Trade Reference · Incoterms® 2020
Incoterms® 2020 — Complete Guide
Published by the International Chamber of Commerce (ICC) · Effective 1 January 2020
Incoterms® are a set of 11 internationally recognised trade terms published by the ICC that define who is responsible for costs, risk, and logistics at each stage of an international shipment. Brantelo applies Incoterms® 2020 to all international transactions. The applicable Incoterm is stated on every commercial invoice.
1. What Are Incoterms?
Incoterms® — short for International Commercial Terms — are a set of pre-defined three-letter trade terms published by the International Chamber of Commerce (ICC). The current edition, Incoterms® 2020, supersedes all previous editions and has been in effect since 1 January 2020. They are incorporated into contracts of sale by reference (e.g. “FOB Shanghai, Incoterms® 2020”).
Incoterms define three things precisely for any given point in the shipment journey: (a) who pays for transport and associated costs; (b) when risk of loss or damage transfers from seller to buyer; and (c) who arranges transport, export clearance, and import clearance. They do not determine the transfer of title/ownership, payment terms, or dispute resolution — those are governed by the contract of sale and applicable law.
Incoterms® 2020 consists of 11 rules divided into two groups: seven rules usable for any mode of transport, and four rules applicable exclusively to sea and inland waterway transport. The latter four (FAS, FOB, CFR, CIF) are frequently misapplied to containerised cargo — the ICC specifically recommends FCA and CIP as the correct multimodal equivalents.
2. Risk Transfer — Quick Reference
The table below shows the precise point at which risk of loss or damage transfers from seller to buyer, and who is obligated to arrange cargo insurance, for each of the 11 Incoterms® 2020 rules.
| Term | Risk Transfers At | Buyer Bears Risk From | Insurance Obligation |
|---|---|---|---|
| EXW | Origin (factory) | From factory gate | Buyer |
| FCA | Named place / first carrier | From first carrier | Buyer |
| CPT | First carrier | From first carrier | Buyer |
| CIP | First carrier | From first carrier | Seller (ICC A) |
| DAP | Named destination (ready to unload) | At named destination | Seller (not mandatory) |
| DPU | Named destination (after unloading) | At named destination (unloaded) | Seller (not mandatory) |
| DDP | Named destination (import cleared) | At named destination | Seller (not mandatory) |
| FAS | Alongside vessel | From alongside vessel | Buyer |
| FOB | On board vessel | From on board vessel | Buyer |
| CFR | On board vessel | From on board vessel | Buyer |
| CIF | On board vessel | From on board vessel | Seller (ICC C) |
Note: Even where insurance is the buyer's obligation, the seller may arrange coverage as a service. Where the seller insures, the obligation level (ICC A or C) is noted. ICC A = all-risks; ICC C = named perils only.
3. Seller Obligation Level
Incoterms can be arranged on a spectrum from minimum seller obligation (EXW) to maximum seller obligation (DDP). The higher the seller's obligation, the simpler the buyer's logistics burden — but typically at a higher cost, and with the seller assuming more risk and administrative complexity.
| Term | Seller Obligation | Summary |
|---|---|---|
| EXW | Minimum | Makes goods available at own premises — no export clearance, no loading |
| FCA | Low–Medium | Clears export, delivers to first carrier at named place |
| FAS | Medium | Clears export, delivers alongside named vessel |
| FOB | Medium | Clears export, loads goods on board vessel |
| CFR | Medium–High | Clears export, loads, pays freight to destination |
| CIF | High | Clears export, loads, pays freight + minimum insurance |
| CPT | Medium–High | Clears export, pays freight to named destination (any mode) |
| CIP | High | Clears export, pays freight + all-risk insurance (any mode) |
| DAP | High | Delivers to named destination — buyer clears import |
| DPU | Very High | Delivers and unloads at named destination — buyer clears import |
| DDP | Maximum | Full door-to-door including import clearance and all duties |
4. Any-Mode Terms
Ex Works
Risk transfers: Seller's named premises — before loading
Seller Pays / Arranges
Making goods available, packaging
Buyer Pays / Arranges
Loading at origin, export clearance, all freight, insurance, import clearance & duties
Under EXW the seller fulfils its obligation by making the goods available at its named premises (factory, warehouse, etc.) — the seller does not even load the goods onto the collecting vehicle. The buyer bears all costs and risks from that point, including export clearance. EXW imposes the minimum obligation on the seller and the maximum on the buyer. It is most appropriate where the buyer has strong freight relationships and the country of export imposes no restrictions on foreign buyers arranging export clearance.
