Incoterms 2020, explained properly
All eleven rules, what each one costs you, and the part most summaries skip: cost and risk do not transfer at the same place. Under CIF your supplier pays the ocean freight to your port and the risk became yours the moment the box was on board at theirs.
Cost and risk are two different questions
Cost asks who writes the check for a leg of the journey. Risk asks whose loss it is if the cargo is destroyed on that leg. Four of the eleven rules answer those two questions with different places, and every one of them is a rule people use every day.
CFR and CPT have identical cost rows to CIF and CIP. What separates them is a single insurance obligation. DAP and DPU have identical cost rows to each other, and the only difference is who has to unload the truck. Reading the grid without reading the risk column is how people end up uninsured on a leg they thought their supplier owned.
The eleven, one at a time
Pick a rule to see who pays for each stage and exactly where the risk changes hands.
EXW Ex Works
The seller does the least of any rule. Everything from their doorway onward is yours.
The moment the goods are placed at your disposal at the seller's premises, still on their floor and not yet loaded.
The trap is export clearance. In many countries, China included, a foreign buyer cannot legally file the export declaration, so an EXW purchase quietly depends on the seller doing something they have not agreed to do. FCA usually says what people mean by EXW, and says it properly.
FCA Free Carrier
The seller gets it cleared for export and handed to your carrier. You take it from there.
When the goods are handed to the carrier you nominated, at the named place.
The most flexible rule in the set and the right default for air freight and containers. The 2020 revision added an option for the buyer to instruct the carrier to issue an on-board bill of lading to the seller, which fixed a long-standing problem for anyone paying by letter of credit.
FAS Free Alongside Ship
The seller brings it to the ship's side. Loading it aboard is your cost and your risk.
Once the goods are alongside the vessel at the named port, on the quay or on a barge.
Rare outside bulk and project cargo. For anything in a container, FCA or FOB is almost always what you actually want.
FOB Free On Board
The seller gets it loaded on the ship. Freight, insurance and everything after are yours.
Once the goods are on board the vessel at the named port of origin.
The most common term on China ocean shipments and usually the right starting point for a first-time importer, because you keep control of the freight booking and can see what you are paying for. Strictly it is a rule for loose sea cargo rather than containers, where FCA is the technically correct choice, but the trade uses FOB for containers constantly and the paperwork follows.
CFR Cost and Freight
The seller pays the ocean freight to your port. The risk still became yours at the origin port.
Once the goods are on board the vessel at the named port of origin, even though the seller pays the freight beyond that.
This is the split that catches people. Cost travels to the destination and risk stops at origin, so if the vessel loses the box mid-ocean it is your loss, on a shipment whose freight the seller paid.
CIF Cost, Insurance and Freight
CFR with an insurance policy the seller has to buy, but only at the minimum level of cover.
Once the goods are on board the vessel at the named port of origin, exactly as under CFR.
The seller only has to provide Institute Cargo Clauses (C), which covers a short list of named catastrophes and not much else. If the cargo matters, buy your own (A) cover rather than assuming the seller's certificate protects you; we go through the difference between the tiers separately. Note also that a low CIF freight line often arrives with destination charges you pay anyway.
CPT Carriage Paid To
The seller pays carriage to the named destination. Risk passes at the very first handover.
When the goods are handed to the first carrier, which can be a truck at the factory gate, long before they leave the country.
The gap between where risk passes and where the seller's cost stops is wider here than under any other C rule, because the first carrier may collect the goods thousands of miles from the port.
CIP Carriage and Insurance Paid To
CPT plus insurance, and unlike CIF the cover the seller must buy is the wide kind.
When the goods are handed to the first carrier, exactly as under CPT.
The 2020 revision raised the required cover here to Institute Cargo Clauses (A), all risks. That is now the single clearest difference between CIP and CIF, and it is the reason CIP is the better of the two when you have the choice.
DAP Delivered at Place
The seller delivers to your address. You clear it through customs and unload it.
At the named destination, with the goods ready for unloading but not yet unloaded.
A sensible rule when you want the goods brought to you but intend to stay the importer of record, which keeps the customs classification and the duty liability where you can see them.
DPU Delivered at Place Unloaded
DAP, except the seller also has to unload. The only rule in the set that requires it.
Once the goods have been unloaded at the named destination.
This replaced DAT in the 2020 revision and was broadened at the same time: the destination no longer has to be a terminal, it can be any agreed place. If you have no forklift and no dock, this is the rule that says so.
DDP Delivered Duty Paid
The seller does everything, including clearing it into your country and paying the duty.
At the named destination, duties paid, ready for unloading.
The mirror image of EXW and just as awkward. The seller becomes importer of record in a country whose tariff schedule they may not know, and misclassification is the buyer's problem in practice even when it is the seller's obligation on paper. Convenient for small parcels, risky for containers.
