seller | Seller | Buyer | Buyer | Buyer | Buyer | On board vessel at named port of shipment |
| CFR Cost & Freight |
Sea only | Seller | Seller | Seller | Buyer | Buyer | Buyer | On board vessel at origin — not at destination |
| CIF Cost, Insurance & Freight |
Sea only | Seller | Seller | Seller | Seller (Min only) | Buyer | Buyer | On board vessel at origin — not at destination |
Source: International Chamber of Commerce · Incoterms® 2020 · Always specify the named place and cite "Incoterms 2020" in your contract.
The 5 Most Expensive Incoterms Mistakes Importers Make
Mistake 1: Using FOB for air freight. FOB is a sea-only rule. For air freight, use FCA with the airport of departure as the named place. Using FOB on an air freight shipment creates an ambiguous contract that can result in disputed liability if cargo is lost or damaged.
Mistake 2: Accepting CIF without reading the insurance terms. CIF insurance is minimum coverage only — Institute Cargo Clauses (C). On a high-value shipment, this could leave you significantly underinsured. Always verify the coverage level or arrange your own all-risk policy.
Mistake 3: Signing EXW without local export clearance capability. EXW makes you responsible for export customs in the origin country. If you do not have a licensed agent there, use FCA instead — it gives you the same cost visibility without the export compliance burden.
Mistake 4: Not specifying the named place. "FOB China" is not a valid Incoterm. "FOB Shanghai, Incoterms 2020" is. The named place determines exactly where costs and risk divide. Vague terms create expensive disputes.
Mistake 5: Confusing who pays freight with who bears risk. Under CFR and CIF, the seller pays the freight but risk transfers at the origin port. If the vessel sinks, the seller does not reimburse you just because they paid for the freight. Risk and cost are two separate things in Incoterms — always track both independently.
Which Incoterm Should You Use?
For most importers in 2026, FOB remains the best standard choice for ocean freight. It gives you control over your freight forwarder, full visibility into ocean freight costs, and clear risk definition. Pair it with your own all-risk cargo insurance policy and you have a clean, professionally structured import transaction.
For air freight, use FCA. For situations where you want the seller to manage the full logistics chain, DAP gives you simplicity without surrendering your customs clearance control. Avoid DDP unless you are an occasional importer willing to pay the premium for full-service convenience.
And always — always — specify the named place, cite Incoterms 2020, and make sure your supply contract, commercial invoice, and bill of lading all reference the same Incoterm consistently.