EXW is often problematic for international trade because in many countries only the seller (as the exporter of record) can obtain export licences and complete customs formalities. Where the buyer is not established in the country of export, FCA is typically a more workable alternative.
Typical use: Domestic trade; experienced importers with own freight forwarder
Free Carrier
Risk transfers: Named place — once handed to buyer's carrier
Seller Pays / Arranges
Export clearance, delivery to named place, loading at seller's premises (if that is the named place)
Buyer Pays / Arranges
All freight from named place, insurance, import clearance & duties
FCA is the ICC's recommended replacement for EXW in most international transactions. The seller delivers the goods — export-cleared — to the carrier nominated by the buyer at the named place. If that place is the seller's premises, the seller is responsible for loading; if it is any other location (e.g. a freight terminal), the seller delivers there but is not responsible for unloading. FCA can be used for any mode of transport, making it highly flexible. A 2020 amendment permits the buyer's bank to require an on-board bill of lading under an FCA arrangement, which was not previously practical.
Typical use: Air, road, rail, multimodal; preferred for containerised sea freight
Carriage Paid To
Risk transfers: First carrier at origin — seller hands goods to first carrier
Seller Pays / Arranges
Export clearance, freight to named destination
Buyer Pays / Arranges
Insurance, import clearance & duties, costs from destination terminal
Under CPT, the seller pays freight to the named destination but risk transfers to the buyer much earlier — at the point where the goods are handed to the first carrier. This split between risk transfer and cost obligation is a common source of confusion. The seller arranges and pays the main carriage but does not take on the risk during that carriage; the buyer bears transit risk from origin. Insurance is not included in CPT; the buyer should arrange cargo insurance to cover the transit period during which it bears the risk.
Because risk passes at the seller's location (first carrier handover) while the seller pays freight all the way to destination, buyers must ensure they have insurance in place for the entire voyage.
Typical use: Any mode; multimodal; where seller prefers to arrange freight but not insure
Carriage and Insurance Paid To
Risk transfers: First carrier at origin — same as CPT
Seller Pays / Arranges
Export clearance, freight to named destination, cargo insurance (minimum ICC 'A' — all risks)
Buyer Pays / Arranges
Import clearance & duties, costs from destination terminal
CIP mirrors CPT in its risk and cost structure but adds a seller obligation to procure cargo insurance. Crucially, the 2020 revision upgraded the minimum insurance requirement under CIP from ICC 'C' (limited cover) to ICC 'A' (all-risks, the broadest standard). This makes CIP a significantly stronger protection for buyers than CIF (which retains the minimum ICC 'C' standard). The insurance must be for at least 110% of the contract value in the currency of the contract.
Typical use: High-value goods; any mode where seller is best placed to arrange insurance
Delivered at Place
Risk transfers: Named destination — goods on arriving transport, ready for unloading
Seller Pays / Arranges
All costs to deliver to named destination including freight and insurance; export & transit clearance
Buyer Pays / Arranges
Unloading at destination, import clearance & duties
Under DAP, the seller delivers the goods when they are placed at the disposal of the buyer on the arriving means of transport, ready for unloading, at the named destination. Risk transfers at that point. The seller bears all costs and risks up to delivery, including the cost of insurance (though insurance is not obligatory under DAP). Import clearance and duties remain the buyer's responsibility — this is the key distinction from DDP.
