A Trader’s Guide to Incoterms® 2020 — Obligations, Risks & Best Practices
KMG
INCOTERMS® 2020 — Cheat Sheet
Essential summary for traders, shippers, buyers and sellers — produced by Kaliandra Multiguna Group.
Quick reference — Incoterms 2020
Incoterms define the division of costs, risks, and responsibilities between sellers and buyers for delivery of goods. Below are the commonly used terms grouped by transport mode and responsibility split.
| Term | Short description |
|---|---|
| EXW | Ex Works — Seller makes goods available at their premises. Buyer bears costs and risks for export and carriage. |
| FCA | Free Carrier — Seller delivers goods to a named carrier or place; seller clears for export. |
| FAS | Free Alongside Ship — Seller places goods alongside the vessel at named port (for sea transport). |
| FOB | Free On Board — Seller loads goods on the vessel nominated by buyer; risk passes when on board. |
| CFR | Cost and Freight — Seller pays costs to bring goods to named port of destination; risk passes when goods are on board. |
| CIF | Cost, Insurance and Freight — CFR plus seller must obtain minimum insurance for buyer's benefit. |
| CPT | Carriage Paid To — Seller pays carriage to named place, but risk transfers at handing goods to first carrier. |
| CIP | Carriage and Insurance Paid To — CPT plus seller obtains insurance for the buyer. |
| DPU | Delivered at Place Unloaded — Seller delivers and unloads at agreed place (new in 2020). |
| DAP | Delivered at Place — Seller delivers ready for unloading at agreed place; buyer handles import. |
| DDP | Delivered Duty Paid — Seller delivers and clears import, bears all costs and risks to destination. |
Seller vs Buyer — key obligations & risk transfer
Below is a simplified view of typical obligations and the moment risk transfers (illustrative — confirm with contract).
| Incoterm | Main seller obligations | Main buyer obligations | Risk transfer point |
|---|---|---|---|
| EXW | Make goods available at seller premises, minimal export support. | Arrange collection, carriage, export and import formalities. | When goods are made available at seller's premises. |
| FCA | Deliver to carrier/place, clear for export (if agreed). | Contract carriage, insurance and import formalities. | When goods handed to named carrier/place. |
| FOB | Load goods on board vessel at port of shipment; clear export. | Pay freight, arrange insurance and import formalities. | When goods pass ship's rail / are on board. |
| CFR / CIF | Arrange and pay carriage to destination port (CIF also covers minimum insurance). | Arrange import, unloading and onward carriage. | When goods on board at origin port. |
| CPT / CIP | Pay carriage to named place (CIP includes seller insurance obligation). | Arrange import, unloading and onward transport from arrival point. | When goods handed to first carrier. |
| DPU / DAP / DDP | Deliver at agreed place (DPU includes unloading). DDP includes import clearance & duties. | Receive goods; pay duties if not covered by seller. | At the named place of delivery (after unloading if DPU). |
Tips & best practice
- Know your strengths
- Assess logistics capabilities and control preferences before proposing Incoterms.
- Evaluate goods & transport
- Match Incoterms to carrier types and handling complexity (bulk, break-bulk, container, hazardous).
- Consider insurance needs
- CIF/CIP oblige seller to arrange minimum insurance; where higher cover is needed, contract explicitly.
- Check regulations
- Confirm export/import licensing, customs and local rules at origin and destination ports.
- Assess risk tolerance
- Select terms to transfer risk at point aligned with your insurance & control preferences.
- Document everything
- Include named place/port, Incoterm version (e.g. Incoterms 2020), and who arranges export/import clearances.
Sample scenarios & suggested terms
| Scenario | Recommended Incoterm | Reason |
|---|---|---|
| Seller arranges everything including import clearance | DDP | Seller handles all risks, duties and costs to agreed destination. |
| Buyer manages local import and prefers control over carriage | FOB / EXW | Buyer arranges onward carriage and import, minimizing seller's responsibilities. |
| Multi-modal transport, seller pays main carriage | CPT / CIP | Seller pays carriage to named place; risk passes earlier at handover to carrier. |
| Sea shipment, seller arranges transport & insurance | CIF | Seller pays freight and minimum insurance to destination port for buyer's benefit. |
| Delivery to buyer's warehouse, seller unloads | DPU | Seller delivers and unloads at named place — new, clearer than previous DAT. |
Key takeaways
- Always specify the Incoterms version (e.g. Incoterms 2020) and the precise named place or port.
- Choose terms that match how you want risk and cost allocated — the same term can mean different practical responsibilities depending on contract language.
- For sea-only shipments, use FAS/FOB/CFR/CIF. For multimodal, prefer FCA/CPT/CIP/DPU/DAP/DDP.
- When in doubt, clarify who arranges export/import clearance, who books transport and who insures the goods — put it in the sales contract.
