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4.2 The 11 Incoterms® 2020 rules and how to choose

Incoterms® 2020 are 11 ICC rules that divide the tasks, costs and risk of delivery between seller and buyer. Choosing well means deciding what you take on, what your customer takes on and how much you charge for it.

Module 4: Contracts and Incoterms® · Reviewed on 20/10/2026 · Español

Goal: Choose the Incoterms® 2020 rule according to the transport mode and what you want to take on, and calculate the price you would quote under each rule.

Incoterms® (International Commercial Terms) are rules of the International Chamber of Commerce (ICC). For the delivery of goods, they set who arranges the transport, who pays each cost, who handles customs formalities and at what moment the risk passes from seller to buyer. The current version is Incoterms® 2020. They are not a law: they apply only if the parties include them in the contract. They are written with the abbreviation, the place and the version, for example “FCA Callao, Incoterms® 2020”.

Incoterms® rules govern delivery, costs, risk and certain formalities. They do not govern the price, the moment of payment, the transfer of ownership, the governing law or dispute resolution. That goes in the contract. Two key ideas: delivery is the point where the seller fulfills its obligation, and risk is who bears the loss of or damage to the goods. Once the risk passes to the buyer, if the cargo is damaged, the buyer is the one who loses, even if the seller paid the freight.

The 11 rules are divided into two families. Seven work for any mode of transport: EXW, FCA, CPT, CIP, DAP, DPU and DDP. Four are only for sea and inland waterway transport: FAS, FOB, CFR and CIF. By group: in EXW the seller delivers at its premises. In the F rules (FCA, FAS, FOB) it delivers to the carrier that the buyer arranges. In the C rules (CPT, CIP, CFR, CIF) it pays the main carriage, but the risk passes to the buyer at origin. In the D rules (DAP, DPU, DDP) it takes the goods to the destination and bears the risk up to there.

Changes in 2020. DAT was renamed DPU (delivery already unloaded at the place of destination, which can be any place and not only a terminal). CIP now requires broad-cover insurance, Institute Cargo Clauses (A), while CIF keeps the minimum cover, clauses (C). With FCA, the buyer can instruct its carrier to issue the seller a bill of lading with an “on board” notation, useful for collecting with a letter of credit. In addition, FCA, DAP, DPU and DDP allow a party to use its own transport. Insurance and transport are covered in depth in the International cargo transport and insurance course.

To choose, answer five questions. How does the cargo travel? If it goes in a container or by air, use FCA, CPT or CIP, not FOB, CFR or CIF. Who arranges transport better, you or your customer? What experience does each have? Who should bear the risk on each leg? Can you clear customs in the destination country? EXW forces the buyer to do the export clearance, which is hard for a foreigner. DDP forces the seller to clear the import and pay the taxes of the destination country. That is why FCA and CIP are usually balanced options to start with.

Key ideas

Incoterms® 2020 are 11 ICC rules; they are not law and apply only if you include them in the contract.
Seven rules work for any transport (EXW, FCA, CPT, CIP, DAP, DPU, DDP) and four only for sea and inland waterways (FAS, FOB, CFR, CIF).
Always write the abbreviation, place and version: “FCA Callao, Incoterms® 2020”.
In CPT, CIP, CFR and CIF the seller pays the transport to destination, but the risk passes to the buyer at origin.
Incoterms® rules do not set ownership, payment, governing law or dispute resolution: that goes in the contract.
For containers and air cargo use FCA, CPT or CIP; choose according to control, experience, risk and clearance capacity at destination.

Rule	Transport	Delivery and passing of risk	Export clearance	Freight and insurance
EXW	Any	At the seller's premises, goods made available and not loaded	Buyer	Buyer
FCA	Any	To the carrier designated by the buyer, at the agreed place	Seller	Buyer
CPT	Any	To the first carrier, at origin	Seller	Freight: seller. Insurance: not mandatory
CIP	Any	To the first carrier, at origin	Seller	Freight: seller. Insurance: seller, cover (A)
DAP	Any	At destination, on the vehicle, ready for unloading	Seller	Seller bears transport and risk; insurance not mandatory
DPU	Any	At destination, already unloaded	Seller	Seller bears transport and risk; insurance not mandatory
DDP	Any	At destination, ready for unloading and with import duties paid	Seller	Seller bears transport and risk; also pays import taxes
FAS	Sea and inland waterway	Alongside the vessel, at the port of shipment	Seller	Buyer
FOB	Sea and inland waterway	On board the vessel, at the port of shipment	Seller	Buyer
CFR	Sea and inland waterway	On board the vessel, at the port of shipment	Seller	Freight: seller. Insurance: not mandatory
CIF	Sea and inland waterway	On board the vessel, at the port of shipment	Seller	Freight: seller. Insurance: seller, minimum cover (C)

Worked example

Alpaca sweaters to Valencia: which Incoterms® rule to offer?

