A quote says “delivered,” but the buyer expects import duty to be included and the seller does not. A short word has hidden several important assumptions. An appropriate Incoterms rule can make those responsibilities clearer, provided the parties use it accurately.
This beginner’s guide explains the purpose of Incoterms® 2020 and how to start choosing a rule. It is an original educational summary, not the complete ICC rulebook or a substitute for checking a particular contract.
What do Incoterms cover?
The International Chamber of Commerce publishes the Incoterms rules for sale-of-goods transactions. They address matters such as delivery, transfer of cargo risk, carriage, insurance obligations under specified rules and export/import formalities.
They do not replace the entire sale contract. Specify goods, price, payment method, payment timing, ownership transfer, quality requirements and dispute arrangements separately. Choosing a rule does not override mandatory law or make a restricted product freely importable.
The critical distinction is between delivery under the sale rule and physical arrival at the buyer’s premises. They are not always the same event. In particular, paying carriage to a destination does not necessarily mean carrying the cargo risk until that destination.
The eleven Incoterms® 2020 rules in two groups
| Transport group | Rule | Main idea |
|---|---|---|
| Any mode or modes | EXW — Ex Works | Goods available at the named place; buyer handles the onward arrangement and export clearance |
| Any mode or modes | FCA — Free Carrier | Seller delivers at the agreed point to the buyer’s carrier or nominee and clears export |
| Any mode or modes | CPT — Carriage Paid To | Seller pays carriage to destination; risk transfers on delivery to the carrier |
| Any mode or modes | CIP — Carriage and Insurance Paid To | CPT-style carriage allocation, with a seller insurance obligation |
| Any mode or modes | DAP — Delivered at Place | Seller delivers at destination ready for unloading; buyer handles import clearance |
| Any mode or modes | DPU — Delivered at Place Unloaded | Seller delivers unloaded at destination; buyer handles import clearance |
| Any mode or modes | DDP — Delivered Duty Paid | Seller handles delivery and import clearance/duties; buyer normally unloads |
| Sea or inland waterway | FAS — Free Alongside Ship | Seller delivers alongside the vessel at shipment |
| Sea or inland waterway | FOB — Free On Board | Seller delivers on board at shipment; buyer arranges main carriage |
| Sea or inland waterway | CFR — Cost and Freight | Seller pays sea freight to destination; risk transfers on board at shipment |
| Sea or inland waterway | CIF — Cost, Insurance and Freight | CFR-style allocation, with a seller insurance obligation |
Do not use this table as a replacement contract clause. The detailed rules address documents, assistance, notices and other conditions not captured in a short summary.
Delivery, risk and cost: ask three separate questions
First, where does the seller deliver under the chosen rule? Second, when does loss or damage risk pass? Third, which costs must each party pay? Record the answers separately instead of using a single vague word such as responsibility.
Under the C rules—CPT, CIP, CFR and CIF—the seller arranges and pays the specified main carriage, but risk transfers earlier under the relevant delivery provision. Under the D rules—DAP, DPU and DDP—delivery and risk transfer occur at the agreed destination point.
That difference matters when cargo is damaged during the main journey. Ask about the actual risk point and insurance protection, rather than assuming that the person who paid the carrier bears every loss.
For the maritime comparison, use Wedrang’s FOB vs CIF guide. This overview covers the wider choice of rules rather than repeating its worked price comparison.
Why the precise named place matters
Write the rule, the named place or port and the edition. A teaching example is “FCA seller’s loading bay, Ahmedabad, India, Incoterms® 2020.” The example only works if that location and handover match the real agreement.
“FCA India” is much less helpful. It leaves the parties uncertain about the point within a very large area. Use an address, terminal or other precise point appropriate to the rule and the actual route.
For C rules, also establish the delivery/risk point even though the term names the carriage destination. The named destination alone does not explain the whole allocation.
Illustrative example: FCA and DAP are different offers
Illustrative example: A seller in Ahmedabad offers the same goods under two possible arrangements. Under FCA at its premises, it loads the goods onto the buyer-arranged collecting vehicle and handles export clearance. The buyer arranges the onward transport.
