Incoterms 2020 Explained (Plain English)
Incoterms are the three-letter rules that decide who arranges and pays for each leg of a shipment, and exactly where risk passes from seller to buyer. Getting them right avoids surprise costs and disputes.
What Incoterms do — and do not — cover
Incoterms define the division of cost, risk and responsibility between buyer and seller across transport, export/import clearance and insurance. They are published by the ICC and updated periodically — the current set is Incoterms 2020.
They do not transfer ownership, set payment terms, or replace your contract. Always pair an Incoterm with a named place, e.g. “FOB Nhava Sheva” or “DAP Jebel Ali”.
The terms buyers meet most often
EXW (Ex Works): buyer does everything from the seller’s door. Maximum buyer control, maximum buyer effort. FCA (Free Carrier): seller hands goods to the buyer’s carrier, cleared for export — the modern, flexible default.
FOB / CFR / CIF are sea-only terms built around the ship’s rail. FOB: risk passes once loaded on board. CIF: seller pays freight and minimum insurance to the destination port, but risk still passes at origin — a common source of confusion.
DAP / DPU / DDP put more on the seller. DDP (Delivered Duty Paid) is the most buyer-friendly: the seller delivers cleared and duty-paid to your door.
Choosing the right term
If you want control and can manage logistics, buy on FCA or FOB and arrange your own freight. If you want simplicity and a landed price, buy DAP or DDP — but check what is excluded (DDP often excludes VAT recovery complexity).
For sea shipments, prefer FCA over FOB unless you specifically need the sea-rail risk point; FCA handles containerised cargo more cleanly.
Ready to ship?
Describe your shipment in plain words and get matched to verified forwarders in seconds — free, any language, no booking fees.
Get matched now →FAQs
What is the difference between CIF and CIP?
CIF is sea-only and covers insurance to the destination port at a minimum level. CIP works for any mode and requires higher (all-risks) insurance cover to the named destination.
Under CIF, who bears the risk in transit?
The buyer. The seller pays freight and insurance, but risk transfers when goods are loaded at origin — so the buyer claims on the policy if cargo is damaged at sea.