What Are Incoterms 2020? The 11 Delivery Terms, Their Groups and Correct Use
Incoterms 2020 consists of 11 rules published by the ICC that standardize the place of delivery, the transfer of risk, the allocation of costs and customs obligations between seller and buyer. The key to reading a rule correctly is to see that risk and cost do not always transfer at the same point — in particular, that under Group C risk passes at departure while cost stays with the seller up to the destination.
Incoterms 2020 is the common language of international trade: in a sales contract it defines, through a three-letter abbreviation, where the goods are delivered, when risk passes to the buyer, which costs belong to whom, and the customs obligations. This guide explains the 11 rules by mode of transport and by the E/F/C/D letter groups; it clarifies the most commonly confused FCA-FOB and CIF-CIP distinctions and why risk can transfer at a different point than cost. The aim is not to recommend one rule as "the best" but to help you read the delivery term you choose correctly and write it into the contract correctly.
What Are Incoterms 2020 and What Do They Not Govern?
Incoterms — in full, International Commercial Terms — is a set of standard rules published by the International Chamber of Commerce (ICC). It standardizes, between a seller and a buyer, the place of delivery, the transfer of risk, the allocation of costs and customs obligations. In this way, parties in different countries understand the same distribution of responsibilities through a common three-letter abbreviation. The current version in force is Incoterms 2020.
The scope of Incoterms is deliberately narrow. The rules do not govern the ownership of the goods (when title transfers), the payment terms, or the other conditions of the sales contract. They determine only the delivery, risk, cost and customs responsibilities; everything else is left to the sales contract between the parties.
Incoterms is not a draft or an advisory text but the rules of the ICC in force; the phrase "2020" indicates the current version of these rules. Stating the version explicitly when writing a delivery term clarifies which set of rules applies.
The 11 Rules and Mode of Transport: 7 for Any Mode, 4 for Sea Only
Incoterms 2020 consists of 11 rules in total, and these rules are divided into two groups according to the mode of transport. The first group can be used for any mode of transport (including road, air, rail and multimodal carriage): EXW, FCA, CPT, CIP, DAP, DPU and DDP — seven rules in total.
The second group is designed only for sea and inland waterway transport: FAS, FOB, CFR and CIF — four rules in total. Because these rules define the delivery and risk points in terms of the ship and the port, the rules in the "any mode" group are usually more suitable for container or multimodal shipments.
Using a sea-specific rule for a container load can create a gap between the place where risk actually transfers and the place the rule defines. For this reason, the compatibility of the mode of transport with the rule should be checked from the outset when determining the delivery term.
E, F, C, D: What Do the Letter Groups Tell Us?
Incoterms rules are divided into four logical groups according to their first letters. Group E (Departure) consists of a single rule: EXW (Ex Works). Here the seller's responsibility is minimal and the buyer's is maximal; the goods are deemed delivered when they are placed at the buyer's disposal at the seller's own premises.
Group F (Main carriage with the buyer) covers the FCA, FAS and FOB rules. In this group the buyer pays the main-carriage freight; the seller delivers the goods at the named point (to the carrier, alongside the ship, or on board the ship), and the organization and cost of the main carriage pass to the buyer.
Group C (Main carriage with the seller) contains the CPT, CIP, CFR and CIF rules. In this group the seller pays the main-carriage freight; however, the transfer of risk occurs earlier — risk passes to the buyer when the goods are handed over to the first carrier or to the ship. That is, even though the seller pays the freight, the risk of damage during carriage rests with the buyer. This feature makes Group C the most misunderstood group.
Group D (Arrival) consists of the DAP, DPU and DDP rules and is the group in which the seller's responsibility is highest; the seller is obliged to bring the goods all the way to the named place of destination. DPU (the new name for the former DAT rule in the 2020 version) is the only rule under which the seller delivers the goods by unloading them at the place of destination. Under DDP, the seller assumes the maximum responsibility, including import customs clearance and import duties.
The Two Most Confused Topics: FCA-FOB and CIF-CIP Insurance
The first confusion is between FCA and FOB. For container and multimodal loads, FCA (Free Carrier) is recommended, because risk transfers when the load is delivered at the terminal or to the first carrier. FOB (Free On Board), on the other hand, transfers risk on board the ship and is traditionally designed for bulk and conventional sea cargo. Using FOB for a container load can create uncertainty as to risk during the period between the goods' delivery to the terminal and their loading onto the ship.
