Incoterms 2020: All 11 Rules, FOB, CIF & DDP

In a trade contract, "FOB or CIF" is not a formality. It decides who bears cost and risk, and up to where. Get one term wrong and the liability for in-transit damage, an insurance gap, or an unexpected cost lands on you. Incoterms is the international standard that settles it.

This guide helps anyone handling trade terms understand Incoterms 2020 at a practical level, pick the right rule for the situation, and avoid the mistakes people make most.

What Are Incoterms?

Incoterms are trade rules published by the International Chamber of Commerce (ICC) that standardize how cost, risk, and obligations are split between seller and buyer. The current edition is Incoterms 2020, with 11 rules. You write the rule and place together in the contract, like "FOB Busan," to agree in one line who is responsible up to where.

What Incoterms Do and Do Not Cover

• They cover: how costs (freight, insurance, clearance) are split, when risk (loss or damage) transfers, export/import clearance duties, and document obligations
• They do not cover: when title (ownership) transfers, payment terms and methods, breach and dispute resolution, or duty rates and HS classification

Incoterms govern transport, risk, and cost, not payment or ownership. Those must be agreed separately in the contract.

The Four Groups: E, F, C, D

The 11 rules fall into four groups by increasing seller responsibility.

• Group E (EXW): departure. Minimum seller obligation
• Group F (FCA, FAS, FOB): main carriage unpaid. Buyer pays main freight
• Group C (CFR, CIF, CPT, CIP): main carriage paid. Seller pays main freight
• Group D (DAP, DPU, DDP): arrival. Seller responsible to destination

The higher the group (E), the shorter the seller's leg; the lower (D), the closer to destination the seller is responsible.

All 11 Rules at a Glance

Seven rules work for any mode (EXW, FCA, CPT, CIP, DAP, DPU, DDP) and four are sea/inland-waterway only (FAS, FOB, CFR, CIF).

Where Cost Transfers vs Where Risk Transfers

The single most important idea in Incoterms is that the cost divide and the risk divide are not always the same point.

• Risk (loss or damage): past this point, the buyer owns the risk even if cargo is damaged
• Cost (freight, insurance, etc.): the seller pays up to this point

For Groups F and D the two points roughly align, but Group C (CFR, CIF, CPT, CIP) splits them: cost transfers at destination, risk at origin. Miss this and you misjudge who is liable.

Responsibility Matrix (S = Seller / B = Buyer)

Only CIF and CIP require the seller to insure; for the rest, insurance is up to the parties.

FOB vs CIF: The Point Everyone Confuses

These are the two most-used rules, and there is a trap. Under CIF the seller pays freight and insurance to the destination port (cost), but risk transfers to the buyer at the same point as FOB: once the goods are on board at origin.

• Cost divide: CIF sits at the destination port (seller pays freight and insurance)
• Risk divide: CIF, CFR, and FOB all transfer once on board at origin

If cargo is damaged mid-voyage under CIF, the seller may have paid the freight, but the risk already sat with the buyer. So even under CIF, the buyer should check the insurance scope (CIF requires only the minimal Clause C).

How to Choose in Practice

• New to importing and wary of arranging transport → CIF/CIP or DAP/DDP; the seller arranges shipping (but see the DDP caution).
• Want to control and optimize transport → FOB/FCA; appoint your own forwarder to manage rate and schedule.
• Do not want to handle the last leg → DAP (before unloading) or DPU (unloaded); the buyer still clears import.
• Seller wants to do the minimum → EXW, though it forces the buyer to handle export clearance abroad and is rarely recommended.

For containerized (FCL) cargo, goods are handed to the carrier at the terminal/CY rather than on board, so FCA is technically more correct than FOB (FOB is common in practice, but the risk point can misalign).

Five Common Mistakes

1. Misreading Group C risk: assuming CIF means risk also runs to the destination port. Risk transfers at loading.
2. Dumping export clearance via EXW: a buyer clearing export in the seller's country is rarely practical.
3. Using FOB for containers: FOB is based on loading on board; FCA is correct for containers.
4. DDP tax risk in the import country: the seller bears import VAT and clearance, which can create local tax-agent issues.
5. Overtrusting insurance: CIF's minimal Clause C is narrow. Negotiate additional cover if needed.

What Changed in Incoterms 2020

• DAT renamed to DPU: clarifies that delivery need not be at a terminal (any agreed place, such as a warehouse)
• Higher CIP insurance: CIP now requires top cover (Institute Cargo Clause A, 110% of value); CIF stays at the lower Clause C minimum
• Own transport recognized: shipping with your own vehicles is explicitly allowed (FCA, DAP, DPU, DDP)
• FCA on-board B/L option and clarified security obligations

This guide is for general information. Actual contracts depend on the detailed rules and each deal, so confirm against the ICC rules and with a specialist.