The full Incoterms 2020 chart
All eleven rules against all eight stages. Scroll sideways on a phone. Read the last column before you read any of the others.
| Rule | Export packing | Delivery to the agreed origin point | Export clearance | Loading on the main carriage | Main carriage | Insurance | Import clearance and duties | Delivery to the final destination | Risk passes |
|---|---|---|---|---|---|---|---|---|---|
| EXWEx Works | Seller | Buyer | Buyer | Buyer | Buyer | Neither | Buyer | Buyer | The moment the goods are placed at your disposal at the seller's premises, still on their floor and not yet loaded. |
| FCAFree Carrier | Seller | Seller | Seller | Buyer | Buyer | Neither | Buyer | Buyer | When the goods are handed to the carrier you nominated, at the named place. |
| FASFree Alongside Ship | Seller | Seller | Seller | Buyer | Buyer | Neither | Buyer | Buyer | Once the goods are alongside the vessel at the named port, on the quay or on a barge. |
| FOBFree On Board | Seller | Seller | Seller | Seller | Buyer | Neither | Buyer | Buyer | Once the goods are on board the vessel at the named port of origin. |
| CFRCost and Freight | Seller | Seller | Seller | Seller | Seller | Neither | Buyer | Buyer | Once the goods are on board the vessel at the named port of origin, even though the seller pays the freight beyond that. |
| CIFCost, Insurance and Freight | Seller | Seller | Seller | Seller | Seller | Seller | Buyer | Buyer | Once the goods are on board the vessel at the named port of origin, exactly as under CFR. |
| CPTCarriage Paid To | Seller | Seller | Seller | Seller | Seller | Neither | Buyer | Buyer | When the goods are handed to the first carrier, which can be a truck at the factory gate, long before they leave the country. |
| CIPCarriage and Insurance Paid To | Seller | Seller | Seller | Seller | Seller | Seller | Buyer | Buyer | When the goods are handed to the first carrier, exactly as under CPT. |
| DAPDelivered at Place | Seller | Seller | Seller | Seller | Seller | Neither | Buyer | Seller | At the named destination, with the goods ready for unloading but not yet unloaded. |
| DPUDelivered at Place Unloaded | Seller | Seller | Seller | Seller | Seller | Neither | Buyer | Seller | Once the goods have been unloaded at the named destination. |
| DDPDelivered Duty Paid | Seller | Seller | Seller | Seller | Seller | Neither | Seller | Seller | At the named destination, duties paid, ready for unloading. |
What does FOB mean in shipping?
FOB stands for Free On Board. In international trade it means the seller is responsible for the goods, and for the cost of getting them there, up to the moment they are loaded on board the vessel at the named port of origin. From that point the freight, the insurance, the import clearance and the risk are all the buyer's.
It is written as the rule plus the port: FOB Shenzhen, FOB Ningbo. The port named is always the origin port, never the destination, and that trips up more first-time importers than any other detail on a quotation.
Why FOB is the usual starting point out of China
Under FOB the supplier handles export packing, inland transport to the port and export clearance, all of which are genuinely easier to do from inside the country. You then book the ocean freight yourself, which means you can see every charge instead of having it folded invisibly into a unit price, and you keep the relationship with the forwarder rather than inheriting your supplier's.
The alternative that gets quoted alongside it is usually EXW, where the goods are yours on the factory floor and export clearance becomes your problem. In China a foreign buyer generally cannot file the export declaration, so an EXW purchase quietly relies on the supplier doing something they have not agreed to do.
The two FOBs, and the expensive confusion between them
There is a second, different FOB. In US domestic commerce, under the Uniform Commercial Code, sellers write things like "FOB origin" and "FOB destination" to say where title and risk pass on a domestic shipment. That usage predates Incoterms, is not an Incoterm, and does not carry the same obligations.
So a US supplier quoting "FOB destination" and a Chinese supplier quoting "FOB Ningbo" are using the same three letters to say structurally different things. Reading one as the other is how a buyer ends up believing their goods are covered to the door when they are covered to a crane in a port seven thousand miles away.
Two habits prevent it. Always name the place, and always name the edition: FOB Ningbo, Incoterms 2020. A contract that says that cannot be misread by either party.
What FOB does not include
- Ocean freight. Yours from the moment it is loaded.
- Insurance. FOB obliges nobody to insure anything. If you do not arrange cover, the cargo crosses an ocean uninsured. What marine cargo cover actually includes goes through the three tiers and what every one of them excludes.
- Import duty, tax and customs clearance at your end, all of which are the buyer's.
- Delivery from the destination port. Drayage, and anything after it, is separate.
- Origin terminal charges, in practice. These are split by the carrier's tariff and by what your contract says, and they are worth pinning down before you book rather than after the invoice arrives.
A strictly correct note that the trade cheerfully ignores: FOB is written for loose cargo loaded over a ship's rail, and for containers handed over at a terminal the technically correct rule is FCA. Everyone uses FOB for containers anyway and the paperwork follows along, which is fine until something goes wrong on the leg between the terminal gate and the crane.
Incoterms cheat sheet
The grid above is the whole truth and it does not fit on a sticky note. This is the version to keep next to you while you read a quotation: every rule, what it means, and where the risk changes hands. Print this page and you get this card and nothing else.
Any mode
The seller does the least of any rule. Everything from their doorway onward is yours.