The second confusion is the insurance obligation between CIF and CIP. Under Incoterms 2020, CIP (Carriage and Insurance Paid To) requires the seller to take out insurance at the maximum level of cover (ICC Institute Cargo Clauses A). CIF (Cost, Insurance and Freight), on the other hand, requires the seller to take out insurance at the minimum level of cover (ICC Institute Cargo Clauses C). Under both rules the seller arranges the insurance, but the mandatory scope of cover differs; for this reason the contract must make clear which one applies.
The Point of Risk Transfer and the Point of Cost Transfer May Not Be the Same
The key to reading Incoterms correctly is to see that the transfer of risk and the transfer of cost do not always occur at the same point. Risk is the moment at which responsibility for loss of or damage to the goods passes to the buyer; the transfer of cost, on the other hand, indicates from which point certain carriage and ancillary costs belong to the buyer.
This distinction is most evident in Group C. Under CPT, CIP, CFR and CIF, the seller pays the main-carriage freight up to the destination point (cost with the seller), but risk passes to the buyer at departure — when the goods are handed over to the first carrier or to the ship. Therefore, in the event of damage occurring during carriage, the buyer bears the risk even though the seller has paid the freight. The most common mistake in practice is to look at the seller paying the freight and assume that risk, too, transfers at arrival.
In Group D, however, risk and cost meet at the same point — the place of destination; there is therefore no risk-cost split in this group. When evaluating a delivery term, the questions "who pays the freight?" and "who bears the risk?" must be answered separately.
Correct Wording: Rule + Named Place + Incoterms 2020
A delivery term is written in a contract with three components: the abbreviation of the rule, the named place and the version. For example, the wording "FCA Port of İzmir, Incoterms 2020" states in a single line which rule applies, at which place and according to which version. It is critical that the named place be clear and unambiguous, because the physical point at which risk and cost transfer is determined by reference to this place.
When the named place is left unclear (for example, when only a city name is written without specifying the terminal or premises), the likelihood of the parties disagreeing about the point of risk and cost transfer increases. For this reason, how clearly the place is defined is as important as the rule itself.
Forwardie supports you in determining the delivery term suitable for your shipment and in organizing the carriage; the quotation and operation are structured according to this delivery term. No particular Incoterm is recommended as "the best" independently of context — the correct rule varies according to the mode of transport, the type of cargo, the customs regime and the risk-cost distribution the parties wish to assume.
Group C (CPT/CIP/CFR/CIF) — Group D (DAP/DPU/DDP)
| Group C (CPT/CIP/CFR/CIF) | Group D (DAP/DPU/DDP) |
|---|
| Who pays for the main carriage | The seller pays the main-carriage freight; under CPT, CIP, CFR and CIF the contract and cost of the main carriage belong to the seller. | The seller is obliged to bring the goods all the way to the destination; the main carriage and the carriage up to arrival belong to the seller. |
| Where risk transfers | Risk transfers early: it passes to the buyer when the goods are handed over to the first carrier (CPT/CIP) or to the ship (CFR/CIF), that is, at departure. | Risk transfers at arrival: it stays with the seller until the goods reach the named place of destination (or, under DPU, are unloaded there). |
| Where cost transfers | The main-carriage cost stays with the seller up to the destination point; the cost thus transfers after, and at a point further along than, the transfer of risk. | Both cost and risk stay with the seller up to the destination; the two meet at the same point. |
| How far the seller's responsibility extends | The seller concludes the carriage contract and pays for the main carriage up to the destination point; however, it does not bear the risk of damage during carriage, because risk has already transferred at departure. | The seller is responsible in terms of both cost and risk until it actually brings the goods to the place of destination; under DDP this responsibility also covers import customs clearance and import duties. |
| Customs and unloading | Export customs clearance rests with the seller; unloading at arrival and import customs clearance do not, by rule, belong to the seller. | Under DAP unloading rests with the buyer; under DPU the seller performs the unloading; under DDP import customs clearance and import duties belong to the seller. |
| When it is suitable | Shipments where the parties agree that the seller organizes the main carriage and pays the freight, while risk passes to the buyer early (at departure). CPT/CIP are used in any mode of transport; CFR/CIF only in sea and inland waterway transport. | Shipments where the seller undertakes to deliver the goods all the way to the place of destination and to transfer risk at arrival. DAP, DPU and DDP can be used in any mode of transport. |
| Risk-cost split | The most critical point: risk and cost do not transfer at the same place. Risk transfers at departure (to the first carrier/ship), while cost stays with the seller up to the destination point. This split is the most commonly confused subject in Incoterms. | Risk and cost transfer at the same point, namely the place of destination; there is no split as there is in Group C. |
Step by step
- Confirm the full wording of the rule with its three components: Make sure the delivery term in the contract includes the rule abbreviation, the named place and the version phrase "Incoterms 2020". For example, "FCA Port of İzmir, Incoterms 2020". A missing component (for example, not writing the version) creates uncertainty as to which set of rules applies.
