Incoterms 2020 Explained: The 11 Rules and Risk

By ChinaManufacturers.com Editorial Desk · Updated 30 October 2026 · How this page was researched

What Incoterms are

Incoterms (International Commercial Terms) are a set of eleven three-letter trade terms published by the International Chamber of Commerce (ICC), the Paris-based business organization that drafts and revises them. The current edition is Incoterms 2020; as of October 2026 there is no Incoterms 2025 or 2026, and the next edition, Incoterms 2030, is planned for late 2029.

Each rule is a short code, such as FOB or DDP, written into a business-to-business contract for the sale of goods (the physical merchandise the seller delivers and the buyer pays for). The code tells both parties where the seller delivers, at what moment the risk of loss or damage passes to the buyer, who contracts and pays for the main carriage, who buys cargo insurance, and who clears the goods through export and import customs. ICC says the terms have been "used globally in trade contracts since 1936 (updated 2020)."

Incoterms are private rules that apply only when a contract incorporates them. For an importer buying from a Chinese factory, the practical question an Incoterm answers is narrow: where does my risk start, and who books the freight? Everything else in the deal has to be written elsewhere in the contract.

The 11 Incoterms 2020 rules

ICC sorts the eleven rules into two families, a split it introduced in Incoterms 2010 and kept in 2020 (ICC Introduction, para. 42). Seven rules work for any mode or modes of transport, including air, rail, road and containerized ocean freight. Four rules are for sea and inland waterway transport only, because their delivery point is a vessel at a port.

Rule	Full name	Transport mode	Where delivery and risk pass to the buyer	Who books main carriage
EXW	Ex Works	Any mode	Goods placed at the buyer's disposal at the agreed collection point, usually the seller's premises	Buyer
FCA	Free Carrier	Any mode	Goods loaded on the buyer's transport, or placed at the disposal of the buyer's carrier, at the named place	Buyer
CPT	Carriage Paid To	Any mode	Goods handed to the first carrier the seller contracted	Seller
CIP	Carriage and Insurance Paid To	Any mode	Goods handed to the first carrier the seller contracted; seller also insures	Seller
DAP	Delivered at Place	Any mode	Goods placed at the buyer's disposal at the named destination, ready for unloading	Seller
DPU	Delivered at Place Unloaded	Any mode	Goods unloaded at the named destination	Seller
DDP	Delivered Duty Paid	Any mode	Goods at the named destination, cleared for import, duties paid by the seller	Seller
FAS	Free Alongside Ship	Sea and inland waterway	Goods placed alongside the vessel at the named port of shipment	Buyer
FOB	Free On Board	Sea and inland waterway	Goods placed on board the vessel at the named port of shipment	Buyer
CFR	Cost and Freight	Sea and inland waterway	Goods placed on board the vessel at the port of shipment	Seller
CIF	Cost, Insurance and Freight	Sea and inland waterway	Goods placed on board the vessel at the port of shipment; seller also insures	Seller

The letters group the rules a second way. The E rule (EXW) puts almost everything on the buyer. The F rules (FCA, FAS, FOB) have the seller deliver to a carrier the buyer has arranged. The C rules (CPT, CIP, CFR, CIF) have the seller arrange and pay main carriage. The D rules (DAP, DPU, DDP) have the seller deliver at the destination. Under every rule except DDP, the buyer is responsible for import clearance.

Risk transfer and cost transfer are not the same point

Under every Incoterms 2020 rule, risk passes to the buyer at delivery. What changes from rule to rule is where delivery happens. ICC describes the two ends of the spectrum plainly: under EXW, "risk transfers before the transport cycle even starts"; under DAP, DPU and DDP, "risk transfers very late in that cycle" (ICC Introduction, paras. 21, 24).

The C rules are where importers most often misread the terms. Under CPT (Carriage Paid To) and CIP (Carriage and Insurance Paid To), the seller hands the goods to a carrier it has chosen and paid, and risk passes at that handover, in the origin country. Under CFR and CIF the same split happens at the ship's rail: risk passes once the goods are on board in China, yet the seller has paid freight to the destination port. ICC states the difference between the families directly: "In the F rules, it is the buyer who makes such arrangements… In the C rules, this obligation falls to the seller" (paras. 24–25).

