Incoterms 2020 explained simply

What Incoterms do

Incoterms 2020 are rules published by the International Chamber of Commerce, or ICC. They help buyers and sellers allocate delivery tasks, transport costs, customs responsibilities and the risk of loss or damage to goods.

They are not a complete sales contract. Agree payment, ownership, product quality, acceptance and returns separately. This is an introductory guide; use the official rules and appropriate professional advice for a transaction.

On ATP, buyers and suppliers agree delivery terms directly. ATP does not buy, sell, stock, deliver or handle payments between users. A rule written in a portal quotation does not make ATP responsible for transport.

Two groups of rules

Seven rules can be used for any mode or combination of transport: EXW, FCA, CPT, CIP, DAP, DPU and DDP. Four are for sea and inland waterway transport: FAS, FOB, CFR and CIF.

The short explanations below identify the main practical distinction. They do not reproduce all obligations, exceptions or detailed delivery conditions in the ICC rules.

Any mode or modes of transport

• EXW — Ex Works: goods are made available at the named place; the buyer takes on extensive collection and onward responsibilities.
• FCA — Free Carrier: the seller delivers to the buyer’s nominated carrier at the agreed place; loading responsibilities depend on that place.
• CPT — Carriage Paid To: the seller pays carriage to destination, but risk transfers when delivery to the carrier occurs.
• CIP — Carriage and Insurance Paid To: similar to CPT, with a seller obligation to arrange specified insurance.
• DAP — Delivered at Place: delivery occurs at destination, ready for unloading; import clearance is generally the buyer’s responsibility.
• DPU — Delivered at Place Unloaded: delivery occurs after unloading at the named destination.
• DDP — Delivered Duty Paid: the seller takes responsibility for import clearance as well as delivery, ready for unloading.

Sea and inland waterway transport

• FAS — Free Alongside Ship: delivery is alongside the vessel at the named shipment port.
• FOB — Free On Board: delivery is on board the vessel at the shipment port.
• CFR — Cost and Freight: the seller pays freight to destination, while risk transfers on board at shipment.
• CIF — Cost, Insurance and Freight: similar to CFR, with a seller obligation to arrange specified insurance.

Cost and risk are different

A common mistake is assuming the party paying freight carries risk throughout the journey. Under the C rules, the seller pays carriage to the named destination, but risk transfers earlier at the relevant delivery point.

CIF and CIP have different default insurance requirements. Confirm the actual policy, exclusions and claims arrangements rather than interpreting either term as complete protection against every loss.

Ask two separate questions: who pays each transport cost, and when does the risk of loss or damage move from seller to buyer?

Name the place precisely

Write the rule, named place or port and version together. For example, a draft quotation might state “DAP [agreed warehouse address], Incoterms 2020.” Complete the address before accepting it.

A city name alone may leave practical uncertainty. Confirm the delivery point, vehicle access, unloading arrangements and responsibility for charges. For C rules, distinguish the named destination from the earlier delivery point where risk transfers.

Choose a rule your businesses can perform

Discuss the transport mode, carrier handover and import arrangements with your freight forwarder or customs adviser. Check whether the party assigned clearance can actually carry it out in the destination country.

Do not choose DDP merely because it sounds convenient, or FOB merely because a shipment includes sea freight. Explain the real route and handover so the rule fits the transaction.

Sources and further reading

Consult ICC’s Incoterms 2020 overview, ICC Academy’s explanation of C and D rules, the transport-mode grouping and ICC’s delivery overview. Sources checked on 30 September 2026.

Next step: State your requested delivery basis in a buying request.