Incoterms 2020: a guide to international terms of sale

Incoterms are international rules that allocate costs, responsibilities and risk between the buyer and seller when goods are transported. They show, among other things, who books the transport, who handles export and import formalities, and at what point the risk for the goods transfers from one party to the other.

The current version is Incoterms® 2020 and contains eleven rules. This guide explains what the rules mean in practice, which modes of transport they are suitable for, and the differences between rules such as DAP and DDP, and EXW and FCA.

This guide was updated in 2026 and is based on Incoterms® 2020, which remains the current version of the rules.

What are Incoterms?

Incoterms is short for International Commercial Terms. The rules are developed by the International Chamber of Commerce (ICC) and are used in contracts for the sale and purchase of goods. They give buyers and sellers a common language for delivery, reducing the risk of the parties assuming different responsibilities.

This is particularly important when goods cross national borders. Someone needs to book the transport, prepare documents, handle export and import clearance, and bear the risk if the goods are damaged in transit. Incoterms allocate these responsibilities, but they do not determine every term of the transaction.

It is not enough to state only an abbreviation in the contract. The chosen Incoterm should be followed by the most precise location possible and the version of the rules used. For example:

DAP, buyer’s warehouse at 1 Example Street, Oslo, Incoterms® 2020.

For DAP, the location shows how far the seller must transport the goods and where the risk transfers. Under other rules, the named location may instead be a terminal, port of departure or another handover point.

What do Incoterms regulate?

Incoterms allocate a number of practical obligations between the buyer and seller. The rules specify:

• Who books and pays for transport

• Where delivery is considered to have taken place

• When the risk of damage or loss transfers

• Who loads and unloads the goods

• Who is responsible for export and import clearance

• Who pays customs duties and certain other costs

• Who arranges transport insurance when required by the rule

• Which documents the parties must provide or help each other obtain

A key distinction is the difference between cost and risk. They do not always transfer at the same point. Under CPT and CIP, the seller pays for transport to an agreed destination, but risk normally transfers when the goods are handed to the carrier. The same principle applies to CFR and CIF for sea transport: the seller pays the freight to the port of destination, while the buyer bears the risk once the goods have been loaded on board at the port of departure.

It is therefore not enough to check who pays the freight invoice. The contract must also state where delivery takes place and when risk transfers.

What do Incoterms not regulate?

Incoterms do not replace a complete contract of sale. They do not normally determine:

• When ownership of the goods transfers

• How or when payment is made

• The price, quality or specification of the goods

• What happens in the event of breach or delay

• Which law applies

• How disputes are resolved

• What applies in cases of force majeure

• The carrier’s liability under the transport contract

These matters must be agreed elsewhere in the contract. Two parties can therefore use the same Incoterm while having different payment terms, warranties or rules on transfer of ownership.

All Incoterms 2020 rules

Incoterms 2020 contains eleven rules. Seven can be used for any mode of transport, including multimodal transport combining road, rail and sea. The other four are intended for sea and inland waterway transport.

Rules for any mode of transport

• EXW – Ex Works

• FCA – Free Carrier

• CPT – Carriage Paid To

• CIP – Carriage and Insurance Paid To

• DAP – Delivered at Place

• DPU – Delivered at Place Unloaded

• DDP – Delivered Duty Paid

Rules for sea and inland waterway transport

• FAS – Free Alongside Ship

• FOB – Free on Board

• CFR – Cost and Freight

• CIF – Cost, Insurance and Freight

The table is an overview. The precise allocation of responsibilities also depends on the named place and the other terms of the contract of sale.

EXW Incoterms – Ex Works

EXW places limited responsibility on the seller. Delivery takes place when the goods are placed at the buyer’s disposal at the named place, often the seller’s factory or warehouse. The goods do not normally need to be loaded onto the buyer’s vehicle. From that point, the buyer is responsible for transport, costs and risk. The buyer also normally handles export clearance, which can be difficult if the company is not established or represented in the seller’s country.

EXW may appear simple for the seller, but it is not always the most practical choice in international trade. If the seller needs to load the goods or is better placed to handle export formalities, FCA often reflects the actual delivery process more clearly.

FCA Incoterms – Free Carrier

Under FCA, the seller delivers the goods to the carrier or another party appointed by the buyer and handles export clearance. Risk transfers when delivery has been completed at the agreed place. The named place also determines what the seller must do.

