Incoterms 2020 Explained: The Complete Guide (Updated for 2026)

What are Incoterms?

Incoterms are a set of eleven three-letter trade terms, published by the International Chamber of Commerce (ICC), that define who is responsible for what when goods move between a seller and a buyer in different countries. Each rule answers three practical questions: who arranges and pays for transport, at what point the risk of loss or damage passes from seller to buyer, and who handles export and import clearance.

The name is short for "International Commercial Terms." When a sales contract says "FOB Rotterdam" or "DDP Chicago," both sides are pointing to the same published rulebook instead of arguing later about who pays the freight invoice or who eats the loss when a reefer container fails in transit.

Incoterms do not cover everything. They say nothing about the price of the goods, the payment method, or when title (legal ownership) transfers. They deal with delivery, cost, and risk. Those other terms belong elsewhere in the contract.

Is Incoterms 2020 still the current version?

Yes. Incoterms 2020 is the edition in force today. It came into effect on January 1, 2020, and remains current in 2026. The ICC revises the rules roughly once a decade (the previous editions were Incoterms 2010 and Incoterms 2000), so the next revision is expected around 2030.

You can still reference an older edition in a contract if both parties agree, which is why the year matters. A contract that simply says "CIF Hamburg" without naming an edition invites confusion. Write "CIF Hamburg (Incoterms 2020)" so there is no question which rulebook applies.

The two groups of Incoterms 2020

The ICC sorts the eleven rules into two families based on the mode of transport.

Rules for any mode of transport work whether goods travel by truck, rail, air, sea, or a combination. There are seven: EXW, FCA, CPT, CIP, DAP, DPU, and DDP. These are the right choice for containerized cargo, which is how most packaged and frozen food moves, because a container is usually handed over at an inland depot rather than at the ship's rail.

Rules for sea and inland waterway transport are written for cargo that crosses the seller to the vessel at a port. There are four: FAS, FOB, CFR, and CIF. They suit bulk and break-bulk shipments such as grain, fishmeal, or drums of oil loaded directly onto a ship.

A common and costly mistake is using a sea-only term like FOB for a container that actually changes hands at an inland yard. If the box is damaged on the road to the port, the question of who carries that risk gets messy. For containers, FCA is almost always the better fit.

Incoterms 2020 comparison chart

This table summarizes all eleven rules: the transport mode they apply to, who clears the goods for export and import, who pays the main carriage, whether the seller must arrange insurance, and the point where risk passes to the buyer.

Notice the pattern in the C-group (CPT, CIP, CFR, CIF): the seller pays the freight all the way to the destination, but risk passes to the buyer much earlier, at origin. That split catches a lot of first-time importers off guard, and it has its own section below.

EXW (Ex Works)

Under EXW, the seller's only job is to make the goods available at its own premises, packed and labeled but not loaded and not cleared for export. Everything after that point is the buyer's responsibility: loading the truck, export paperwork, freight, insurance, import duties, and final delivery. Risk passes to the buyer the moment the goods are placed at its disposal at the seller's location.

EXW puts the lightest obligation on the seller and the heaviest on the buyer. It can look attractive on a quote because the price excludes everything, but for an importer without a freight agent in the seller's country it often turns into a headache, especially when the buyer cannot legally complete export clearance abroad. Many experienced buyers ask for FCA instead.

FCA (Free Carrier)

FCA means the seller delivers the goods, cleared for export, to a carrier or place named by the buyer. If the named place is the seller's premises, the seller loads the goods onto the buyer's vehicle. If it is anywhere else, such as a forwarder's warehouse, the seller delivers them ready for unloading and the unloading is the carrier's concern. Risk passes when the goods are handed over at that named point.

FCA is the workhorse term for containerized freight, including most packaged, canned, and frozen food. Incoterms 2020 added a useful option here: the buyer can instruct its carrier to issue an on-board bill of lading to the seller after loading, which helps sellers who need that document to get paid under a letter of credit.

CPT (Carriage Paid To)

With CPT, the seller arranges and pays for carriage to a named destination. The catch is that risk passes to the buyer as soon as the goods are handed to the first carrier, not when they arrive. So the seller is paying for transport over a stretch of the journey where the buyer already carries the risk.

CPT does not require the seller to insure the goods. If the buyer wants cover for that origin-to-destination gap where it holds the risk, it needs to arrange insurance itself.

