Incoterms 2020 Complete Guide: 11 Trade Terms Explained by E, F, C, & D Groups
Target Audience
- Import/Export Specialists
- Trade Practitioners
- Logistics & Purchasing Managers
What You Will Learn in This Article
- All 11 Incoterms 2020 trade rules explained
- Key differences in cost and risk allocation across E, F, C, and D groups
- Critical points for seller and buyer obligations and risk transfer
- How to choose the right Incoterm for international operations
- In-depth comparisons: DAP vs. DPU, CIF vs. CIP, and FOB vs. FCA
- Frequently Asked Questions (FAQ)
Background of Incoterms 2020 Revisions
Incoterms 2020, published by the International Chamber of Commerce (ICC) in September 2019 and effective as of January 1, 2020, represents the latest standard in global trade terms. The rules were updated from Incoterms 2010 to address several critical developments in modern commerce:
- Adapting to Evolving Trade Practices
Streamlined obligations to better align with increasingly complex supply chains. - Rise in Containerized and Multimodal Transport
Reflected the growing necessity of terms suitable for containers and multimodal transport rather than just traditional sea freight. - Enhanced Safety and Security Requirements
Clarified seller and buyer obligations regarding transport security checks and associated costs. - FCA and On-Board Bill of Lading Provision
Allowed buyers to instruct carriers to issue an On-Board Bill of Lading directly to the seller under FCA terms to simplify L/C transactions. - Differentiated Insurance Coverage Levels
Set clear standards requiring maximum coverage (ICC A) for CIP, while maintaining minimum coverage (ICC C) for CIF. - Replacement of DAT with DPU
Renamed DAT (Delivered at Terminal) to DPU (Delivered at Place Unloaded) to emphasize that delivery can occur at any named place of destination, provided goods are unloaded. - Reorganized Cost and Security Obligations
Centralized cost lists under Articles A9/B9 and emphasized security obligations in Articles A4/A7. - Recognition of Own Means of Transport
Explicitly allowed sellers or buyers to use their own transport vehicles under FCA, DAP, DPU, and DDP terms.
Summary of 11 Incoterms 2020 Rules (Ordered by Seller Cost & Risk)
| Rank | Code | Full Term | Mode of Transport | Point of Risk Transfer | Seller’s Cost & Risk Characteristics |
|---|---|---|---|---|---|
| 1 | EXW | Ex Works | Any mode | When goods are placed at buyer’s disposal at seller’s premises | Minimum cost and risk for seller |
| 2 | FCA | Free Carrier | Any mode | When goods are delivered to the carrier nominated by buyer | Seller handles export clearance |
| 3 | FAS | Free Alongside Ship | Sea / Inland Waterway | When goods are placed alongside the vessel at port of shipment | Seller responsible up to vessel side |
| 4 | FOB | Free On Board | Sea / Inland Waterway | When goods are loaded on board the vessel | Seller responsible until loaded on board |
| 5 | CPT | Carriage Paid To | Any mode | When goods are handed over to the first carrier | Seller pays main carriage; risk transfers early |
| 6 | CFR | Cost and Freight | Sea / Inland Waterway | When goods are loaded on board the vessel | Seller pays sea freight; risk transfers early |
| 7 | CIP | Carriage and Insurance Paid To | Any mode | When goods are handed over to the first carrier | Seller pays main carriage and comprehensive insurance |
| 8 | CIF | Cost, Insurance and Freight | Sea / Inland Waterway | When goods are loaded on board the vessel | Seller pays sea freight and basic insurance |
| 9 | DAP | Delivered at Place | Any mode | When goods are ready for unloading at named destination | Seller transports to destination; unloading excluded |
| 10 | DPU | Delivered at Place Unloaded | Any mode | When goods are unloaded at named destination | Seller transports and handles unloading |
| 11 | DDP | Delivered Duty Paid | Any mode | When goods are placed at buyer’s disposal at destination | Seller bears all costs including import duties; maximum risk |
Important Note: Under Group C terms, although the seller pays for main carriage (and insurance where applicable), risk transfers to the buyer at the origin port or upon handing over to the first carrier. Always remember that costs and risk transfer at different points in Group C.
Detailed Breakdown by Group (E, F, C, D)
Group E: Departure (Minimum Seller Responsibility)
EXW (Ex Works)
- The seller simply makes the goods available at their warehouse or factory.
- The buyer assumes all costs and risks for loading, export clearance, freight, insurance, and import clearance.
- Risk Transfer: When goods are placed at the buyer’s disposal at the seller’s facility.
- Represents the absolute minimum risk and obligation for the seller.
Group F: Main Carriage Unpaid (Buyer Arranges Primary Transport)
FCA (Free Carrier)
- The seller handles export customs clearance and delivers goods to the carrier appointed by the buyer.
- Suitable for all transport modes, particularly containerized cargo.
- Risk Transfer: Upon delivery to the buyer’s designated carrier.
FAS (Free Alongside Ship)
- The seller delivers the goods alongside the vessel nominated by the buyer at the port of shipment.
- Applicable only to sea and inland waterway transport.
- Risk Transfer: When goods are placed alongside the ship.
FOB (Free On Board)
- The seller loads the goods on board the vessel nominated by the buyer.
- Applicable only to sea and inland waterway transport.
- Risk Transfer: Once goods are safely loaded on board the vessel.
Group F Key Point: The seller does not pay for main transport, and risk shifts to the buyer upon handover to the carrier or vessel at origin.
Group C: Main Carriage Paid (Seller Pays Freight, Early Risk Transfer)
CPT (Carriage Paid To)
- The seller pays freight charges to the named destination.
- Risk transfers early when goods are handed over to the first carrier.
