Understanding Incoterms® 2020: The Latest International Trade Terms Explained

International trade involves complex processes, diverse regulations, and cross-border risks. To ensure a globally consistent understanding of responsibilities between buyers and sellers, the International Chamber of Commerce (ICC) created Incoterms®—international rules that define obligations, risks, and cost allocation in global transactions.

The latest version, Incoterms® 2020, is widely used in logistics, shipping, procurement, and supply chain operations. This article provides a clear and practical explanation of all Incoterms® 2020 rules to help companies improve quotation accuracy, contract clarity, and logistics efficiency.

What Are Incoterms®?

Incoterms® (International Commercial Terms) are standardized trade terms that specify:

• Who is responsible for transportation
• Which party bears the risk at each stage
• Who handles export/import customs clearance
• How costs such as freight, insurance, and handling are divided

They do not govern payment terms, ownership transfer, or contract breaches — only logistics responsibilities and risk transfer.

The 11 Incoterms® 2020 Rules (Latest Version)

I. Rules for Any Mode of Transport (7 Terms)

1. EXW – Ex Works

Buyer takes maximum responsibility. Seller only makes goods available at their premises. Buyer covers all transport, customs, and risks.

2. FCA – Free Carrier

Seller clears export customs and hands goods to the buyer’s carrier at a named place. Suitable for containerized cargo and LCL shipments.

3. CPT – Carriage Paid To

Seller pays freight to destination. Risk transfers once goods are handed to the first carrier.

4. CIP – Carriage and Insurance Paid To

Same as CPT, plus seller must purchase insurance (Institute Cargo Clauses A). Stronger protection than CIF.

5. DAP – Delivered At Place

Seller delivers goods ready for unloading at the buyer’s location. Buyer handles import clearance.

6. DPU – Delivered at Place Unloaded

Seller delivers goods unloaded at destination and covers all handling costs.

7. DDP – Delivered Duty Paid

Seller bears all costs and risks until goods arrive at the buyer’s site, including import duties and taxes.

II. Rules for Sea and Inland Waterway Transport (4 Terms)

8. FAS – Free Alongside Ship

Seller delivers goods alongside the vessel. Buyer handles loading, freight, and risks thereafter.

9. FOB – Free On Board

Seller loads goods onto the vessel. Risk transfers when cargo passes the ship’s rail. Recommended only for non-containerized cargo.

10. CFR – Cost and Freight

Seller pays freight, but risk transfers at port of loading.

11. CIF – Cost, Insurance and Freight

Same as CFR, with the seller buying minimum insurance (Institute Cargo Clauses C). Ideal for bulk and break-bulk cargo.

Key Changes in Incoterms® 2020

• CIP requires higher insurance coverage (Clauses A)
• DAT renamed to DPU
• FCA allows onboard bill of lading options
• More detailed cost allocation tables
• Enhanced security-related obligations

How to Choose the Right Incoterm?

Conclusion

Understanding Incoterms® 2020 helps companies avoid misunderstandings, improve quotation accuracy, manage risks, and ensure smooth global logistics operations. Whether you are an exporter, importer, freight forwarder, or supply chain professional, choosing the correct Incoterm is essential for safer and more efficient international trade.