CIP (Carriage and Insurance Paid To)

CIP works like CPT, with one addition: the seller must also buy insurance for the buyer's benefit. Risk still passes when the goods reach the first carrier, but now there is a policy behind it. Incoterms 2020 raised the bar on that policy. CIP now requires all-risk cover at the level of Institute Cargo Clauses (A), insured for at least 110% of the contract value.

That upgrade matters for high-value or fragile food cargo. A pallet of specialty cheese or a consignment of frozen seafood is better protected under CIP's Clause A cover than under the lighter cover required by its sea-freight cousin, CIF.

DAP (Delivered at Place)

DAP means the seller delivers when the goods are placed at the buyer's disposal at the named destination, still loaded on the arriving vehicle and ready to be unloaded. The seller carries cost and risk all the way to that point. The buyer handles unloading and import clearance, including duties and taxes.

DAP is a clean choice when the seller is comfortable managing the full transport leg but does not want to take on the buyer's import formalities. The named place should be specific. "DAP buyer's warehouse, Newark NJ" leaves far less room for dispute than "DAP New Jersey."

DPU (Delivered at Place Unloaded)

DPU is the only Incoterm that requires the seller to unload the goods at the destination. The seller delivers when the goods have been unloaded from the arriving vehicle and placed at the buyer's disposal at the named place. As with DAP, the buyer takes care of import clearance.

This rule was renamed in the 2020 edition. It used to be DAT (Delivered at Terminal), but the ICC broadened it because delivery was never really limited to terminals, and changed the name to Delivered at Place Unloaded. Only commit to DPU if the seller actually has the means to unload safely at the destination, which is not a given for heavy or palletized food shipments.

DDP (Delivered Duty Paid)

DDP is the mirror image of EXW. The seller takes on the maximum obligation: it delivers the goods at the named destination, cleared for import, with all costs and risks paid, including import duties and taxes. The buyer essentially receives the goods ready to unload with no customs work to do.

DDP gives the buyer a predictable all-in landed price, which is why retail buyers often request it. For the seller it carries real exposure, because it has to clear customs in a foreign country and may be on the hook for import VAT it cannot easily recover. Sellers should price that risk in before agreeing to DDP.

FAS (Free Alongside Ship)

FAS applies to sea and inland waterway transport only. The seller delivers when the goods are placed alongside the vessel, for example on the quay or on a barge, at the named port of shipment, cleared for export. From that point the buyer bears all costs and risk, including loading the goods onto the ship.

FAS suits bulk commodities that are loaded as a single operation, such as grain or bagged sugar. It is rarely the right call for containerized food, which is handled at a terminal long before it reaches the ship's side.

FOB (Free on Board)

FOB means the seller delivers when the goods are loaded on board the vessel at the named port of shipment, cleared for export. Risk passes to the buyer once the goods are on board. The buyer arranges and pays for the sea freight and everything after.

FOB is one of the most widely used terms, and also one of the most widely misused. It is written for bulk and break-bulk sea cargo. For a container that the seller drops at an inland depot days before sailing, FCA describes reality far better, because FOB leaves the pre-loading leg in an awkward gray zone.

CFR (Cost and Freight)

Under CFR, the seller pays the cost and the sea freight to bring the goods to the named destination port. Risk, however, passes to the buyer when the goods are on board the vessel at origin. The seller pays for the voyage but does not carry the risk of it.

CFR does not oblige the seller to insure the cargo. A buyer importing under CFR who wants protection during the ocean leg, where it already holds the risk, has to arrange its own marine insurance.

CIF (Cost, Insurance and Freight)

CIF is CFR plus insurance. The seller pays cost, freight, and a marine insurance policy to the destination port, while risk passes to the buyer once the goods are on board at origin. CIF is a sea-freight term, so it sits in the same family as FOB and CFR.

The insurance requirement under CIF is the minimum level: Institute Cargo Clauses (C), covering a limited list of named risks, insured for at least 110% of the contract value. That is a meaningful difference from CIP. If you are shipping by sea and want broad all-risk cover from the seller, CIF will not give it to you by default; you either negotiate higher cover or arrange your own.

What changed in Incoterms 2020

If you are working from a contract template or a memory of the 2010 rules, a few updates are worth knowing.

