Incoterms 2020 Explained

Incoterms 2020 is the ninth revision of the International Chamber of Commerce's Incoterms rules, published by the ICC and in force from 1 January 2020. The rules define the responsibilities of sellers and buyers for the delivery of goods under sales contracts — who arranges carriage and insurance, who bears cost and risk at each stage, and who handles export and import clearance. Eleven rules apply: seven for any mode of transport (EXW, FCA, CPT, CIP, DAP, DPU, DDP) and four for sea and inland waterway only (FAS, FOB, CFR, CIF).

For enterprise industrial procurement, CIP or DAP typically balances buyer control with seller accountability. The seller arranges freight (and, under CIP, all-risk insurance) to the named destination, while the buyer keeps visibility of import clearance in its own country. EXW pushes maximum burden and risk onto the buyer and is rarely optimal for cross-border capital projects. DDP looks attractive but requires the seller to have a local tax registration in the destination country, which most exporters cannot support cleanly.

FOB (Free On Board) is a sea and inland waterway rule where risk transfers when the goods are on board the vessel at the named port. FCA (Free Carrier) is a multimodal rule where risk transfers when the goods are handed over to the buyer's nominated carrier at the named place. FCA is the correct rule for containerised shipments, which are almost never loaded on board at the shipper's expense. Using FOB for containers is one of the most common Incoterms mistakes.

No. Under CIF (Cost, Insurance and Freight), the seller is only required to procure minimum cover — Institute Cargo Clauses (C), which excludes many common risks. For capital equipment and high-value shipments, buyers should either specify Institute Cargo Clauses (A) all-risk cover in the sales contract, use CIP (which under Incoterms 2020 defaults to ICC A cover), or arrange their own insurance.

Export clearance is the seller's responsibility under every rule except EXW (buyer). Import clearance is the buyer's responsibility under every rule except DDP (seller). DAP and DPU place the buyer in charge of import clearance while the seller still delivers to the destination. This split is where most cross-border misunderstandings occur — always confirm the clearance responsibility in the RFQ.

You can, but you shouldn't. Mixed Incoterms in a single RFQ or purchase order create parallel commercial baselines that cannot be normalised for comparison, complicate insurance, split invoicing, and confuse customs entry. Fix one Incoterm per RFQ per destination — vary only when a specific commodity genuinely demands a different rule.

No. Incoterms are a set of internationally recognised commercial rules published by the ICC. They apply only when the sales contract explicitly incorporates them (for example, 'CIP Hamburg Incoterms 2020'). Without that incorporation, the buyer and seller fall back on the applicable law and the express terms of the contract — which is far riskier for cross-border trade.

Key changes: DAT was renamed DPU (Delivered at Place Unloaded); CIP's default insurance was upgraded from ICC C to ICC A; FCA now allows the buyer to instruct the carrier to issue an on-board bill of lading to the seller (useful for letter-of-credit transactions); and the rules provide clearer allocation of security-related obligations and costs. The rule structure and the 11 codes remained the same.

Letters of credit require documents that match the Incoterm. CIF and CIP align cleanly with LC document sets because the seller controls freight and insurance and can present the required transport and insurance documents. FOB works for bulk sea shipments where the on-board B/L is straightforward. For container shipments under LC, FCA with the Incoterms 2020 on-board B/L option is now the recommended structure.

We fix the Incoterm inside the RFQ so every supplier quote arrives on the same commercial baseline, run a normalised comparison, and align the chosen Incoterm to the buyer's insurance, customs and financing arrangements. Free for buyers. Supplier-neutral. One RFQ, multiple suppliers, comparable quotes.