Incoterms 2020 are the 11 trade rules published by the International Chamber of Commerce (ICC). Each rule says where the seller delivers the goods, where the risk of loss passes to the buyer, which costs each side pays, and who handles export and import clearance. They do not transfer ownership, set payment terms or fix the customs value. Customs value comes from the importing country’s law: the United States values goods on the price paid for export without international freight and insurance (19 U.S.C. 1401a), while India and the EU add freight and insurance up to the border. The Incoterm changes what is inside the invoice price, and customs law then adds or removes items from that price.
What an Incoterm decides, and what it leaves to the contract
An Incoterm answers four questions for one sale:
- Where and when the seller delivers.
- At what point the risk of loss or damage moves to the buyer (in every rule, risk passes on delivery).
- Which costs the seller pays up to that point and which the buyer pays after it.
- Who arranges export clearance and who arranges import clearance.
Everything else belongs to the sales contract or to national law. The U.S. International Trade Administration’s guide to Incoterms lists what the rules do not cover, including when title passes, the method and timing of payment, the contract price, liability for failed or late delivery, and dispute resolution. A contract that says “FOB Mundra” and nothing about title or payment leaves those points to the governing law of the contract.
The rule also does not make anyone the importer of record. Under DDP the seller agrees to clear the goods for import, but whether that seller is allowed to act as importer or declarant is a question for the destination country’s customs law (more on this below).
The 11 rules at a glance
The rules fall into two groups. Seven can be used for any mode of transport, including multimodal container moves. Four (FAS, FOB, CFR, CIF) are for sea and inland waterway transport only.
| Rule | Group | Delivery and risk transfer | Main carriage paid by | Export clearance | Import clearance |
|---|---|---|---|---|---|
| EXW Ex Works | Any mode | Goods placed at buyer’s disposal at the named place, not loaded | Buyer | Buyer | Buyer |
| FCA Free Carrier | Any mode | Handed to the buyer’s carrier at the named place (loaded if at seller’s premises) | Buyer | Seller | Buyer |
| CPT Carriage Paid To | Any mode | Handed to the first carrier | Seller, to named destination | Seller | Buyer |
| CIP Carriage and Insurance Paid To | Any mode | Handed to the first carrier | Seller, to named destination | Seller | Buyer |
| DAP Delivered at Place | Any mode | At named destination, on the arriving vehicle, ready for unloading | Seller | Seller | Buyer |
| DPU Delivered at Place Unloaded | Any mode | At named destination, unloaded | Seller | Seller | Buyer |
| DDP Delivered Duty Paid | Any mode | At named destination, cleared for import, ready for unloading | Seller | Seller | Seller |
| FAS Free Alongside Ship | Sea/inland waterway | Alongside the vessel at the named port of shipment | Buyer | Seller | Buyer |
| FOB Free on Board | Sea/inland waterway | On board the vessel at the named port of shipment | Buyer | Seller | Buyer |
| CFR Cost and Freight | Sea/inland waterway | On board the vessel at the port of shipment | Seller, to named port of destination | Seller | Buyer |
| CIF Cost, Insurance and Freight | Sea/inland waterway | On board the vessel at the port of shipment | Seller, to named port of destination | Seller | Buyer |
In the four C rules, risk and cost part company: risk passes at shipment, but the seller pays carriage to the named destination. Only EXW puts export clearance on the buyer, and only DDP puts import clearance on the seller.
How the groups behave
EXW and FCA
EXW is the seller’s minimum obligation: the goods are made available at the named place, not even loaded, and everything after that, export formalities included, is the buyer’s. FCA moves delivery to the hand-over to the buyer’s carrier and gives export clearance back to the seller. At the seller’s premises the seller loads the buyer’s vehicle; at any other place (a forwarder’s warehouse, a container freight station) the seller delivers ready for unloading. Where the buyer controls the freight, FCA usually fits the facts better than EXW, because the seller is the one loading the goods and holding the export data.
FAS and FOB, and why the ICC points containers to FCA
FAS and FOB tie delivery to the ship: alongside it, or on board it. That works for bulk and break-bulk cargo loaded at the quay. Container cargo is different. The seller hands the box to a terminal, and it may sit there for days before loading. Under FOB the seller technically keeps the risk during that time even though it no longer controls the container. ICC Academy’s guidance is that for containerised goods “it is recommended that the parties use the FCA rule.” Parties who keep using FOB for containers should at least know about that gap.
FOB is not an air freight term. “FOB airport” appears on purchase orders, but it is not a valid Incoterms 2020 rule; FCA (named airport or forwarder’s facility) is the correct one.
CFR, CIF, CPT and CIP: seller pays, buyer carries the risk
Under every C rule the seller books and pays the main carriage, but the risk passes to the buyer at shipment. If the vessel sinks mid-ocean on a CIF sale, the loss is the buyer’s, and the buyer claims on the cargo insurance. That is why insurance under CIF and CIP is a buyer protection bought by the seller.