- Suitable for any transport mode.
CFR (Cost and Freight)
- The seller pays ocean freight to the port of destination.
- Risk transfers once goods are loaded on board the vessel at the export port.
- Applicable to sea and inland waterway transport only.
CIP (Carriage and Insurance Paid To)
- The seller pays freight and must procure high-level insurance (ICC A or equivalent).
- Risk transfers when goods are handed over to the first carrier.
- Suitable for any transport mode.
CIF (Cost, Insurance and Freight)
- The seller pays ocean freight and procures basic minimum insurance (ICC C or equivalent).
- Risk transfers when goods are loaded on board at the origin port.
- Applicable to sea and inland waterway transport only.
Group C Key Point: Sellers cover main freight and insurance costs, but do not bear transit risks after loading. In short: Seller pays for carriage, but risk shifts early.
Group D: Arrival (Maximum Seller Cost & Risk)
DAP (Delivered at Place)
- The seller arranges transportation to the destination.
- Unloading is the buyer’s responsibility.
- Import clearance and customs duties are paid by the buyer.
- Risk Transfer: When goods arrive ready for unloading at the destination.
DPU (Delivered at Place Unloaded)
- The seller transports goods to destination and handles unloading.
- Import clearance and duties remain the buyer’s responsibility.
- This is the only Incoterm where the seller is required to unload.
- Risk Transfer: Upon completion of unloading at destination.
DDP (Delivered Duty Paid)
- The seller transports goods, clears import customs, and pays all duties and taxes.
- The buyer simply receives the goods at destination.
- Represents maximum obligation, cost, and risk for the seller.
- Risk Transfer: When goods are placed at the buyer’s disposal at destination.
Group D Key Point: Sellers assume full risk until destination. Under DAP and DPU, buyers handle import formalities; under DDP, the seller manages import duties as well.
Key Differences Between Cost and Risk
| Group | Seller Cost | Seller Risk | Overview |
|---|---|---|---|
| E | Lowest | Lowest | Ex-factory; all subsequent costs and risks on buyer |
| F | Low | Transfers at loading / carrier handover | Seller does not pay main carriage |
| C | High (Freight/Insurance) | Transfers early at origin | Cost and risk split; seller pays freight but avoids transit risk |
| D | Highest | Transfers at destination | Seller carries goods to destination; DDP includes import taxes |
Quick Memory Guide
- Group E: Ex Works (Departure point)
- Group F: Main carriage arranged and paid by buyer
- Group C: Freight paid by seller, risk transfers early
- Group D: Delivered to destination by seller (DDP includes duty)
How to Select the Right Incoterm in Practice
| Business Objective | Recommended Term |
|---|---|
| Seller wants zero responsibility after factory release | EXW |
| Seller clears export, buyer manages international shipping | FCA / FOB |
| Seller covers freight costs without taking transit risk | CPT / CFR / CIP / CIF |
| Seller delivers to location, but buyer handles import customs | DAP / DPU |
| Seller provides door-to-door service including customs duties | DDP |
DAP vs. DPU: Key Differences
| Feature | DAP | DPU |
|---|---|---|
| Term Name | Delivered at Place | Delivered at Place Unloaded |
| Unloading Obligation | Buyer performs unloading | Seller performs unloading |
| Risk Transfer Point | Upon arrival, ready for unloading | After unloading is completed |
| Import Duties & Customs | Buyer’s responsibility | Buyer’s responsibility |
| Transport Mode | All modes | All modes |
DAP: Seller delivers to destination without unloading.
DPU: Seller delivers to destination and completes unloading.
CIF vs. CIP: Insurance Coverage Differences
| Feature | CIF | CIP |
|---|---|---|
| Transport Mode | Sea / Inland Waterway | All modes (Multimodal) |
| Risk Transfer Point | Loaded on vessel | Handed to first carrier |
| Insurance Level | Minimum (ICC C) | Maximum / All-Risks (ICC A) |
| Freight Cost | Paid by seller | Paid by seller |
CIF is tailored for ocean bulk cargo requiring standard minimal coverage.
CIP is designed for modern multimodal and containerized transport requiring comprehensive insurance.
FOB vs. FCA: When to Use Which
| Feature | FOB | FCA |
|---|---|---|
| Transport Mode | Sea / Inland Waterway | All modes (Air, Road, Rail, Sea) |
| Risk Transfer Point | Loaded on vessel | Handed to designated carrier |
| Best Suited Cargo | Conventional breakbulk freight | Containerized & multimodal cargo |
| Bill of Lading (B/L) | Issued after loading | On-Board B/L can be issued per buyer instruction |
For container shipments, FCA is strongly recommended over FOB to avoid gaps in responsibility.
FOB remains standard for traditional non-containerized sea freight.
Frequently Asked Questions (FAQ)
Conclusion
Incoterms 2020 provides a standardized global framework to clarify cost obligations and risk transfer between international buyers and sellers. Categorizing the 11 rules into E, F, C, and D groups simplifies decision-making for logistics specialists.
- Group E: Ex Works. Minimal seller responsibility.
- Group F: Buyer arranges main freight. Seller pays no ocean/air freight.
- Group C: Seller pays freight/insurance, but risk transfers early at origin.
- Group D: Seller delivers to destination; DDP covers import duties.
Mastering key distinctions such as DAP vs. DPU unloading duties, CIF vs. CIP insurance levels, and FOB vs. FCA container applications is vital for contract negotiations. Always consult official ICC materials and legal advice when drafting sales contracts.
Disclaimer
This article is provided for general informational purposes only and does not constitute legal or professional advice. Final trade terms should be agreed upon based on written contracts, official ICC Incoterms 2020 texts, and expert consultation.