Under DAP at the buyer’s agreed warehouse in Dubai, the seller arranges carriage to that destination and bears the relevant cargo risk until DAP delivery, ready for unloading. The buyer handles import clearance and unloading. These are hypothetical teaching arrangements, not an available supplier service.
The DAP offer is not merely the FCA price with a convenient freight number added. The seller must consider its wider obligations, risk and ability to coordinate the route. The parties must still agree payment and ownership separately.
EXW, FCA and the export-clearance question
EXW gives the seller comparatively limited delivery obligations. The goods are made available without the seller having to load the collecting vehicle or perform export clearance under that rule. Ask whether the buyer can actually carry out those tasks.
ICC guidance highlights FCA as an alternative where the seller should handle export formalities. FCA also distinguishes delivery at the seller’s premises from delivery at another named place, so specify which arrangement is intended.
For containers handed to a carrier before vessel loading, FCA may better reflect the actual handover than FOB. Do not write “FOB airport”: FOB is a maritime rule, not a generic label for every buyer-paid freight movement.
DAP, DPU and DDP: check unloading and import arrangements
Under DAP, destination delivery is ready for unloading. DPU adds unloading to the seller’s delivery obligation. Before offering DPU, check that the seller can organise safe unloading at the named location.
DDP adds significant import obligations, including import clearance and applicable duties and taxes. Confirm that the seller can legally and practically act within the destination’s requirements. A local importer or tax-registration constraint cannot be solved just by writing DDP on an invoice.
Discuss the real operational plan with the buyer and service providers. Avoid using “door-to-door” as an unexplained substitute: it can leave import clearance, duty and unloading assumptions unresolved.
Insurance obligations do not eliminate the need to check cover
CIF and CIP require the seller to arrange specified cargo insurance. Under Incoterms® 2020, CIF’s default is the more limited Institute Cargo Clauses (C) or similar cover; CIP’s default is the broader Clauses (A) or similar cover, subject to the rule and agreed changes.
Broader does not mean every loss is covered. Review exclusions, insured value, route and claim arrangements with the insurer. Under other rules, the absence of an obligation to insure for the other party does not make cargo insurance unnecessary.
Connect the chosen rule with documents and payment
Use consistent terms in the sale agreement, quotation and shipment instructions. Check the export documents overview to assign responsibilities, and the bill of lading guide when transport evidence matters.
If payment uses a documentary credit, review its document requirements with the bank. The chosen delivery rule and the bank’s presentation conditions need to work together. Neither automatically rewrites the other.
A short checklist before agreeing a rule
- Confirm the transport modes and real handover point.
- Identify who arranges main carriage and local delivery.
- Separate risk transfer from carriage cost.
- Check export and import formalities with capable parties.
- Resolve unloading and insurance requirements.
- Name the precise place or port and the edition.
- Agree payment, ownership and remedies elsewhere in the contract.
Frequently asked questions
Which Incoterm is best for beginners?
There is no universal best rule. Choose an allocation that both parties can perform and understand, rather than assuming the fewest seller tasks always creates the simplest transaction.
Do Incoterms determine ownership?
No. Agree transfer of ownership separately under the relevant contract and law.
Do the rules set a payment deadline?
No. State the method and timing of payment separately.
Must every contract use the 2020 edition?
Specify the edition actually agreed. This guide explains Incoterms® 2020; do not mix assumptions from different editions.
For the operational choices behind the contract, compare FCL and LCL shipping. Then use the commercial vs proforma invoice guide to keep the proposal and actual shipment records clear.
Sources and scope
Checked 17 October 2026: ICC, Incoterms® 2020, rules for any mode and maritime transport, and Incoterms Q&A; ICC Academy, Place of Delivery and Risk Transfer in Trade Contracts and DDP & EXW Explained; US International Trade Administration, Know Your Incoterms. This original summary does not reproduce the complete ICC rules.
Editorial disclosure: This guide was drafted with AI assistance using the primary sources listed here. No named human author, expert review or firsthand transaction experience is claimed. Confirm the requirements for your shipment with the relevant carrier, bank, customs adviser or other qualified professional.