Incoterms 2020 Explained: Full List, Definitions & Best Practices

What Incoterms Are

Incoterms — short for International Commercial Terms — are a set of standardized trade rules published by the International Chamber of Commerce (ICC) that define the responsibilities of buyers and sellers for the delivery, costs, risk, and customs clearance of goods. They are the shorthand that lets a buyer in one country and a seller in another agree, in three letters, exactly who does what and who pays for what. The current edition is Incoterms 2020, which took effect on 1 January 2020 and remains in force.

Their value is precision. Without a common rule set, "delivered" means different things to different parties, and disputes over freight, insurance, and risk are inevitable. An Incoterm collapses all of that into a single agreed reference point. For procurement teams, getting the term right is a direct lever on landed cost and risk — which is why it belongs in the same toolkit as total cost of ownership analysis rather than being left to logistics alone.

What Incoterms Do and Don't Cover

It is just as important to know the boundaries. Incoterms govern the delivery point, the split of transport and insurance costs, the point at which risk passes from seller to buyer, and which party handles export and import formalities. They are silent on several things buyers often assume they cover.

Specifically, Incoterms do not determine the transfer of ownership or title — that is set by the sales contract and applicable law. They do not set the price, payment terms, or currency, do not address breach or dispute resolution, and do not constitute the contract of sale by themselves. Treat the Incoterm as one clause in a complete contract, not a substitute for one. This distinction matters in any well-drafted agreement, which is why it sits alongside disciplines like contract lifecycle management.

The Full List: All 11 Incoterms 2020

The eleven rules divide into two groups. The first seven work for any mode of transport, including multimodal and containerized shipments. The final four are reserved for sea and inland waterway transport, where the goods are loaded onto a vessel.

The Seven Any-Mode Rules

These seven move responsibility progressively from buyer to seller. EXW places almost everything on the buyer: the seller simply makes goods available at its premises, and the buyer arranges all transport, export, and import. FCA shifts export clearance and hand-off to a carrier onto the seller, making it the modern, container-friendly successor to FOB for most goods. CPT and CIP have the seller pay carriage to the destination (CIP adds insurance), but risk still passes when goods reach the first carrier — a subtle and frequently misunderstood gap between where cost and risk transfer. DAP, DPU, and DDP are the delivered terms: the seller carries cost and risk to the named destination, with DPU adding unloading and DDP adding import duties and taxes. DDP places the heaviest obligation on the seller.

The Four Sea and Waterway Rules

The maritime terms predate containerization and remain common in bulk and commodity trades. FAS delivers goods alongside the vessel at the port of shipment. FOB shifts risk once goods are on board — still widely used, though the ICC recommends FCA for containerized cargo since containers are handed over at a terminal, not loaded directly by the seller. CFR has the seller pay freight to the destination port, and CIF adds marine insurance. As with CPT and CIP, the risk-transfer point under CFR and CIF is loading at origin, not arrival — the seller pays the freight, but the buyer carries the risk during the voyage.

What Changed from Incoterms 2010 to 2020

The headline change in the 2020 revision was the renaming of DAT (Delivered at Terminal) to DPU (Delivered at Place Unloaded), which broadened the rule so delivery can occur at any place, not just a transport terminal. The update also raised the default insurance level required under CIP to a more comprehensive cover (while CIF retained the lower minimum), clarified the allocation of security-related costs, and made FCA more practical by allowing an on-board notation on the bill of lading. None of the eleven codes were removed; the changes were refinements rather than a structural overhaul, which is why Incoterms 2010 contracts still in force generally remain valid until renewed.

How Buyers Should Choose

The right Incoterm is a deliberate procurement decision, not a default copied from the last order. The core trade-off is control versus convenience. Terms like FCA and FOB give the buyer control over the main carriage — useful if you have freight rates, consolidation, or carrier relationships that beat the seller's — but they put more operational burden on your team. Delivered terms like DAP and DDP hand that work to the seller, which simplifies life but bundles the freight cost (and the seller's margin on it) into the price, often invisibly. A buyer running disciplined price benchmarking should always strip the Incoterm out before comparing quotes, because a DDP price and an EXW price are not remotely comparable. Document your chosen term, the named place, and the version ("Incoterms 2020") explicitly in every contract.

Where Incoterms Fit in Your Toolkit

Incoterms are one of a handful of trade abbreviations every procurement professional should know cold, alongside terms like lead time and total landed cost. For quick lookups of related vocabulary, our procurement glossary is the companion reference, and the practical sourcing context is covered in the procurement AI buyer's guide. As AI increasingly reads and structures contract data, the Incoterm is exactly the kind of clause that source-to-pay and contract tools now extract automatically — turning a buried three-letter code into a managed, reportable field across your supplier base.

