Resources · EXIM Policy and Documentation
Incoterms 2020 explained: all 11 rules, risk and cost on one chart
What each of the 11 Incoterms 2020 rules means for an exporter: where risk passes, who pays freight, insurance and duties, and what changed from 2010.
What Incoterms are
Incoterms (International Commercial Terms) are three-letter trade terms published by the International Chamber of Commerce (ICC), Paris. First issued in 1936, they are revised about every ten years; the current version, Incoterms 2020, came into force on 1 January 2020. When an Indian exporter quotes “₹ 18 lakh CIF Rotterdam, Incoterms 2020”, both sides know exactly who books the ship, who insures the cargo, and from what point a loss falls on the buyer.
Every Incoterm answers three questions:
- Delivery and risk: at what point is the seller’s job done, and from when does loss or damage fall on the buyer?
- Costs: who pays for loading, main carriage, insurance, unloading and duties?
- Formalities: who clears the goods for export and for import?
Always write the rule with a named place and the version, for example FCA Inland Container Depot Tughlakabad, Incoterms 2020.
The 11 rules
Rules for any mode of transport
| Rule | Full name | Seller delivers / risk passes | Seller also pays |
|---|---|---|---|
| EXW | Ex Works | Goods placed at the buyer’s disposal at the seller’s premises, not loaded | Nothing further; the buyer even clears export |
| FCA | Free Carrier | Goods handed to the buyer’s carrier at the named place (loaded, if at the seller’s premises) | Export clearance |
| CPT | Carriage Paid To | Goods handed to the first carrier | Carriage to the named destination |
| CIP | Carriage and Insurance Paid To | Goods handed to the first carrier | Carriage and insurance (clauses A) to the destination |
| DAP | Delivered at Place | Goods at the named destination, ready for unloading | All carriage to the destination |
| DPU | Delivered at Place Unloaded | Goods unloaded at the named destination | Carriage and unloading |
| DDP | Delivered Duty Paid | Goods at the named destination, ready for unloading, cleared for import | Carriage, import clearance and duties |
Rules for sea and inland waterway only
| Rule | Full name | Seller delivers / risk passes | Seller also pays |
|---|---|---|---|
| FAS | Free Alongside Ship | Goods alongside the vessel at the port of shipment | Export clearance |
| FOB | Free on Board | Goods on board the vessel at the port of shipment | Export clearance, loading |
| CFR | Cost and Freight | Goods on board at the port of shipment | Freight to the destination port |
| CIF | Cost, Insurance and Freight | Goods on board at the port of shipment | Freight and minimum insurance (clauses C) to the destination port |
How to read the chart above: the yellow bar shows how far the seller pays; the dot shows where risk passes to the buyer. Notice the C-rules: the bar runs to the destination, but the dot stays at the point of shipment. The seller pays for a journey whose risk the buyer carries. This is the single most common exam trap.
Export clearance is the seller’s job under every rule except EXW. Import clearance is the buyer’s job under every rule except DDP. Under DDP, unloading at destination is still for the buyer unless the contract says otherwise.
The four groups
A helpful way to remember the rules is by first letter:
- E (EXW): the seller’s obligation is least; the buyer does almost everything.
- F (FCA, FAS, FOB): the seller delivers to a carrier the buyer has arranged; main carriage unpaid.
- C (CPT, CIP, CFR, CIF): the seller arranges and pays main carriage, but risk passes at shipment.
- D (DAP, DPU, DDP): the seller bears risk and cost all the way to the destination.
Obligations on the seller grow from E to D.
What changed from Incoterms 2010
- DAT became DPU. “Delivered at Terminal” was renamed “Delivered at Place Unloaded”, since the place of unloading can be anywhere, not only a terminal.
- Insurance under CIP rose to Institute Cargo Clauses (A), all risks. CIF stays at clauses ©, the minimum, though parties can agree more.
- FCA and bills of lading. The buyer can instruct its carrier to issue an on-board bill of lading to the seller, which banks often need under a letter of credit.
- Own transport allowed. Under FCA, DAP, DPU and DDP, the party responsible may use its own vehicles instead of hiring a carrier.
- Security costs (such as screening) are allocated explicitly between seller and buyer.
A short example
A garment exporter in Tiruppur sells to a buyer in Hamburg and ships in a container from Chennai.
- Quoting FOB Chennai is common but not ideal: the exporter hands the container to the carrier at the container freight station days before it is loaded on board, and under FOB it bears the risk until then without controlling the ship.
- FCA Chennai (named container freight station) fits better. The exporter’s risk ends when the carrier takes the container, and export clearance stays with the exporter, as Indian customs procedure expects.
- If the buyer wants a delivered price, CIP Hamburg has the exporter pay freight and all-risks insurance, while risk still passes in Chennai.
Practice questions
- What are Incoterms? Explain their significance in international trade.
- Explain the 11 Incoterms 2020 rules, grouping them by mode of transport.
- Distinguish between FOB and CIF.
- What are the main changes introduced in Incoterms 2020?
- “Under CIF the seller pays the freight, so the seller bears the risk of the voyage.” Do you agree? Explain.
Questions students ask
What are the 11 Incoterms 2020?
For any mode of transport: EXW (Ex Works), FCA (Free Carrier), CPT (Carriage Paid To), CIP (Carriage and Insurance Paid To), DAP (Delivered at Place), DPU (Delivered at Place Unloaded) and DDP (Delivered Duty Paid). For sea and inland waterway only: FAS (Free Alongside Ship), FOB (Free on Board), CFR (Cost and Freight) and CIF (Cost, Insurance and Freight).
What is the difference between FOB and CIF?
Under both FOB and CIF, risk passes to the buyer once the goods are on board the vessel at the port of shipment. The difference is cost: under FOB the buyer arranges and pays the main sea freight and insurance; under CIF the seller pays freight to the named destination port and buys minimum insurance cover for the buyer.
What changed in Incoterms 2020?
DAT (Delivered at Terminal) was renamed DPU (Delivered at Place Unloaded), so the place need not be a terminal. CIP now requires a higher level of insurance (Institute Cargo Clauses A, all risks), while CIF stays at the minimum, clauses C. FCA lets the parties agree that the buyer's carrier will issue a bill of lading with an on-board notation to the seller. FCA, DAP, DPU and DDP allow the seller or buyer to use their own transport, and security-related costs are allocated clearly.
Do Incoterms decide when ownership of the goods passes?
No. Incoterms deal with delivery, risk, costs and customs formalities. They do not decide when title (ownership) passes, the price, payment terms or remedies for breach. Those must be covered in the sales contract itself.
Which Incoterm is best for containerised exports from India?
The ICC advises using FCA rather than FOB, and CPT or CIP rather than CFR or CIF, for container cargo, because the exporter usually hands containers to the carrier at an inland container depot or terminal, not over the ship's rail. FOB, CFR and CIF fit bulk cargo loaded directly on board.