A worked example shows the consequence. A buyer in Chicago purchases on CIF Los Angeles terms from a supplier in Ningbo. The container falls overboard in mid-Pacific. The seller has performed: it delivered on board in Ningbo, paid the freight and bought the insurance. The loss is the buyer's, recoverable only under the insurance policy the seller procured. ICC's text on the maritime rules says the same thing in general form: from the port of loading, "the risk of loss of or damage to those goods is on the buyer's shoulders" (para. 43).

FAS (Free Alongside Ship) is the one maritime rule whose delivery point is beside the vessel rather than on it. ICC describes the seller placing the goods alongside a vessel at the port (para. 43); risk passes there, so the loading itself falls on the buyer's side of the line.

What Incoterms do not cover

ICC lists the matters outside the rules in paragraph 7 of its Introduction. Incoterms do not decide whether a contract exists, the specifications of the goods, "the time, place, method or currency of payment of the price," remedies for breach, most consequences of delay, sanctions, "the imposition of tariffs," export or import prohibitions, force majeure, intellectual property rights, or dispute resolution.

Two omissions matter most for China purchases:

Title. ICC states that Incoterms "do NOT deal with the transfer of property/title/ownership of the goods sold." Ownership passes when the sales contract or the governing law says it does, not when risk passes.
Payment. A T/T deposit, a letter of credit or an escrow arrangement is a separate clause. ICC also warns that Incoterms are "not… exclusively, or even primarily, price indicators" (para. 51).

On duties, the rules allocate only responsibility: who carries out import clearance and who bears its cost, in articles A7/B7 and A9/B9. They say nothing about the rate. A DDP seller who agrees to pay US duties has agreed to pay whatever the tariff schedule and any Section 301 or other measures impose on the date of entry; the Incoterm does not cap that exposure.

What changed from Incoterms 2010 to Incoterms 2020

Incoterms 2010 remains usable when a contract names it, which is why the edition year belongs in every clause. The 2020 revision made five changes ICC highlights on its rules page:

DAT became DPU. Delivered at Terminal was replaced by Delivered at Place Unloaded, under which the seller unloads at any named destination, not only a terminal.
CIP requires more insurance. CIP now calls for a higher level of cover, while CIF keeps Institute Cargo Clauses (C), the minimum standard, as its default.
FCA gained an on-board bill of lading option. The parties can agree that the buyer's carrier issues an on-board bill of lading to the seller after loading, which matters when a letter of credit demands one.
Own transport is recognized. The rules acknowledge that a buyer or seller may move goods with its own vehicles rather than a third-party carrier.
Security duties are clearer. Security-related obligations are set out in articles A4 and A7.

ICC also consolidated each rule's list of costs into a single pair of articles, A9/B9, so that a reader can see in one place what each party pays.

The next edition is in progress. ICC Netherlands reported on 31 August 2026 that ICC has begun revising Incoterms 2020 and that the "final launch of Incoterms® 2030" is "currently planned for late 2029"; ICC Austria gives the same timing and states that Incoterms 2020 remain applicable until then. No ICC headquarters announcement of the drafting group was found. Vendor pages that refer to "Incoterms 2026" are describing the 2020 rules.

How an Incoterm is written into a China purchase contract

A complete clause has three parts: the rule, a precise named place or port, and the edition. For example: FCA Shenzhen Yantian CY, Incoterms® 2020. "CY" means the container yard where the carrier receives the box.

Each rule then allocates ten paired obligations, A1–A10 for the seller and B1–B10 for the buyer. They cover general obligations, delivery, transfer of risk, carriage, insurance, delivery documents, export and import clearance (A7/B7), checking, packaging and marking, and allocation of costs (A9/B9). ICC's free Introduction explains the structure; the full rule texts are in ICC's paid publication. Readers can obtain the Introduction from ICC's download page.