- Read the named place in an unambiguous way: Check the place specified not only at the city level but at the level of the port, terminal or premises. Because the physical point at which risk and cost transfer is read by reference to this place, the risk of dispute increases if the named place is unclear.
- Check the rule's compatibility with the mode of transport: Check whether FAS, FOB, CFR and CIF — which are for sea and inland waterway only — are being used on a container or multimodal load. For such loads, the rules valid in any mode of transport — EXW, FCA, CPT, CIP, DAP, DPU, DDP — are more compatible with the mode.
- Determine the points of risk transfer and cost transfer separately: Answer the questions "who pays the freight?" and "who bears the risk?" separately. Remember in particular that under Group C (CPT/CIP/CFR/CIF) cost stays with the seller up to arrival while risk is with the buyer at departure; do not assume the two points coincide.
- Clarify responsibility for customs and unloading: Determine which party bears export and import customs clearance and who will perform the unloading. Under DPU the seller unloads the goods at the place of destination; under DDP import customs clearance and import duties belong to the seller.
- Verify the insurance obligation and the scope of cover: If the delivery term is CIP, the seller takes out insurance at the maximum level of cover (ICC Institute Cargo Clauses A); if CIF, at the minimum level of cover (ICC Institute Cargo Clauses C). If one of these two rules appears in the contract, confirm that the mandatory scope of cover written matches the rule.
Frequently Asked Questions
What are Incoterms 2020?
Incoterms (International Commercial Terms) are rules published by the International Chamber of Commerce (ICC) that standardize the place of delivery, the transfer of risk, the allocation of costs and customs obligations between seller and buyer. Incoterms 2020 is the current version of these rules in force and consists of 11 rules in total.
Do Incoterms govern the ownership of the goods or payment?
No. Incoterms determine only the delivery, risk, cost and customs responsibilities; they do not govern when title to the goods transfers, the payment terms, or the other conditions of the sales contract. These matters are left to the contract between the parties.
How are the 11 Incoterms rules grouped?
In two ways. By mode of transport: the seven rules that can be used for any mode of transport (including multimodal) are EXW, FCA, CPT, CIP, DAP, DPU, DDP; the four rules for sea and inland waterway only are FAS, FOB, CFR, CIF. They are also divided by their first letters into groups E (EXW), F (FCA/FAS/FOB), C (CPT/CIP/CFR/CIF) and D (DAP/DPU/DDP).
What is the difference between FCA and FOB?
Under FCA (Free Carrier), risk transfers when the load is delivered at the terminal or to the first carrier, and the rule can be used in any mode of transport; for this reason FCA is recommended for container and multimodal loads. Under FOB (Free On Board), risk transfers on board the ship, and the rule is traditionally designed for bulk and conventional sea cargo.
What is the difference between CIF and CIP insurance?
Under both rules the seller arranges the insurance, but in Incoterms 2020 the mandatory level of cover differs. CIP requires the seller to take out insurance at the maximum level of cover (ICC Institute Cargo Clauses A), while CIF requires the minimum level of cover (ICC Institute Cargo Clauses C).
In Group C, why does risk transfer early while the seller pays the freight?
In Group C (CPT, CIP, CFR, CIF), cost and risk transfer at different points. The seller pays the main-carriage freight up to the destination point, but risk passes to the buyer when the goods are handed over to the first carrier or to the ship — that is, at departure. Therefore, in the event of damage during carriage, the buyer bears the risk even though the seller has paid the freight; this is the most commonly confused point in Incoterms.
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