• DAT became DPU. Delivered at Terminal was renamed Delivered at Place Unloaded to reflect that the delivery point does not have to be a terminal.
• Insurance levels split. CIP now requires all-risk Clause (A) cover, while CIF still requires only the minimum Clause (C). In the 2010 edition both sat at the lower level.
• FCA gained an on-board bill of lading option. The buyer can tell its carrier to issue an on-board bill of lading to the seller, which smooths letter-of-credit payments.
• Own transport is recognized. The rules now account for cases where the seller or buyer moves the goods with its own vehicles rather than hiring a third-party carrier.
• Security and cost allocation are clearer. The 2020 text spells out transport-related security obligations and lists each party's costs in one place within each rule.

Cost and risk are not the same point

The single idea that prevents the most disputes is this: the place where the seller stops paying and the place where the seller stops carrying risk are not always the same.

In the D-group (DAP, DPU, DDP) they line up. The seller pays and carries risk all the way to the destination. In the C-group (CPT, CIP, CFR, CIF) they do not. The seller pays freight to the destination but hands off risk much earlier, at origin. A buyer who reads "CIF my port" and assumes the seller is responsible until the goods land is reading it wrong. If a storm damages the cargo mid-ocean under CIF, that is the buyer's loss to claim, which is exactly why the seller-provided insurance policy exists.

Get this straight before signing, and you will know precisely when to file an insurance claim against whom.

Choosing an Incoterm for food shipments

Food adds wrinkles that generic trade advice skips over. Perishability, cold-chain integrity, and tight traceability requirements all change how much risk you actually want to hold and where.

For temperature-sensitive cargo, the handoff point is not just a legal formality. If you take on risk at origin under FOB or CFR, you are accepting responsibility for a frozen or chilled load during an ocean voyage you may not control. Many food importers prefer a term where a competent seller manages more of the journey, or they make sure their own marine policy covers temperature excursions and rejected lots.

The same care applies to how you count and value what crosses the border. The weight basis on your commercial documents has to be consistent, which is why the distinction between net weight and gross weight shows up on customs paperwork and freight invoices alike. And because listed foods now carry recordkeeping obligations along the chain, the Incoterm you choose interacts with your food traceability records and your wider food supply chain planning.

Tracking Incoterms costs in your ERP

Whichever rule you agree to, the costs it assigns to you have to land somewhere accurate in your books. Freight, insurance, and import duty are part of the true cost of the goods, and spreading them across the right inventory is what turns a quoted price into a real landed cost.

inecta Food ERP, built on Microsoft Dynamics 365 Business Central, handles this through item charges that allocate freight, insurance, and duty onto the receipts they belong to, so the inventory value of an imported lot reflects what it actually cost to get it to your door. Its transportation management features let you set up carriers and freight charges against shipments, which keeps the cost side of each Incoterm visible rather than buried in a separate spreadsheet.

If you import or export food and want the cost, freight, and duty tied to the lots they belong to, take a look at inecta Food ERP and our transportation management software.

Frequently asked questions

What is the difference between Incoterms 2010 and Incoterms 2020?

The main changes in 2020 were renaming DAT to DPU, raising CIP's required insurance to all-risk Clause (A) cover while leaving CIF at the minimum Clause (C), adding an on-board bill of lading option under FCA, recognizing the use of the buyer's or seller's own transport, and setting out security and cost obligations more clearly.

Which Incoterm is best for shipping food in containers?

For containerized food, a term written for any mode of transport usually fits better than a sea-only term. FCA is a common choice because risk passes cleanly when the container is handed to the carrier. Sea-only terms like FOB and CIF were designed for cargo loaded directly onto a vessel and can create gaps for containers handed over inland.

Under CIF, who is responsible if the goods are damaged at sea?

The buyer carries the risk. Under CIF, risk passes to the buyer once the goods are on board at the origin port, even though the seller paid for the freight and insurance to the destination. If the cargo is damaged during the voyage, the buyer claims against the insurance policy the seller arranged.

Do Incoterms decide when ownership of the goods transfers?

No. Incoterms cover delivery, cost allocation, and the transfer of risk. They do not govern the transfer of title or legal ownership, the price, or the payment terms. Those need to be set out separately in the sales contract.

What does DDP mean for the seller?

DDP places the most on the seller. It must deliver the goods to the named destination cleared for import, paying all costs and risks along the way, including import duties and taxes. The buyer receives the goods with no customs work to do.