Incoterms 2020 Complete Guide to Trade Terms: Full Explanation of All 11 Terms

Trade terms (Incoterms) are the "common language" of international trade—they define the division of responsibilities, costs, and risks between the seller and buyer in the transport of goods. In simple terms, they answer three questions: Who arranges transportation? Who buys insurance? Who is responsible if the goods are damaged?

The current version is Incoterms 2020 (effective from January 1, 2020), which includes 11 trade terms.

📌 Reference Basis: International Chamber of Commerce (ICC) official text of the Incoterms 2020 rules

1. Quick Overview of All 11 Trade Terms

Minimum Seller Obligation                                  Maximum Seller Obligation
EXW → FCA → FAS → FOB → CFR → CIF → CPT → CIP → DAP → DPU → DDP
←────────────── Risk/Cost Transfer from Seller to Buyer ──────────────→
Maximum Buyer Obligation                                  Minimum Buyer Obligation

2. Seven Terms Applicable to Any Mode of Transport

These 7 terms are applicable to any mode of transport: sea, air, rail, or road.

EXW (Ex Works) — Minimum Seller Obligation

The seller only needs to have the goods ready at the factory (or a named place). The buyer is responsible for collection from the factory and everything thereafter.

Seller: Prepare goods at factory → Complete
Buyer: Pick up goods at factory → Arrange all transport → Export customs clearance → ... → Import customs clearance at destination port → Take delivery

Note for Beginners: EXW is the most complicated for the buyer—requiring self-arrangement of domestic trucking, export customs clearance, international transport, and import customs clearance. It is particularly challenging for foreign buyers unfamiliar with the Chinese market.

FCA (Free Carrier)

The seller completes delivery by handing over the goods to the carrier nominated by the buyer. The carrier can be a freight forwarder, warehouse, or terminal.

Important Update in Incoterms 2020: Under FCA, the seller may request the shipping line to issue an on-board bill of lading, solving the prior problem where an FCA shipment could not obtain a bill of lading for letter of credit settlement.

CPT (Carriage Paid To)

The seller pays the freight to transport the goods to the named destination, but the risk transfers to the buyer upon handing over the goods to the first carrier.

CIP (Carriage and Insurance Paid To)

On top of CPT, the seller must also arrange insurance for the goods. Note: The insurance requirement for CIP is higher than for CIF (coverage of no less than 110% of the contract value).

DAP (Delivered at Place)

The seller delivers the goods to the named destination (without unloading), bearing all risks and costs of transport (except for duties and customs clearance).

DPU (Delivered at Place Unloaded)

On top of DAP, the seller is also responsible for unloading at the destination. This is the term renamed from the old DAT term in Incoterms 2020.

DDP (Delivered Duty Paid) — Maximum Seller Obligation

The seller is responsible for delivering the goods to the buyer's named place, including duties and import customs clearance. For the buyer, DDP is the most convenient term—just receive the goods.

3. Four Terms Applicable Only to Sea Freight

These 4 terms are only applicable to maritime or inland waterway transport, as the point of risk transfer relates to the "ship's side" or "ship's rail".

FOB (Free on Board) — Most Common for Exports

The seller is responsible for loading the goods onto the ship. The risk transfers to the buyer after loading.

Seller: Factory → Customs clearance → Load onto ship ✓
Buyer: After loading → Ocean freight → Insurance → Import customs clearance at destination → Take delivery

FOB is the most commonly used trade term for Chinese exports. The buyer nominates the carrier and bears the ocean freight, while the seller handles domestic costs.

FAS (Free Alongside Ship)

The seller completes delivery by placing the goods alongside the ship. Mainly used for bulk cargo (e.g., steel, ore).

CFR (Cost and Freight)

The seller pays the freight to transport the goods to the destination port, but the risk transfers to the buyer upon loading.

Note: Under CFR, the seller is not responsible for buying insurance. If the goods are damaged at sea, it is the buyer's risk (risk transferred at loading, but freight is paid by the seller—this is the confusing aspect of CFR for beginners).

CIF (Cost, Insurance and Freight)

On top of CFR, the seller must also purchase marine insurance. CIF is the second most common term after FOB.

4. Quick Memory Tips for Beginners

Memory Rhyme

EXW hand over at factory, FCA hand over to the carrier
FOB load on board, CIF covers freight and insurance
DDP covers everything, DAP delivered without unloading

7 terms for any mode (EXW/FCA/CPT/CIP/DAP/DPU/DDP)
4 terms for sea only (FAS/FOB/CFR/CIF)

5. Quick Reference Table for Common Terms

📖 Next Section: FOB vs CIF vs DDP: Comparison and Selection Guide for Common Trade Terms — Detailed comparison and selection advice for the three most commonly used terms.

📞 Have Questions About Trade Terms? Bofeng Logistics offers trade term advisory services to help you choose the most suitable transaction method. Hotline: 13075678958 | info@zhbfwl.com