The 2020 edition set different minimum covers:
- CIF keeps Institute Cargo Clauses (C), the narrower named-perils cover, unless the parties agree more.
- CIP now requires Institute Cargo Clauses (A), the broader all-risks cover, unless the parties agree less.
In both rules the minimum insured amount is the contract price plus 10 percent. If you buy manufactured goods on CIF terms, the default (C) cover will not pay for many ordinary losses such as theft or rough handling, so either specify (A) cover in the contract or insure the cargo yourself.
DAP, DPU and DDP
The D rules put the seller’s delivery point at the destination. DAP and DPU differ only on unloading: under DAP the buyer unloads; under DPU the seller does, and DPU is the only rule that requires the seller to unload at destination. DPU replaced the old DAT (“Delivered at Terminal”) in 2020 because the destination can be any place, terminal or otherwise.
DDP adds import clearance, duties and import taxes to the seller’s side. It is the only rule in which the seller deals with the buyer’s customs authority, and that brings legal questions the other ten rules do not raise.
What changed in Incoterms 2020
The ICC’s summary of the 2020 edition lists six changes from Incoterms 2010. Under FCA the parties can agree that the buyer’s carrier will issue an on-board bill of lading to the seller, which the seller can then present under a letter of credit. All costs for each rule are now listed together in A9/B9. CIP insurance rose to Institute Cargo Clauses (A) while CIF stayed at (C). The rules now allow for carriage by a party’s own transport. Security requirements are spelled out in A4 and A7. And DAT became DPU.
Contracts can still use Incoterms 2010 if both parties agree and say so, but a contract that writes “FOB” without a version or a named port invites a dispute. Write the rule, the named place and the edition: “FCA Supplier’s warehouse, Plot 12, MIDC Bhosari, Pune, Incoterms 2020”.
Does the Incoterm change customs value?
Indirectly. The Incoterm decides which costs are inside the invoice price. Customs law then starts from that price and applies its own list of additions and exclusions. The valuation basis itself does not move when the Incoterm changes: it is set by statute.
United States
US customs value is normally the transaction value: “the price actually paid or payable for the merchandise when sold for exportation to the United States,” plus five statutory additions (packing, selling commissions, assists, certain royalties and licence fees, and resale proceeds that go to the seller) under 19 U.S.C. 1401a(b)(1). Section 1401a(b)(4)(A) defines “price actually paid or payable” as the total payment for the goods, exclusive of costs “incurred for transportation, insurance, and related services incident to the international shipment of the merchandise from the country of exportation to the place of importation in the United States.” Post-importation transport and US duties and taxes are also excluded if identified separately (section 1401a(b)(3)).
So international freight and insurance are outside US value whatever the Incoterm. The differences between Incoterms come from two places:
Foreign inland freight. Under 19 CFR 152.103(a)(5), if the price is ex-factory, the cost of moving goods to the port is not added. If the price includes foreign inland freight (as an FOB or FCA-port price does), that charge stays in the transaction value unless it is identified separately, is incurred after the goods have been sold for export and placed with a carrier for through shipment to the US, and that through shipment is shown by a through bill of lading (other evidence is accepted only where a through bill of lading would clearly be impossible, such as goods moved on the seller’s own vehicles). The same goods can therefore carry a slightly lower US value on EXW terms than on FOB terms.
Proof of the deducted amounts. On a CIF, CIP or DDP price, the importer removes freight and insurance from the invoice total. CBP treats the deductible amount as the actual cost paid to the carrier, forwarder or insurer, not an estimate. In ruling HQ H131675 (19 May 2011) CBP said that freight and insurance not itemised on the invoice can still be deducted where the importer provides sufficient proof of the charges at the time of entry, such as a freight or insurance bill, a through bill of lading or proof of payment. Keep those documents with the entry file.
India and the EU
Both start from transaction value but build to a delivered-at-border figure.
In India, rule 10(2) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, as substituted by Notification 91/2017-Customs (N.T.) of 26 September 2017, adds the cost of transport, loading, unloading and handling charges to the place of importation, and the cost of insurance to that place. If transport cost cannot be ascertained it is taken as 20 percent of the FOB value; unascertained insurance is taken as 1.125 percent of FOB. For air shipments, even an ascertained transport cost is capped at 20 percent of FOB.
In the EU, Article 70 of the Union Customs Code (Regulation 952/2013) makes transaction value the primary basis, and Article 71(1)(e) adds the cost of transport and insurance, and loading and handling charges, up to the place where the goods enter the customs territory of the Union. Transport after entry is excluded under Article 72.
On the export side, India’s Customs Act section 14 values export goods at the price for delivery “at the time and place of exportation”, which is why Indian shipping bills carry an FOB value even when the sale is CIF or DDP. The exporter has to back out freight and insurance to arrive at it.
One shipment under four Incoterms
Take an illustrative shipment of brass door hardware from an Indian manufacturer to a buyer in New Jersey. The figures are invented to show the mechanics; they are not market rates.