If delivery takes place at the seller’s premises, the seller normally loads the goods onto the buyer’s means of transport. If another place is named, such as a terminal, the seller transports the goods there and delivers them ready for unloading from the seller’s vehicle. FCA can be used for any mode of transport and is often more accurate than FOB for container transport.

CPT Incoterms – Carriage Paid To

Under CPT, the seller books and pays for transport to a named destination. However, risk transfers to the buyer when the goods are handed to the first carrier. There may therefore be a considerable distance between the point where risk transfers and the destination to which the seller pays the freight.

If the goods are damaged after being handed to the carrier, the buyer bears the risk even though the seller arranged the transport. The seller handles export clearance, while the buyer handles import clearance and should assess the insurance cover needed.

CIP Incoterms – Carriage and Insurance Paid To

CIP follows the same basic principle as CPT: the seller pays for transport to the destination, while risk transfers when the goods are handed to the first carrier.

The seller must also take out transport insurance for the buyer’s benefit. Incoterms 2020 requires broader insurance cover under CIP than under CIF. The parties should still check the insured amount, exclusions and whether the cover suits the value and sensitivity of the goods.

DAP Incoterms – Delivered at Place

Under DAP, the seller arranges transport and bears the risk to a named destination. The goods must be on the arriving means of transport, available to the buyer and ready for unloading.

The buyer is responsible for unloading, import clearance, customs duties, import charges and other import formalities. The named place should be precise, as delivery to a terminal, a construction site or a particular loading bay can involve very different arrangements.

DPU Incoterms – Delivered at Place Unloaded

DPU is similar to DAP, with one important difference: the seller is also responsible for unloading at the destination. Risk transfers only after the goods have been unloaded. It is the only Incoterms 2020 rule under which unloading at destination is the seller’s responsibility.

Before agreeing on DPU, the seller should make sure that the site is accessible, suitable equipment is available and unloading can be carried out safely. The buyer remains responsible for import clearance, duties and import charges.

DDP Incoterms – Delivered Duty Paid

DDP gives the seller the most extensive responsibilities of the eleven rules. The seller arranges transport to the destination and handles export and import clearance, customs duties and applicable import charges. The buyer normally unloads the goods. Risk remains with the seller until the goods are placed at the buyer’s disposal at the named place, ready for unloading.

The arrangement is simple for the buyer but can be demanding for the seller. A foreign company may not have the legal or practical ability to act as importer, register for local taxes or pay charges in the destination country. This should be checked before DDP is included in the contract. DAP may be more workable in some transactions.

Companies with recurring import and export flows can reduce manual work by consolidating declarations, product classification, and other customs processes into a single customs management solution.

FAS Incoterms – Free Alongside Ship

FAS is used for sea and inland waterway transport. The seller delivers when the goods are placed alongside the vessel at the named port of departure, for example on the quay or on a barge. Costs and risk then transfer to the buyer. The buyer normally books the sea transport, while the seller handles export clearance.

FAS is mainly used for goods that can be delivered directly alongside the vessel, such as certain bulk commodities. FCA is often more suitable for standard container transport.

FOB Incoterms – Free on Board

Under FOB, the seller is responsible until the goods have been loaded on board the vessel selected by the buyer at the named port of departure. Risk transfers once the goods are on board. The seller handles export clearance and pays costs up to loading. The buyer books and pays for main transport and handles import formalities.

FOB should only be used for sea and inland waterway transport. For container freight, FCA may provide a more accurate risk point because the container is often handed to a terminal before it is loaded on board.

CFR Incoterms – Cost and Freight

Under CFR, the seller books and pays for sea freight to the named port of destination. Risk nevertheless transfers to the buyer when the goods have been loaded on board at the port of departure.

This clearly shows that cost and risk do not always transfer together. The seller pays for transport after risk has transferred but is not required to arrange insurance for the buyer. CFR applies only to sea and inland waterway transport.

CIF Incoterms – Cost, Insurance and Freight

CIF uses the same allocation of responsibilities as CFR. The seller pays the sea freight to the port of destination, while risk transfers once the goods have been loaded on board at the port of departure. The difference is insurance.

The seller must arrange basic transport insurance for the buyer’s benefit. The cover is normally less extensive than under CIP. For sensitive or valuable goods, the buyer may need to agree on broader cover or take out supplementary insurance. CIF is used only for sea and inland waterway transport.

DAP vs DDP: what is the difference?

Under both DAP and DDP, the seller is responsible for transport and risk to the named destination. The main difference concerns import formalities.