Situation (fictional company): Hilos del Colca S.A.C., from Lima, sells 500 alpaca sweaters at US$ 40 each to a customer in Valencia, Spain. Factory price (EXW): 500 × US$ 40 = US$ 20,000. The cargo travels by sea in a container shared with other cargo.
Family of rules: since the cargo goes in a container, FOB, CFR and CIF are ruled out, because they assume delivery on board the vessel. FCA, CPT, CIP and DAP are compared.
FCA Callao: US$ 20,000 + US$ 300 for transport to the terminal + US$ 250 for export clearance (customs broker and paperwork) = US$ 20,550. The seller hands the cargo to the carrier and the risk passes to the buyer.
CPT Valencia: US$ 20,550 + US$ 2,050 of international freight = US$ 22,600. The seller pays the transport to Valencia, but the risk passed to the buyer when the cargo was handed to the first carrier.
CIP Valencia: US$ 22,600 + US$ 120 of insurance = US$ 22,720. The minimum insured sum is 110% of the price: US$ 22,720 × 1.10 = US$ 24,992, with Institute Cargo Clauses (A) cover.
DAP buyer's warehouse: US$ 22,720 + US$ 800 for unloading at destination and final transport = US$ 23,520. The seller bears the risk until the cargo arrives at the warehouse ready for unloading. Import taxes in Spain are not included and are paid by the buyer.
Decision: the company is new and has no delivery partner in Spain. It offers CIP Valencia at US$ 22,720: it controls freight and insurance from origin and leaves clearance and local distribution to the buyer.
Contract clause: “CIP Valencia, container terminal, Incoterms® 2020; insurance Institute Cargo Clauses (A) for 110% of the invoice value”. If another supplier quotes EXW US$ 20,000, the fair comparison is with US$ 20,000 + US$ 2,720 of included services.

Result: The price rises from US$ 20,550 (FCA) to US$ 23,520 (DAP) because the seller takes on more tasks and risks. With CIP, the company charges US$ 22,720, which includes freight and insurance, without carrying the clearance at destination.

Real cases

The ICC launches Incoterms® 2020

10/09/2019

The International Chamber of Commerce launched Incoterms® 2020 on 10/09/2019. The version keeps eleven three-letter rules. DAT became DPU, the insurance levels of CIF and CIP were aligned, transport with the party's own means was added in FCA, DAP, DPU and DDP, and FCA includes bills of lading with an “on board” notation. Companies had to review their model contracts and quotes.

If your quote templates say “Incoterms 2010” or “DAT”, update them to Incoterms® 2020 and to DPU.

Source: ICC (CCI) – ICC releases Incoterms® 2020

The ICC reserves CIF for maritime trade

2020

The ICC's official page on Incoterms® 2020 presents eleven three-letter terms, used in commercial contracts since 1936 and updated in 2020. It states that CIF is reserved for maritime trade. Agreeing CIF or FOB for a shipment by air or for a container delivered at a terminal is a common mistake, because the delivery point “on board the vessel” does not match what happens in practice.

If the cargo goes by air or in a container, choose FCA, CPT or CIP instead of FOB, CFR or CIF.

Source: ICC (CCI) – Incoterms® 2020

Peruvian foreign trade is measured on an FOB basis

10/2021

The INEI published in October 2021 its methodology for FOB export and import in real value. According to that document, exports are valued at FOB and imports are valued at the border of the selling country, without international freight and insurance services. That is, official statistics use a basis that leaves out international transport and insurance.

Before comparing your price with an official statistic, confirm whether it is on an FOB basis or includes freight and insurance, and adjust it.

Source: INEI – Metodología: exportación e importación FOB en valor real (octubre 2021)

Common mistakes

Using FOB, CFR or CIF for container or air cargo. For those cases use FCA, CPT or CIP.
Writing just “FOB” or “CIF” with no place or version. Write “FOB Callao, Incoterms® 2020”: the place defines where the risk passes.
Believing the Incoterms® rule decides when ownership passes or when payment is made. That is agreed in the sales contract.
Offering DDP without being able to clear customs or pay taxes in the destination country. If you have no local partner, offer CIP or DAP.
Assuming CIF insurance covers everything. CIF requires only the minimum cover (C); if the buyer wants more, it must be agreed. CIP requires (A).

Practise with the calculators, the COMEX Simulator and the review questions on the main page.

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