Typical use: Door-to-door delivery where buyer clears customs locally; road, air, multimodal
Delivered at Place Unloaded
Risk transfers: Named destination — once unloaded
Seller Pays / Arranges
All costs plus unloading at named destination; export & transit clearance
Buyer Pays / Arranges
Import clearance & duties
DPU (formerly DAT — Delivered at Terminal — renamed in Incoterms® 2020) is the only rule that requires the seller to unload goods at the destination. Risk does not transfer until the goods are unloaded. The named place can be any location, not just a terminal. DPU places heavy obligations on the seller; the seller must ensure it is able to arrange unloading at the destination, which may require local equipment and labour.
Sellers should confirm before contracting under DPU that they have the means or contacts to unload at the specific named destination — particularly relevant for bulk cargo or locations without standard terminal facilities.
Typical use: Container terminals, port facilities, where unloading is complex or expensive
Delivered Duty Paid
Risk transfers: Named destination — goods ready for unloading, import-cleared
Seller Pays / Arranges
Everything: freight, insurance, export clearance, import clearance, all duties & taxes
Buyer Pays / Arranges
Unloading at destination (unless otherwise agreed)
DDP represents the maximum obligation for the seller. The seller delivers the goods, import-cleared and with all duties paid, to the named destination. The buyer's only remaining obligation is typically to unload. DDP is highly attractive to buyers but places significant administrative and financial burdens on sellers — particularly navigating import customs procedures in foreign jurisdictions. Many sellers are not registered for VAT/GST in the destination country, which can create complications. DDP should only be used where the seller has established freight and customs infrastructure in the destination country.
DDP requires the seller to act as importer of record in the destination country, which may not be legally permissible for non-resident entities in some jurisdictions. Sellers should take legal advice before offering DDP into unfamiliar markets. At Brantelo, DDP is offered only by prior written agreement.
Typical use: Premium door-to-door service; express shipments; only by prior written agreement at Brantelo
5. Sea & Inland Waterway Terms
Free Alongside Ship
Risk transfers: Named port of shipment — when goods placed alongside the vessel
Seller Pays / Arranges
Export clearance, delivery alongside named vessel
Buyer Pays / Arranges
Loading costs, freight, insurance, import clearance & duties
Under FAS, the seller delivers when the goods are placed alongside the buyer's nominated vessel at the named port of shipment (e.g. on a quay or barge). Risk transfers at that point. FAS is appropriate for bulk cargo (grain, coal, ore) where goods are loaded via crane directly from the quayside — it is not appropriate for containerised cargo. The 2010 revision placed the export clearance obligation on the seller, which is the correct position since the seller is typically the exporter of record.
FAS is not appropriate for container shipments. For containerised goods in maritime trade, use FCA with the named CFS (Container Freight Station) or port as the delivery point.
Typical use: Bulk commodities loaded alongside vessel; break-bulk cargo
Free On Board
Risk transfers: Named port of shipment — once goods are on board the vessel
Seller Pays / Arranges
Export clearance, loading on board the named vessel
Buyer Pays / Arranges
Ocean freight, insurance, import clearance & duties
FOB is historically the most widely used Incoterm in international trade and is still frequently specified in commodity contracts and letters of credit. Risk transfers when the goods are on board the vessel. The seller is responsible for loading. FOB is appropriate for bulk and break-bulk cargo. For containerised cargo, the ICC recommends FCA because in container shipping, goods are handed to the carrier at a container freight station or terminal — well before they are placed on board the vessel — meaning the buyer bears risk during a period when it has no practical control.
FOB is routinely misapplied to containerised shipments. For containers, use FCA. Applying FOB to containers may leave the buyer with no effective cover between CFS hand-over and vessel loading.
Typical use: Bulk, break-bulk, and commodity trade; standard sea freight bulk orders (Brantelo default for large bulk)
Cost and Freight
Risk transfers: Port of shipment — same as FOB (when goods are on board)
Seller Pays / Arranges
Export clearance, loading, ocean freight to named destination port
Buyer Pays / Arranges
Insurance, import clearance & duties, destination port charges
Under CFR, the seller pays the cost of freight to bring the goods to the named destination port, but risk transfers at the port of shipment — when goods are loaded on board. This is the same split between risk transfer and cost responsibility as CPT (for any mode). The seller arranges the vessel but the buyer bears transit risk. Marine insurance is not obligatory under CFR; the buyer should arrange its own coverage. CFR applies only to sea and inland waterway transport.
