Incoterms 2020 Meaning: All 11 Rules Explained (EXW, FCA, FOB, CIF, DAP, DDP)
Every export price needs an Incoterm. Without one, a buyer and seller can both believe the other is paying for freight, insurance or import duty. Incoterms are published by the International Chamber of Commerce (ICC) and are recognised worldwide, so a term like FOB means the same thing in Mumbai, Rotterdam and Los Angeles.
Incoterms, short for International Commercial Terms, are 11 standard trade rules from the ICC that say who pays for each part of the journey and where risk passes from seller to buyer. Seven work for any mode of transport (EXW, FCA, CPT, CIP, DAP, DPU, DDP) and four are only for sea and inland waterway (FAS, FOB, CFR, CIF). Most Indian exporters quote FOB or CIF for sea freight and FCA or CIP for containers and air.
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What Incoterms cover, and what they do not
An Incoterm settles three questions: who arranges and pays for each leg of transport, who handles export and import clearance, and the point at which risk of loss or damage passes to the buyer. It does not decide when ownership passes, how or when the buyer pays, or which law governs the contract. Those belong in your sales contract and payment terms.
The seven rules for any mode of transport
| Term | Seller's job | Risk passes |
|---|---|---|
| EXW Ex Works | Make goods ready at your premises | At your premises |
| FCA Free Carrier | Export-clear and hand over to the buyer's carrier | On handover to the carrier |
| CPT Carriage Paid To | Pay main carriage to the named destination | On handover to the first carrier |
| CIP Carriage and Insurance Paid To | CPT plus insurance on wide cover | On handover to the first carrier |
| DAP Delivered at Place | Deliver to the named place, ready to unload | At destination, before unloading |
| DPU Delivered at Place Unloaded | Deliver and unload at the named place | At destination, after unloading |
| DDP Delivered Duty Paid | Deliver and pay import duty and taxes | At destination |
The four sea and inland waterway rules
| Term | Seller's job | Risk passes |
|---|---|---|
| FAS Free Alongside Ship | Place goods alongside the vessel at the port | Alongside the ship |
| FOB Free on Board | Export-clear and load on board the vessel | On board at the port of loading |
| CFR Cost and Freight | FOB plus ocean freight to the destination port | On board at the port of loading |
| CIF Cost, Insurance and Freight | CFR plus marine insurance | On board at the port of loading |
Insurance under CIF and CIP
CIF and CIP are the only two terms that oblige the seller to buy insurance. Under Incoterms 2020, CIF requires at least the minimum cover of Institute Cargo Clauses (C), while CIP requires the wider all-risks cover of Institute Cargo Clauses (A). In both cases the cover should be at least 110% of the contract value. If your buyer wants more cover, agree it in the contract.
Which Incoterm should an Indian exporter quote?
- FOB is the most common choice for sea freight when the buyer has a freight agent. You handle everything up to loading in India.
- CIF or CFR suit buyers who want a landed-port price. You control the shipping line and can often get better freight rates through your forwarder.
- FCA is technically the better rule for container cargo, because you hand containers to the carrier at a terminal or CFS, not over the ship's rail.
- EXW looks simple but can cause problems, because the buyer must handle Indian export clearance, which a foreign buyer often cannot do. FCA is usually a safer alternative.
- DDP means you pay import duty and taxes in the buyer's country. Only quote it if you understand those costs and can register where needed.
Whatever you choose, always write the term with a named place and the version, for example "FOB Nhava Sheva, Incoterms 2020".
How Incoterms change your price
The further the term moves toward the buyer, the more costs you must build into your price: inland haulage, port charges, ocean or air freight, insurance and possibly import duty. Use our FOB and CIF pricing guide and the free export price calculator to work out each level, then state the term clearly on your proforma invoice.
Frequently asked questions
What is the difference between FOB and CIF?
Under FOB the buyer pays ocean freight and insurance from the port of loading. Under CIF the seller pays freight and minimum insurance to the destination port. In both cases risk passes to the buyer once the goods are on board in India.
Is FOB only for sea freight?
Yes. FOB, FAS, CFR and CIF are only for sea and inland waterway transport. For air freight or containers handed over at a terminal, FCA is the correct equivalent.
What replaced DAT in Incoterms 2020?
DAT was replaced by DPU (Delivered at Place Unloaded), which allows delivery and unloading at any named place, not only a terminal.
Do I have to use Incoterms 2020?
No. Older versions can still be used if both parties agree, but you must state the version. Most contracts now use Incoterms 2020.
Quote with the right Incoterm
Use the free export price calculator to work out your EXW, FOB and CIF price, then create a proforma invoice in minutes.
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