Under DAP, the buyer handles import clearance and pays the related charges. Under DDP, these responsibilities also lie with the seller. The responsible party must be able to meet the destination country’s requirements.

EXW vs FCA: what is the difference?

The practical difference is clearest in loading and export clearance. Under EXW, the seller places the goods at the buyer’s disposal. The buyer normally collects and loads them, handles export and arranges the rest of the transport. Under FCA, the seller clears the goods for export and hands them to the carrier appointed by the buyer. If delivery takes place at the seller’s premises, loading is normally included. FCA is therefore often more suitable for international trade.

FOB vs CIF: what is the difference?

Both FOB and CIF are intended for sea transport, and under both rules risk transfers when the goods have been loaded on board at the port of departure. Under FOB, the buyer normally books and pays for sea transport. Under CIF, the seller books and pays the freight to the port of destination and arranges basic insurance. CIF therefore helps the buyer with freight and insurance, but it does not move the risk-transfer point.

How do you choose the right Incoterm?

Choose the Incoterm according to how the transaction and transport will actually work. A rule that looks attractive in a price discussion can become costly or difficult to follow if the responsible party lacks the right transport agreement, local registration or knowledge of import requirements.

• The mode of transport or combination of modes

• Where the seller can practically hand over the goods

• Where risk should transfer

• Who can best book the main transport

• Who can handle export clearance

• Who can act as importer in the destination country

• Who will pay duties and import charges

• Whether the seller must arrange transport insurance

• Who has equipment and access for loading and unloading

• What information the carrier and customs authorities need

The cost implications should also be reflected in the price. Once the rule is chosen, include the precise named place and “Incoterms® 2020” in the contract.

Common mistakes when choosing Incoterms

The place is not stated precisely enough

An abbreviation such as DAP or FCA is not enough. Specify the warehouse, terminal, port or other handover point as precisely as possible and add Incoterms® 2020.

Cost and risk are confused

The party paying the freight does not always bear the risk throughout transport. Under CPT, CIP, CFR and CIF, risk transfers before the seller’s cost responsibility ends.

The wrong rule is used for the mode of transport

FAS, FOB, CFR and CIF are intended for sea and inland waterway transport. FCA, CPT or CIP may better match containerised or multimodal flows.

DDP is chosen without checking import requirements

DDP may require the seller to act as importer and handle local customs and tax rules. If this is not possible, the rule cannot work as intended.

Incoterms are treated as a complete contract

The rules do not cover payment terms, ownership or remedies for breach. These matters must be agreed separately.

The transport booking and sales contract do not match

The actual booking must match the delivery term so that transport, insurance, documentation and carrier instructions do not fall between the parties.

Incoterms, transport and customs management

The chosen Incoterm affects who books transport and who is responsible for export and import clearance. It does not replace the transport booking, customs declaration or documents required for the goods to cross a border. The sales contract, international transport and customs process should therefore be planned together.

Posti helps companies with transport and digital customs management for imports and exports. This can include customs declarations, goods classification, transit and customs warehousing. The buyer and seller agree on the Incoterm and other contract terms. Posti’s role is to make the practical transport and customs flows work according to the agreed arrangement.

Frequently asked questions about Incoterms

What does Incoterms mean?

Incoterms is short for International Commercial Terms. These internationally recognised rules allocate costs, obligations and risk between buyers and sellers when goods are delivered.

Which version applies in 2026?

Incoterms® 2020 remains the current version. There is no separate version called Incoterms 2026.

Which Incoterms are there?

EXW, FCA, CPT, CIP, DAP, DPU, DDP, FAS, FOB, CFR and CIF. The first seven can be used for any mode of transport. The last four are only for sea and inland waterway transport.

Who pays customs duties under DAP?

The buyer handles import clearance, duties and import charges. The seller bears transport and risk to the named destination, where the goods are left on the means of transport ready for unloading.

Who pays customs duties under DDP?

The seller handles import clearance, duties and applicable import charges and should check in advance that it can meet the destination country’s import requirements.

When does risk transfer?

It depends on the chosen rule. Under EXW, it may transfer at the seller’s premises. Under FCA, CPT and CIP, it transfers when the goods are handed over as specified by the rule. Under DAP, DPU and DDP, risk remains with the seller to the destination.

Do Incoterms determine who owns the goods?

No. Transfer of ownership must be agreed separately in the contract of sale.