Incoterms 2020 Explained: What They Cover and What They Don't

Incoterms 2020 explained simply: the 11 rules, the two families, the A/B obligations, what changed from 2010 and what the rules leave to your sales contract.

Every export quotation carries three letters that quietly decide who pays for the truck, the ship, the insurance and the customs broker, and who absorbs the loss if a container falls off a crane. Those letters are one of the Incoterms® 2020 rules, published by the International Chamber of Commerce (ICC). This edition has applied since 1 January 2020 and contains eleven rules.

This lesson gives you the map before the detailed lessons on each rule. You will learn what an Incoterm actually decides, how the eleven rules are grouped, how the seller's and buyer's obligations are laid out, what changed from the 2010 edition and, just as important, what the rules do not cover at all.

Get this foundation right and most of the expensive misunderstandings in export deals simply disappear: wrong prices, uninsured cargo, goods stuck at a border because nobody was responsible for clearing them.

What are Incoterms?

Incoterms are standard trade terms that the ICC first published in 1936 and has revised regularly since, most recently in 1990, 2000, 2010 and 2020. Each rule is a three-letter code (EXW, FOB, CIF…) that summarises a package of obligations for the seller and the buyer in a contract for the sale of goods.

They are not law. They apply only because the parties choose them in their contract, by writing for example "CIF Valencia, Incoterms® 2020". Because they are known by banks, carriers, insurers and customs administrations worldwide, a single code replaces pages of negotiation and makes the deal understood by everyone in the chain.

An Incoterm answers three questions:

1. Delivery: where and how does the seller hand over the goods?
2. Risk: at what moment does the risk of loss or damage pass to the buyer?
3. Costs and formalities: who pays for and arranges transport, insurance, export clearance, import clearance and the related charges?

The 11 Incoterms 2020 at a glance

You can compare all eleven side by side in the interactive Incoterms matrix. The summary below shows the essentials.

"None" in the insurance column means neither party owes the other an insurance contract. It does not mean the goods should travel uninsured: whoever bears the risk at a given moment has every interest in covering it.

How the 11 rules are grouped

Any mode versus sea and inland waterway

The ICC splits the rules into two classes. Seven rules (EXW, FCA, CPT, CIP, DAP, DPU, DDP) work for any transport mode, including multimodal journeys combining truck, ship and rail. Four rules (FAS, FOB, CFR, CIF) only make sense when the goods are delivered at a seaport or river port, alongside or on board a ship.

This matters more than it seems. A container is usually handed to the carrier at a terminal days before it is loaded on board. If you sell FOB, you keep the risk during that time while having lost control of the box. That is why containerised shipments should normally use FCA, CPT or CIP rather than FOB, CFR or CIF.

E, F, C and D: the four groups

A second, older way to read the codes is by first letter:

• E (EXW): the seller only makes the goods available at its own premises.
• F (FCA, FAS, FOB): the seller hands the goods to a carrier chosen and paid by the buyer.
• C (CPT, CIP, CFR, CIF): the seller pays the main carriage, but risk passes in the country of shipment. These are the "two critical points" rules: the place where risk passes and the place to which freight is paid are different.
• D (DAP, DPU, DDP): the seller bears risk and cost up to the destination.

The A/B structure: ten obligations on each side

Each rule is set out in twenty articles: A1 to A10 for the seller, B1 to B10 for the buyer, with each A article mirrored by the matching B article. In the 2020 edition the order is:

1. A1/B1 General obligations: the goods and invoice for the seller, the price for the buyer; electronic documents allowed where agreed or customary.
2. A2/B2 Delivery and taking delivery.
3. A3/B3 Transfer of risks.
4. A4/B4 Carriage.
5. A5/B5 Insurance.
6. A6/B6 Delivery or transport document.
7. A7/B7 Export and import clearance.
8. A8/B8 Checking, packaging and marking.
9. A9/B9 Allocation of costs.
10. A10/B10 Notices between the parties.

Once you know this grid, comparing two rules is quick: look at the same article in both and see what moves.

What Incoterms do not cover

This is where many disputes start. The rules are deliberately narrow. They do not deal with:

The practical consequence: an Incoterm is only one clause of a complete international sales contract. Agreeing "CIF Valencia" does not tell you when the buyer pays or what happens if the goods arrive damaged and the buyer refuses them.

What changed in Incoterms 2020?

The 2020 edition kept the same eleven-rule logic but made several practical changes:

1. FCA and the on-board bill of lading: the parties may agree that the buyer will instruct its carrier to issue an on-board bill of lading to the seller, which helps sellers paid by letter of credit.
2. Different insurance levels: CIP now requires broad cover equivalent to Institute Cargo Clauses (A), while CIF keeps the minimum Clauses (C) cover.
3. DAT became DPU: the place of unloading can now be any place, not only a terminal. DAP is now listed before DPU.
4. Own means of transport: under FCA, DAP, DPU and DDP, a party may carry the goods with its own vehicles rather than contracting with a third-party carrier.
5. Costs grouped in A9/B9: each rule now lists all the costs allocated to each party in one article.
6. Security requirements: transport-related security obligations are expressly allocated in the carriage and clearance articles.
7. Explanatory notes replace the old guidance notes, and the articles were reordered so that delivery and risk come first.

How to write an Incoterm in a contract

A correct reference has three parts: the rule, the named place and the version.

• Good: "FCA Rouiba, Zone industrielle, Lot 12, Algeria, Incoterms® 2020".
• Good: "CIP Bamako, buyer's warehouse, Incoterms® 2020".
• Vague: "FOB Algeria", "CIF Europe", "DAP".

The named place is not decoration. Under FCA it fixes where risk passes; under CPT or CIF it fixes how far the seller pays freight; under DAP or DDP it is the exact point where the seller must deliver. The more precise the place, the fewer the arguments.

Worked example: one container of tiles, five prices

A ceramic tile manufacturer near Sétif quotes a distributor in Dakar for one 20-foot container of 1,800 m² of floor tiles. The ex-works price is EUR 6.50 per m². Here is how the quotation builds up as the seller takes on more of the journey:

A DDP price would also include Senegalese import duties, VAT and the customs broker in Dakar, costs the seller can rarely calculate or recover. The figures are illustrative, but the logic is universal: each step the seller takes on adds a cost to the price and a risk to the seller's side. The detailed method is covered in export pricing.

Misconceptions to drop now

• "FOB means the price is cheaper": an F-rule price is lower only because the buyer pays the freight separately. The total landed cost may be higher or lower.
• "Incoterms decide who owns the goods": they do not; title is a matter for the contract and the law.
• "The seller must insure under every C rule": only CIP and CIF include an insurance obligation.
• "Incoterms are only for international trade": they work for domestic sales too.

The next lessons take each rule in turn, starting with EXW. When you have read them, choosing the right Incoterm brings everything together in a decision method. The full official texts are sold by the ICC.