Cost and Risk Do Not Always Transfer Together

If there is one Incoterms concept worth internalizing above all others, it is that the point where cost transfers and the point where risk transfers are not always the same. Buyers instinctively assume that if the seller is paying the freight, the seller also carries the risk during transit — and for the delivered terms (DAP, DPU, DDP) that instinct is correct. But for the "C" terms — CPT, CIP, CFR, and CIF — it is wrong, and expensively so. Under these terms the seller pays carriage to the destination, yet risk passes to the buyer much earlier, when the goods are handed to the first carrier or loaded at origin.

The practical consequence is stark. If a shipment under CIF is damaged mid-voyage, the buyer bears the loss even though the seller arranged and paid for the freight — and recovery depends on the insurance, which under CIF is only the minimum cover unless you negotiated more. This is why sophisticated buyers either avoid the C terms for high-value or fragile goods, or explicitly negotiate higher insurance and clarify the claims process in the contract. Misreading this single distinction is the source of a disproportionate share of post-shipment disputes, so it deserves a place at the front of every buyer's mental model rather than a footnote.

Common Incoterms Mistakes Buyers Make

Several Incoterms errors recur often enough to be worth flagging explicitly. The first is using a maritime term for containerized cargo. FOB, CFR, and CIF were designed for goods loaded directly onto a vessel, but most modern freight moves in containers handed over at a terminal — for which FCA, CPT, and CIP are the correct counterparts. Using FOB for a container leaves a gap in risk coverage between the terminal and the ship's rail that the ICC explicitly warns against.

The second mistake is naming a vague place. "DAP Europe" is meaningless; the term must specify an exact named place ("DAP, Warehouse 4, Rotterdam, Incoterms 2020") or the risk-transfer point is undefined. The third is choosing DDP without appreciating the burden it places on the seller for import clearance and local taxes in the buyer's country — a term sellers frequently agree to and then struggle to execute, causing delays. The fourth is omitting the version year, which matters because rules change between editions. And the fifth, more subtle, is letting logistics choose the term in isolation from procurement; the Incoterm directly shapes landed cost and risk, so it is a commercial decision that belongs in the sourcing conversation, not an operational afterthought handled after the price is agreed.

Incoterms and Total Landed Cost

Because each Incoterm bundles a different set of costs into the seller's price, two quotes on different terms are never directly comparable until you build them out to total landed cost. An EXW price looks cheapest on paper but excludes export handling, freight, insurance, duty, and import clearance — all of which the buyer must add. A DDP price looks most expensive but includes nearly everything to your door, often with the seller's margin quietly layered onto the logistics. The only fair comparison converts every quote to the same delivered basis.

This is why disciplined buyers strip the Incoterm out of competing quotes, rebuild each to a common landed-cost basis, and only then compare. It is also why the Incoterm belongs in the same analysis as a buyer's broader cost work: the term is a direct input to landed cost, and getting it wrong distorts every downstream decision from supplier selection to inventory planning. Treat the Incoterm as a line item in your cost model, not a logistics formality, and it becomes a lever you control rather than a default you inherit.

There is also a negotiation dimension worth naming. The choice of term is itself negotiable, and it shifts real cost and risk between the parties, so it should be on the table alongside price rather than conceded by default. A buyer with strong freight rates and reliable carriers can often secure a lower total cost by taking control of the main carriage under FCA or FOB, capturing the logistics margin the seller would otherwise embed. Conversely, a buyer without that capability may rationally pay for the seller to manage delivery under DAP, accepting a higher line price in exchange for simplicity and a single accountable party. The point is that the decision should be deliberate and modeled, weighing your own logistics maturity against the convenience premium — exactly the kind of trade-off that separates a procurement function managing landed cost from one merely accepting whatever term the supplier proposes.

Frequently Asked Questions

What are Incoterms?

Incoterms (International Commercial Terms) are a set of standardized trade rules published by the International Chamber of Commerce that define the responsibilities of buyers and sellers for delivery, costs, risk, and customs in international and domestic transactions. The current version is Incoterms 2020.

How many Incoterms are there in 2020?

There are 11 Incoterms 2020 rules. Seven apply to any mode of transport (EXW, FCA, CPT, CIP, DAP, DPU, DDP) and four apply only to sea and inland waterway transport (FAS, FOB, CFR, CIF).

What is the difference between Incoterms 2010 and 2020?

The main change in Incoterms 2020 was renaming DAT (Delivered at Terminal) to DPU (Delivered at Place Unloaded) to allow delivery to any place, not just a terminal. The 2020 update also changed insurance levels under CIP and clarified security and cost allocation rules.

Which Incoterm is best for buyers?

There is no universally best term; it depends on control and risk appetite. Buyers who want maximum control over logistics often prefer FCA or FOB, while buyers who want the seller to handle everything to their door prefer DAP or DDP. The trade-off is control versus convenience and risk.

Do Incoterms cover transfer of ownership?

No. Incoterms govern delivery, cost allocation, risk transfer, and customs responsibilities, but they do not determine the transfer of title or ownership of goods. Ownership transfer is set by the sales contract and applicable law, not by the Incoterm.

Next step: see how AI tools extract and manage trade terms across your contracts in the source-to-pay AI category, or browse more references on the procurement blog.