CFR shares the same CPT risk-cost mismatch: the seller pays freight but the buyer bears risk during the ocean voyage. Buyers should ensure they have all-risk marine cargo insurance in place.
Typical use: Bulk sea freight where seller books the vessel; dry bulk commodities
Cost, Insurance and Freight
Risk transfers: Port of shipment — same as FOB/CFR (when goods are on board)
Seller Pays / Arranges
Export clearance, loading, ocean freight, marine insurance (minimum ICC 'C') to named destination port
Buyer Pays / Arranges
Import clearance & duties, destination port charges
CIF adds marine insurance to CFR: the seller must obtain cargo insurance at minimum to ICC 'C' cover (the narrowest standard — named perils only). Risk still transfers at the port of shipment. The minimum ICC 'C' coverage required by CIF is often insufficient for modern cargo — buyers should consider requesting ICC 'A' (all-risks) cover or taking out a supplemental policy. Note that CIP (the any-mode equivalent) requires ICC 'A' as the minimum, making it the stronger choice for high-value goods.
The ICC 'C' minimum insurance under CIF may not cover all foreseeable transit risks. For high-value or sensitive cargo, negotiate for ICC 'A' coverage or use CIP instead. Brantelo uses CIF for large bulk shipments where insurance is included.
Typical use: Large bulk shipments; commodities; where bank or LC requires CIF — Brantelo default for bulk sea with insurance
6. Choosing the Right Incoterm
The choice of Incoterm depends on several factors: the mode of transport, the buyer's ability to manage logistics in the country of export, the seller's ability to manage import clearance in the destination country, the value of goods, the need for insurance, and the requirements of the buyer's bank (e.g. letters of credit may specify CIF or FOB).
Scenario
You are an experienced importer with your own freight forwarder
FCA is generally preferred over EXW because the seller handles export clearance — which is simpler for both parties. EXW works where the buyer is established in the country of export.
Scenario
You are buying containerised goods by sea
FOB is routinely misapplied to container shipments. The ICC recommends FCA because containers are handed to carriers at a freight station, not on board the vessel. Using FOB for containers creates a gap in risk coverage.
Scenario
Your bank requires a specific Incoterm for a letter of credit
Banks and letters of credit often specify FOB or CIF for sea shipments. Follow the LC requirements exactly. For air freight, banks may accept CIP or CPT.
Scenario
You want the seller to include insurance
CIP requires the seller to procure ICC A (all-risks) cover — significantly broader than the ICC C minimum required by CIF. For high-value goods, CIP is the stronger choice.
Scenario
You want the simplest possible purchase — delivered to your door
DAP delivers to your door; you handle import clearance. DDP means the seller handles everything including duties — but very few sellers can genuinely offer DDP outside their home market. Verify before agreeing.
Scenario
You are shipping bulk commodities by sea
These are the standard terms for bulk commodity trade and are understood by commodity exchanges, traders, and banks globally. Use the named port clearly (e.g. 'FOB Shanghai, Incoterms® 2020').
7. How Brantelo Uses Incoterms
Brantelo applies Incoterms® 2020 to all international transactions. The applicable Incoterm is confirmed at the time of order and stated on the commercial invoice. Where an order is placed without a specific Incoterm agreed in writing, the default term applied depends on the nature of the shipment as follows:
Factory gate collection by buyer's own forwarder
Standard sea freight bulk orders — default for large volumes
Bulk sea shipments where Brantelo includes insurance
Only by prior written agreement — not offered as standard
For full details on Brantelo's shipping policy, carrier partners, customs documentation requirements, import duty estimates, and claims procedures, please refer to the Shipping, Logistics & Customs Policy.
BRANTELO OÜ · Registry Code: 17282632 · Tornimäe tn 5, 10145 Tallinn, Estonia
Incoterms® is a registered trademark of the International Chamber of Commerce (ICC). This guide is provided for informational purposes only and does not constitute legal or trade advice. Always verify the applicable Incoterm in your contract of sale.