Incoterms 2020 explained for buyers and suppliers

The seven rules for any mode of transport

These work for sea, air, road, rail and multimodal shipments.

• EXW — Ex Works: buyer collects at the seller's premises and carries almost all cost and risk.
• FCA — Free Carrier: seller delivers to a named place or carrier; risk passes there. The usual replacement for FOB in container trade.
• CPT — Carriage Paid To: seller pays carriage to the destination, risk passes at first carrier.
• CIP — Carriage and Insurance Paid To: as CPT, plus seller-bought insurance at the higher all-risk level.
• DAP — Delivered at Place: seller delivers ready for unloading; buyer clears import.
• DPU — Delivered at Place Unloaded: as DAP but the seller unloads. The only rule where the seller unloads.
• DDP — Delivered Duty Paid: seller carries everything including import duty and clearance.

The four sea and inland waterway rules

These are for bulk and break-bulk cargo, not for containers handed to a terminal.

• FAS — Free Alongside Ship at the named port of shipment.
• FOB — Free On Board: risk passes when goods are on board the vessel.
• CFR — Cost and Freight: seller pays freight to destination port, risk passes on board.
• CIF — Cost, Insurance and Freight: as CFR plus minimum-cover insurance bought by the seller.

Cost and risk are two separate lines

Under CFR and CIF the seller pays freight to the destination port, but risk has already passed to the buyer at loading. If the cargo is damaged mid-voyage, the buyer's claim goes to the insurer — not back to the seller.

Which to choose

First-time importers usually want DAP or CIF to keep the process simple. Experienced buyers with their own forwarder prefer FCA or FOB to control freight cost. Avoid DDP unless the seller genuinely can act as importer of record in your country, and avoid EXW for exports where the buyer cannot handle origin clearance.

Always write the term with a named place

"FCA" alone is incomplete. Write "FCA Shenzhen, seller's warehouse, Incoterms 2020" — rule, place, and the version year.