Incoterms are the eleven standardized three-letter trade terms published by the International Chamber of Commerce that define who pays which costs and who bears the risk of loss at each stage of an international shipment. They don't cover ownership, payment terms, or what happens in a dispute — only the delivery, cost, and risk split between buyer and seller.

What is the difference between FOB and CIF?

Both are sea-only terms and both transfer risk to the buyer once the goods are on board at origin. The difference is cost: under FOB the buyer pays the ocean freight and insurance, while under CIF the seller pays the freight and buys minimum marine insurance for the buyer. CIF looks more convenient but the freight cost is baked into the price.

What changed in Incoterms 2020?

The headline changes: DAT was renamed DPU (Delivered at Place Unloaded) to make clear the seller unloads at any place, not just a terminal; CIP now requires a higher level of insurance (all-risk) while CIF keeps minimum cover; and FCA added an option for an on-board bill of lading. The eleven-rule structure and the any-mode vs sea-only split stayed the same.

Which Incoterm is best?

There's no universally best term — it depends on who can control and cost the freight most efficiently and how much risk each side will hold. Buyers who want control often prefer FCA or FOB and arrange their own freight; buyers who want a door-to-door price prefer DAP or DDP. The key is to match the term to who actually manages each leg, and to price the freight either way.

Incoterms 2020 Explained

Incoterms are the eleven three-letter rules that say who pays and who bears the risk at each stage of an international shipment. Seven work for any mode of transport; four are for sea and inland waterway only. The trap most shippers hit: cost and risk don’t always transfer at the same point. Here’s every rule in plain English.

What Incoterms do — and don’t

Incoterms (from the International Chamber of Commerce) settle three things: the point of delivery, who pays which costs, and where the risk of loss or damage passes from seller to buyer. They do not cover ownership of the goods, when payment is due, or how disputes are resolved — those live in the sales contract. Pick the wrong term and you can end up paying for freight you didn’t plan to, or carrying risk on goods you thought were the seller’s problem.

Any-mode rules (road, rail, air, sea, multimodal)

Use these for any transport, including containers handed over before the port.
Rule	Risk passes to buyer	Seller pays main freight?
EXWEx Works	At the seller’s premises, goods placed at the buyer’s disposal (not even loaded).	No — buyer does everything, incl. export.
FCAFree Carrier	When goods are handed to the buyer’s carrier, export-cleared.	No — buyer pays the main carriage.
CPTCarriage Paid To	At the first carrier — even though the seller pays freight onward.	Yes, to the named destination.
CIPCarriage & Insurance Paid To	At the first carrier; seller also buys all-risk insurance for the buyer.	Yes + insurance (all-risk).
DAPDelivered at Place	At the named destination, ready for unloading.	Yes; buyer clears import + pays duty.
DPUDelivered at Place Unloaded	At the destination, once unloaded (the only term where the seller unloads).	Yes + unloading; buyer pays duty.
DDPDelivered Duty Paid	At the destination, import-cleared with duty paid — maximum seller obligation.	Yes + import clearance + duty.

Sea & inland-waterway rules only

Use these only for non-containerized sea freight where goods pass at the ship’s rail.
Rule	Risk passes to buyer	Seller pays ocean freight?
FASFree Alongside Ship	When goods are placed alongside the vessel at the origin port.	No.
FOBFree On Board	When goods are loaded on board at the origin port.	No — buyer pays freight + insurance.
CFRCost & Freight	When goods are on board at origin (though seller pays freight to destination).	Yes; no insurance obligation.
CIFCost, Insurance & Freight	When goods are on board at origin; seller also buys minimum marine insurance.	Yes + insurance (minimum cover).

The trap: cost and risk split apart

Under CPT, CIP, CFR, and CIF, the seller pays the freight to the destination — but risk already passed to the buyer at the first carrier or at the ship’s rail. So if the container is damaged mid-ocean on a CIF shipment, it’s the buyer’s loss to claim, even though the seller arranged the voyage. Assuming "the seller paid the freight, so it’s their risk" is how importers end up uninsured on goods they thought were covered.

Who pays for the journey and who owns the risk on it are two different questions. Four of the eleven rules answer them differently.

The two extremes — and picking a term

EXW is minimum seller effort (goods at the door, buyer handles everything including export); DDP is maximum (delivered, import-cleared, duty paid). Most trade sits between. Buyers who want control and their own freight rates lean to FCA or FOB; buyers who want a clean door-to-door price lean to DAP or DDP. Match the term to whoever can actually manage each leg — and price the freight either way, because under a "seller pays" term it’s just buried in the unit price.

Incoterm ≠ customs basis

One more distinction worth nailing down: the Incoterm decides who pays the freight, but the destination country decides whether that freight is dutiable. A CIF sale doesn’t automatically mean a CIF customs value — the US, for instance, duties on an FOB-type basis regardless of your Incoterm. Keep the two straight when you build a landed cost.