Incoterms 2020: the 11 rules, risk transfer and who pays what

Incoterms (International Commercial Terms) are standard rules published by the International Chamber of Commerce (ICC) that define how delivery, costs and risk are shared between seller and buyer. The current edition, Incoterms 2020, came into force on 1 January 2020. It contains 11 rules: seven for any mode of transport and four reserved for sea and inland waterway transport.

Incoterms do not replace a sales contract: they do not govern transfer of ownership, payment terms or applicable law. They settle three things: the place of delivery and the moment risk passes, the allocation of costs, and who handles export and import formalities. The named place after the term (for example 'FCA Istanbul Airport, Incoterms 2020') is an integral part of the rule.

Seven rules for any mode of transport

EXW, FCA, CPT, CIP, DAP, DPU and DDP can be used for road, rail, air, sea or multimodal shipments. Under these rules risk passes when the goods are handed to a carrier or to the buyer at a defined point; it is never tied to a mode-specific event such as loading on board a vessel.

• EXW (Ex Works): The seller makes the goods available at its premises, not loaded; the buyer bears all cost and risk from there, including export clearance. The seller's minimum obligation.
• FCA (Free Carrier): The seller delivers the goods, cleared for export, to the buyer's carrier at the named place; at the seller's premises the seller also loads the vehicle.
• CPT (Carriage Paid To): The seller pays freight to the named destination, but risk passes to the buyer when the goods are handed to the first carrier.
• CIP (Carriage and Insurance Paid To): As CPT, plus the seller arranges insurance, since 2020 at all-risks level (Institute Cargo Clauses A or equivalent).
• DAP (Delivered at Place): The seller delivers at the named destination on the arriving vehicle, ready for unloading. Import clearance is the buyer's responsibility.
• DPU (Delivered at Place Unloaded): Replaces DAT of the 2010 edition. The seller delivers unloaded at the named place; the only rule placing the unloading risk on the seller.
• DDP (Delivered Duty Paid): The seller bears all costs and risks to the destination, including import duties and taxes; the seller's maximum obligation.

Four rules for sea and inland waterway only

FAS, FOB, CFR and CIF are built around a delivery point that only exists in sea transport: alongside or on board the vessel. They suit bulk, break-bulk and project cargo. Even for containerised cargo handed to the carrier at a terminal, the ICC recommends FCA, CPT or CIP instead.

• FAS (Free Alongside Ship): The seller places the goods alongside the vessel (on the quay or a barge) at the port of loading; risk passes at that moment.
• FOB (Free on Board): Risk passes once the goods are on board the vessel at the port of loading. The buyer pays the sea freight.
• CFR (Cost and Freight): Risk passes at the same point as FOB, on board at the loading port, while the seller pays freight to the destination port.
• CIF (Cost, Insurance and Freight): As CFR, plus the seller arranges marine insurance at minimum cover (Institute Cargo Clauses C).

Summary table: risk, freight and insurance

For each rule the table shows where risk passes, who pays the main carriage and whether insurance is mandatory. In the C group (CPT, CIP, CFR, CIF) the seller pays freight but risk passes at loading, not arrival; this is the point most often misunderstood.

The right terms for air cargo: why FOB and CIF are wrong

Contracts for air shipments out of Turkey still routinely say 'FOB Istanbul Airport' or 'CIF Frankfurt'. Under FOB and CIF risk passes when the goods are loaded on board a vessel; air transport has no such moment. In a dispute neither party can prove where risk passed (seller's warehouse, forwarder's facility or airline terminal), and insurance claims become contestable.

The correct substitutes are FCA for FOB (for example 'FCA seller's warehouse' or 'FCA Istanbul Airport cargo terminal'), CPT for CFR and CIP for CIF. In all three, risk passes when the goods are handed to the carrier or forwarder; under CPT and CIP the seller carries only the cost of freight and, for CIP, insurance. With FCA the named place matters: at the seller's premises the seller loads the truck; at the airport terminal the seller also pays the domestic leg.

EXW is also a poor fit for air cargo. In practice the export declaration cannot be lodged in the buyer's name, so the seller ends up handling export formalities that the rule assigns to the buyer. FCA removes that ambiguity.

Common mistakes

Limit Trans clarifies the delivery term and the exact named place at quotation stage, so that freight, insurance and customs responsibilities line up with the sales contract.

• Leaving the named place vague: 'FCA Istanbul' is not enough; state the facility address or the terminal name.
• Assuming that whoever pays freight also carries the risk: under CPT, CIP, CFR and CIF risk passes at loading, not at arrival.
• Agreeing DDP for countries where the seller cannot register for or pay import VAT and local taxes; DAP is usually more workable.
• Omitting the edition: without the words 'Incoterms 2020', the parties may argue over which version applies.
• Relying on the term for insurance: CIF minimum cover (ICC C) excludes many risks; high-value or fragile goods need wider cover.
• Choosing a term that conflicts with the letter of credit: if the bank demands an on-board bill of lading, FCA allows one only where the parties have expressly agreed it.