For a China import, the rule chosen settles three working questions:

Who books the ocean or air carrier. Under EXW, FCA, FAS and FOB, the importer does, usually through its own freight forwarder.
Who handles the Chinese export declaration. Under FOB the seller clears goods for export; under EXW the seller has no export-clearance obligation beyond assistance, which is the problem ICC flags with that rule.
Who is the US importer of record. Under every rule except DDP, the buyer clears import customs and pays duties.

The named place needs as much care as the rule. "FOB Shenzhen" is ambiguous, because Shenzhen has several container port areas, among them Yantian, Shekou and Chiwan. "FOB China" is not a delivery point at all.

Common mistakes importers make with Incoterms

Most disputes over Incoterms trace to a handful of errors, each of which ICC's own text addresses:

Using FOB or CIF for containerized cargo. Containers are usually handed over at a container yard days before loading. ICC says a seller in that position "is well advised to sell on FCA terms rather than on FOB terms" (para. 66), because FOB ties risk to an on-board event the seller does not control.
Using a maritime rule for air or inland delivery. "FOB Shenzhen airport" or "FOB factory" misapplies a sea rule. ICC calls an FOB sale at an inland point such as an airport or warehouse one that "makes little sense" (para. 48). FCA is the any-mode equivalent.
Believing CIF or CFR keeps transit risk with the seller. Risk passes on board in China. The seller pays freight and, for CIF, minimum insurance; it does not guarantee arrival.
Choosing EXW or DDP by default. ICC advises traders to "consider alternative rules to these two": FCA instead of EXW, and DAP or DPU instead of DDP (para. 22).
Treating the Incoterm as the price or the payment term. Neither is in scope. A supplier's EXW price and another's FOB price are not comparable until inland haulage, export clearance and origin terminal charges are added to the EXW figure.
Leaving out the edition year. Without "Incoterms® 2020", a dispute can turn on which version of the rules the parties meant.

Frequently asked questions

How many Incoterms are there?

There are eleven rules in Incoterms 2020. Seven can be used for any mode of transport: EXW, FCA, CPT, CIP, DAP, DPU and DDP. Four are for sea and inland waterway transport only: FAS, FOB, CFR and CIF. The International Chamber of Commerce introduced this two-family split in Incoterms 2010 and kept it in the 2020 edition.

Is there an Incoterms 2026?

No. As of October 2026 the current edition is Incoterms 2020. ICC national committees in the Netherlands and Austria report that ICC is drafting Incoterms 2030, with launch planned for late 2029, and that the 2020 rules remain applicable until then. Pages that refer to an Incoterms 2025 or 2026 are describing the 2020 rules.

Who publishes Incoterms?

The International Chamber of Commerce (ICC), based in Paris, publishes and revises Incoterms. ICC describes them as a set of eleven three-letter trade terms for business-to-business sales contracts, used since 1936. The full rule texts are sold as an ICC publication; ICC distributes an Introduction to Incoterms 2020 free of charge.

Do Incoterms say who pays import duties?

Only who is responsible for import clearance and its cost, not how much duty is owed. Under every Incoterms 2020 rule except DDP, the buyer clears goods through import customs and pays duties. Under DDP, the seller does. ICC states that "the imposition of tariffs" is outside the scope of the rules, so the rate always comes from the importing country's law.

Are Incoterms legally binding?

Only when a contract incorporates them. Incoterms are private rules published by the ICC, not statute or treaty, and ICC says they are no substitute for a contract of sale. Once written into a contract with a named place and the edition year, such as FCA Ningbo, Incoterms® 2020, they bind the parties as contract terms.

What replaced DAT in Incoterms 2020?

DPU, Delivered at Place Unloaded, replaced DAT (Delivered at Terminal). Under DPU the seller delivers once the goods are unloaded at the named destination, which can be any place, not only a terminal. DPU is the only Incoterms 2020 rule that requires the seller to unload at destination.

Which Incoterm should I use when importing from China?

No single rule fits every shipment, but ICC's own guidance narrows the choice. It advises FCA rather than EXW, FCA rather than FOB for containerized goods handed over before loading, and DAP or DPU rather than DDP. The deciding questions are who can file the Chinese export declaration and who should control freight booking.

Incoterms 2020 explained