Incoterms 2020: Complete Guide for Importers
Introduction to Incoterms 2020
Incoterms (International Commercial Terms) are a set of 11 rules published by the International Chamber of Commerce (ICC) that clearly define the responsibilities of buyer and seller in an international trade transaction. The latest version, Incoterms 2020, came into effect on January 1, 2020.
Choosing the right Incoterm is a strategic decision that directly impacts:
- Who pays for transport and insurance
- When the risk of loss or damage transfers
- Who handles export and import customs clearance
- The declared customs value (and therefore the customs duties)
- Your total landed cost
Comparison table of all 11 Incoterms 2020
| Incoterm | Full Name | Modes | Seller pays to | Risk transfers at |
|---|---|---|---|---|
| EXW | Ex Works | All | Seller's premises | Seller's premises |
| FCA | Free Carrier | All | Named carrier | Named carrier |
| FAS | Free Alongside Ship | Sea | Alongside vessel | Alongside vessel |
| FOB | Free On Board | Sea | On board vessel | On board vessel |
| CPT | Carriage Paid To | All | Named destination | First carrier |
| CIP | Carriage & Insurance Paid | All | Destination + insurance | First carrier |
| CFR | Cost and Freight | Sea | Destination port | On board vessel |
| CIF | Cost, Insurance & Freight | Sea | Dest. port + insurance | On board vessel |
| DAP | Delivered At Place | All | Named destination | Named destination |
| DPU | Delivered at Place Unloaded | All | Destination unloaded | Unloading included |
| DDP | Delivered Duty Paid | All | Final place, duties paid | Final place |
Detail of each Incoterm
EXW — Ex Works
Minimum obligation for the seller. Goods made available at seller's premises. Buyer bears all costs and risks. Rarely recommended internationally.
FCA — Free Carrier
Seller delivers goods to the carrier nominated by the buyer. 2020 update: ability to request on-board B/L. Excellent for multimodal transport.
FOB — Free On Board
Seller delivers goods on board the vessel. The reference Incoterm for sea freight. Ideal for importers who want to control freight and insurance. Most widely used in Asia-Europe trade.
CIF — Cost, Insurance & Freight
Seller pays freight and insurance to destination port. Important: risk transfers at loading despite seller paying freight. Minimum insurance is clause C. For better coverage, negotiate CIP (clause A, all risks).
DAP, DPU, DDP — Arrival Incoterms
DAP: delivered to agreed place, without import clearance. DPU: same as DAP plus unloading. DDP: maximum obligation, cleared and duty paid. Avoid if you are a regular importer.
Simulate the Incoterm impact on your cost
Our calculator lets you compare total cost by Incoterm.
Compare Incoterms →Which Incoterm to choose? Decision matrix
| Situation | Recommended | Why |
|---|---|---|
| Experienced importer, sea freight | FOB | Full control of freight |
| First import | CIF or CIP | Seller arranges transport |
| Multimodal transport | FCA | Suitable for all modes |
| Small shipment | DAP or DDP | Maximum simplicity |
| Documentary credit (L/C) | CIF or FOB | Banks prefer these |
Impact on customs value
The Incoterm directly influences the customs value. Most countries use the CIF value. If you buy FOB, customs will add freight and insurance.
Customs value = Transaction price + Freight to EU port + Insurance
Regardless of Incoterm, customs always reconstructs the CIF value.
Common Incoterm mistakes
- Using FOB for air freight: FOB is strictly maritime. Use FCA for air.
- Confusing risk transfer and freight payment: under CIF, risk transfers at loading.
- Forgetting to specify the place: "FOB" alone is not enough. You need "FOB Shenzhen".
- DDP without verification: seller must be VAT-registered in the import country.
- Insufficient insurance under CIF: clause C does not cover theft, wetting, breakage.
Conclusion
Incoterms 2020 are an essential tool for international trade. For most importers, FOB remains the reference. FCA is the ideal alternative for multimodal.
The Incoterm choice directly impacts your landed cost. For a concrete example, see our guide to importing from China to France.
Calculate your import cost
Select your Incoterm and get the total landed cost in a few clicks.
Calculate my landed cost →Frequently asked questions
What are Incoterms?+
Incoterms (International Commercial Terms) are rules published by the International Chamber of Commerce (ICC) that define the buyer's and seller's responsibilities in an international trade transaction: risk transfer, cost allocation, and documentary obligations.
What is the best Incoterm for importing?+
FOB is generally the best choice for experienced importers as it allows control over forwarder selection, freight costs, and insurance. CIF is more suitable for beginners as the seller arranges transport.
What is the difference between FOB and CIF?+
Under FOB, the seller delivers goods on board the vessel at the port of shipment. Under CIF, the seller also pays freight and insurance to the destination port. Risk transfers at the same point in both cases.
Are Incoterms 2020 mandatory?+
No, Incoterms are not law. Their use is voluntary but strongly recommended as they are universally recognized. You must mention 'Incoterms 2020' in the contract.
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