Risk passesThe moment the goods are placed at your disposal at the seller's premises, still on their floor and not yet loaded.
Any mode
The seller gets it cleared for export and handed to your carrier. You take it from there.
Risk passesWhen the goods are handed to the carrier you nominated, at the named place.
Sea and inland waterway only
The seller brings it to the ship's side. Loading it aboard is your cost and your risk.
Risk passesOnce the goods are alongside the vessel at the named port, on the quay or on a barge.
Sea and inland waterway only
The seller gets it loaded on the ship. Freight, insurance and everything after are yours.
Risk passesOnce the goods are on board the vessel at the named port of origin.
Sea and inland waterway only
The seller pays the ocean freight to your port. The risk still became yours at the origin port.
Risk passesOnce the goods are on board the vessel at the named port of origin, even though the seller pays the freight beyond that.
Sea and inland waterway only
CFR with an insurance policy the seller has to buy, but only at the minimum level of cover.
Risk passesOnce the goods are on board the vessel at the named port of origin, exactly as under CFR.
Any mode
The seller pays carriage to the named destination. Risk passes at the very first handover.
Risk passesWhen the goods are handed to the first carrier, which can be a truck at the factory gate, long before they leave the country.
Any mode
CPT plus insurance, and unlike CIF the cover the seller must buy is the wide kind.
Risk passesWhen the goods are handed to the first carrier, exactly as under CPT.
Any mode
The seller delivers to your address. You clear it through customs and unload it.
Risk passesAt the named destination, with the goods ready for unloading but not yet unloaded.
Any mode
DAP, except the seller also has to unload. The only rule in the set that requires it.
Risk passesOnce the goods have been unloaded at the named destination.
Any mode
The seller does everything, including clearing it into your country and paying the duty.
Risk passesAt the named destination, duties paid, ready for unloading.
Stage allocations are the standard division under each rule. Terminal handling charges at both ends are split by the carrier's tariff and by your sales contract as much as by the Incoterm, so treat those as the negotiation they are. This page is a plain-language summary for people buying and shipping goods, not legal advice, and where a summary and your contract disagree, your contract wins. Incoterms is a registered trademark of the International Chamber of Commerce, which publishes the rules themselves.
Most first imports should be FOB or FCA
Both leave the seller responsible for getting the goods cleared and delivered at their end, and both leave you holding the freight booking, which is the only way to see what the freight actually costs. From there you can work out the chargeable weight and decide the mode with real numbers.
Frequently asked
What are Incoterms, in one sentence?
A set of eleven three-letter rules published by the International Chamber of Commerce that say, for a sale of goods, exactly where the seller's responsibility ends and the buyer's begins: who arranges and pays for each leg, who clears customs at each end, and the point at which the risk of loss or damage passes.
Which edition is current?
Incoterms 2020. It is the edition in force and the one on this page. Earlier editions are not void, so a contract can still name Incoterms 2010 deliberately, which is why every purchase order should state the edition as well as the rule and the named place.
What actually changed in the 2020 revision?
The three that matter in practice: DAT was renamed DPU and its destination widened from a terminal to any agreed place; CIP was raised to Institute Cargo Clauses (A) all-risk cover while CIF stayed at the (C) minimum; and FCA gained an option for the buyer to have an on-board bill of lading issued to the seller, which unblocked letter-of-credit transactions.
Why do cost and risk transfer at different places?
Because they answer different questions. Cost asks who writes the check for a leg. Risk asks whose loss it is if the cargo is destroyed on that leg. Under CFR and CIF the seller pays the ocean freight to your port and yet risk passed to you the moment the goods were on board at origin. That is not a loophole, it is the design, and it is the single most expensive misunderstanding in the set.
Which Incoterm should I use importing from China?
For a first ocean shipment, FOB is the usual answer: the seller handles everything to the ship at their end, you keep control of the freight booking, and you can see every charge rather than having it folded into a unit price. For air and courier shipments, FCA is the cleaner rule. Avoid EXW unless you genuinely have someone able to file the export declaration in the seller's country.
Is DDP a good idea?
It is comfortable and it is expensive, and the discomfort it removes is mostly the useful kind. Under DDP the seller becomes importer of record in your country and picks the tariff classification, which is the number your duty is calculated from. When it is wrong, the goods are still yours. For a container-scale order, DAP with your own broker is usually the better trade.
Do Incoterms cover payment terms or transfer of title?
No, and assuming otherwise is a common and costly mistake. They allocate delivery, cost, risk and customs obligations. When you pay, and the moment ownership passes, are separate matters that your contract has to state on its own. So is the law governing the contract.
Do I need an Incoterm at all for a small order?
You already have one, whether or not anybody wrote it down, because the invoice and the shipping arrangement imply a division of responsibility. Naming the rule and the place explicitly costs nothing and removes the argument before it happens. Write it as the rule, the named place and the edition, for example FOB Shenzhen Incoterms 2020.
Tell us the term and we will tell you the exposure
Send us what your supplier has quoted, on whichever term they quoted it. We will tell you what it leaves you carrying, what it is likely to cost once the destination charges land, and whether a different rule would serve you better.
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