According to UNCTAD, global trade is on course to exceed 35 trillion dollars for the first time in 2025, driven by growth in goods and services trade. Behind every transaction lies an agreement that determines who bears the risk, who pays for transport, and who handles customs formalities. Those agreements have a name: Incoterms 2020.
Below we cover all the key aspects of Incoterms 2020: types, what they are, the 11 current rules, their key differences, and how to choose the one that best protects your import or export operation.
What Are Incoterms 2020?
Incoterms (International Commercial Terms) are a set of 11 standardised rules published by the International Chamber of Commerce (ICC). They govern the obligations of buyer and seller in an international sale of goods across three fundamental dimensions:
- Point of delivery: where and when responsibility for the goods is transferred.
- Distribution of costs: who pays for transport, insurance and customs formalities.
- Transfer of risk: the precise moment at which risk passes from seller to buyer.
The current version was published by the ICC in September 2019 and came into force on 1 January 2020, replacing Incoterms 2010. Their use is not required by law, but they are widely recognised by the international community as the reference standard for international sale contracts.
What Changed in Incoterms 2020 Compared to Incoterms 2010?
The 2020 revision introduced three significant changes that directly affect operations:
- DAT disappears, DPU is born: the former Delivered at Terminal is expanded to cover any unloading destination, not just port terminals.
- FCA allows an on-board bill of lading: the buyer may require the seller to obtain a B/L marked “on board”, facilitating operations financed by documentary credit.
- CIP raises the mandatory insurance level: it moves from minimum cover (ICC C) to maximum cover (ICC A), whilst CIF retains the minimum level.
The 11 Types of Incoterms 2020: Full Classification
The Incoterms 2020 types are divided into two main groups according to the mode of transport to which they apply.
Group 1: Incoterms for Any Mode of Transport
These 7 Incoterms are valid for air, sea, road, rail or multimodal transport. They are the most widely used today:
| Incoterm | Full Name | Delivery / Risk Point | Who Pays the Main Freight? |
|---|---|---|---|
| EXW | Ex Works | Seller’s factory or warehouse | Buyer |
| FCA | Free Carrier | Carrier designated by the buyer | Buyer |
| CPT | Carriage Paid To | Agreed place of destination | Seller |
| CIP | Carriage and Insurance Paid To | Agreed place of destination | Seller (+ ICC A insurance) |
| DAP | Delivered at Place | Destination, without unloading | Seller |
| DPU | Delivered at Place Unloaded | Destination, with unloading | Seller |
| DDP | Delivered Duty Paid | Final destination, duties paid | Seller (maximum obligation) |
Group 2: Incoterms Exclusive to Maritime and Inland Waterway Transport
These 4 Incoterms should only be used when the entire transport operation is carried out by sea or inland waterways, and the risk transfer point is the port or vessel itself:
| Incoterm | Full Name | Risk Transfer | Mandatory Insurance |
|---|---|---|---|
| FAS | Free Alongside Ship | Alongside the vessel, port of origin | No |
| FOB | Free On Board | On board the vessel, port of origin | No |
| CFR | Cost and Freight | On board (risk) / destination port (cost) | No |
| CIF | Cost, Insurance and Freight | On board (risk) / destination port (cost) | Yes (ICC C, minimum cover) |
Common mistake: using FOB or CIF for containerised cargo. In container operations, risk is transferred before the goods are “on board”. The correct terms to use in such cases are FCA or CIP.
How to Choose the Right Incoterm for Your Operation
There is no universally superior Incoterm. The right choice depends on four key factors:
1. Logistical Capability of Each Party
If the seller has greater experience in international logistics, it makes sense for them to assume responsibility for transport (CIP, DAP, DDP). If the buyer wishes to control the shipment and costs, EXW or FCA are more appropriate.
2. Mode of Transport
For containerised cargo — the majority of current maritime operations — always use multimodal Incoterms: FCA, CPT or CIP. Reserve FOB, CFR and CIF for bulk cargo or non-containerised goods.
3. Insurance Control
If you need to guarantee maximum cover, negotiate under CIP (mandatory ICC A insurance for the seller). If you prefer to arrange your own insurance, opt for CPT or FCA.
4. Customs Handling at Destination
Group D Incoterms (DAP, DPU, DDP) place responsibility for delivery at destination with the seller. DDP is the only Incoterm under which the seller also pays import duties and taxes in the buyer’s country, which requires local expertise or the support of a specialist.
For any of these scenarios, having the right professional advice makes all the difference. Find out what a customs agent does and how they can assist you with every import or export operation.
Most Common Mistakes When Applying Incoterms 2020
- Using EXW for export operations: under EXW, the seller assumes no export customs formalities, which can create tax problems if the buyer is foreign and cannot handle export clearance in the seller’s country.
- Confusing risk with ownership: Incoterms govern the transfer of risk over the goods, not legal title to them.
- Not specifying the exact point: writing “FOB Spain” is ambiguous. The correct form is “FOB Port of Valencia Incoterms® 2020” to eliminate any doubt.
- Overlooking VAT implications: the chosen Incoterm can affect the taxable base for import VAT. It is always advisable to consult a specialist in international trade.
According to data from ICEX Spain Export and Investment, the most widely used Incoterms in European trade are EXW, FOB and DAP, accounting for over 60% of documented operations. Even so, the most commonly used Incoterm is not always the most appropriate for every business.
Frequently Asked Questions About Incoterms 2020
How many types of Incoterms 2020 are there?
There are 11 types of Incoterms 2020: EXW, FCA, CPT, CIP, DAP, DPU and DDP (applicable to any mode of transport) and FAS, FOB, CFR and CIF (exclusive to maritime or inland waterway transport).
Which Incoterm is most favourable for the seller?
EXW (Ex Works) imposes the fewest obligations on the seller: they need only make the goods available at their premises. However, this can be problematic if the seller needs to demonstrate exportation for tax or VAT purposes.
What is the difference between CIF and CIP?
Both include transport and insurance at the seller’s expense. CIF is exclusive to maritime transport and requires only minimum cover (ICC C), whilst CIP applies to any mode of transport and requires maximum cover (ICC A), a new obligation introduced by Incoterms 2020.
Are Incoterms 2020 mandatory?
They do not have the force of law, but their use is internationally supported by bodies such as the ICC and the WTO. Incorporating them into the contract of sale prevents disputes and misunderstandings by precisely defining the obligations of each party.
Can I use Incoterms for domestic operations?
Incoterms are designed for international trade, although nothing prevents their use in domestic operations if both parties expressly agree to this in their contract.
Ready to Export Your Products to the World?
Knowing the Incoterms 2020 types and choosing the right one is not a minor detail: it determines who bears the losses if something goes wrong, who handles the permits, and who pays for each leg of the shipment. A poor choice can result in unforeseen costs, customs delays or contractual disputes.
If you are planning an import or export operation, we recommend seeking advice from our team, who will analyse your specific case and identify the most beneficial Incoterm for your interests.