- Price at the factory gate: $20,000
- Seller’s haulage to Nhava Sheva, export clearance and terminal loading: $700
- Ocean freight to Newark: $2,300
- Marine insurance: $70
| Term quoted | Invoice price | Who pays ocean freight and insurance | US customs value (before duty) | Notes |
|---|---|---|---|---|
| EXW Pune | $20,000 | Buyer, separately | $20,000 | Inland freight paid by the buyer is not added (19 CFR 152.103(a)(5)(i)) |
| FOB Nhava Sheva | $20,700 | Buyer, separately | $20,700 | Inland freight inside the price stays in value unless the through-shipment conditions are met |
| CIF Newark | $23,070 | Seller, inside the price | $20,700 | Deduct actual freight ($2,300) and insurance ($70), with evidence |
| DDP buyer’s warehouse | $23,070 plus US duty, fees and delivery | Seller, inside the price | $20,700 | Deduct international freight, insurance, US duties and post-import transport if identified separately; the seller is now the US importer |
If the same goods were imported into India or the EU, the value would sit around $23,070 in every case, because those systems add freight and insurance to the border. The Incoterm changes who pays those costs, not whether they are counted.
None of this changes the tariff classification. The HTSUS line for brass door hardware is the same under every Incoterm; only the value the rate is applied to moves. For the way rates and other barriers apply once value is set, see how tariffs and trade barriers work in practice.
EXW does not take a US seller out of export compliance
A common belief among US sellers is that quoting EXW hands all export responsibility to the foreign buyer. The Incoterm puts export clearance on the buyer as a matter of contract, but the US export rules have their own allocation.
Under the Foreign Trade Regulations, the US principal party in interest (USPPI) is “the person in the United States that receives the primary benefit, monetary or otherwise, from the transaction”, which is normally the US seller (15 CFR 30.3). When the foreign buyer controls the export through its own US agent, the transaction is a “routed export transaction.” The agent files the Electronic Export Information, but the USPPI still has to give the agent complete, accurate and timely export information and must keep documentation supporting the filing.
Licensing works the same way. Under 15 CFR 758.3, the USPPI generally keeps the responsibility to determine licensing requirements in a routed transaction. That moves to the foreign party’s US agent only if the foreign party gives a written statement that expressly assumes the responsibility. A US seller on EXW terms therefore still needs the item’s export classification (an ECCN or EAR99) and has to judge whether a licence is needed. If that step is new to you, the guide to ECCN, EAR and EAR99 explains the starting point, and when an item is EAR99 covers the most common outcome.
Indian exporters on EXW terms are in a similar position: the exporter named on the shipping bill answers for what is declared, whoever’s forwarder files it.
DDP: the seller becomes the importer
DDP looks attractive to buyers because the quoted price is the landed price. For the seller it means acting in the destination country’s customs system, paying its duties and often its import VAT or GST, and answering its audits.
Whether a foreign seller can do that depends on the destination:
- In the United States, a foreign company can act as importer of record. A nonresident corporation must have a resident agent, authorised to accept service of process, in the state where the port of entry is located (19 CFR 141.18), and formal entries need a customs bond, which means finding a surety willing to write it. The seller also takes on the importer’s responsibility for classification and value, including any later penalty exposure.
- In the EU, the declarant must as a rule be established in the customs territory of the Union. A non-EU business can still register for an EORI number with the customs authority of the member state where it first lodges a declaration (UCC Article 9(2)). Finnish Customs, for example, states that an exporter not established in the EU “cannot be the declarant” and “must use an indirect representative,” and gives DDP sales as the example. So non-EU sellers do ship DDP into the EU, but through an EU-established indirect representative, and both the representative and the seller are debtors for the customs debt (UCC Article 77(3)). The seller usually also needs a VAT registration in the country of import.
For an Indian exporter selling to a US buyer, DAP with the buyer as importer is often the cleaner arrangement: the seller still delivers to the door, and the buyer clears the goods.
Choosing a rule
Four questions usually settle it. If the seller will load the goods and can file the export data, use FCA instead of EXW. If the cargo is containerised, use FCA, CPT or CIP and keep FOB, CFR and CIF for cargo loaded straight onto the ship. If a letter of credit calls for an on-board bill of lading, write the 2020 FCA bill of lading option into the contract (how letters of credit and other trade finance instruments work explains why banks ask for it). And if the seller cannot lawfully or economically act as importer at destination, use DAP or DPU instead of DDP.
Questions people ask
Is FOB the same as “FOB shipping point” in a US domestic contract?
No. “FOB shipping point” and “FOB destination” are Uniform Commercial Code shipment terms used in US domestic sales and accounting. Incoterms FOB is an ICC rule for sea and inland waterway transport only, with delivery on board a vessel at a named port of shipment. If a contract means the ICC rule, it should say “Incoterms 2020” after the named port.
Does US customs require the Incoterm on the commercial invoice?
The regulation does not name Incoterms. 19 CFR 141.86 requires the invoice to show the time, place and parties of the sale, the purchase price, and all charges on the merchandise “itemized by name and amount, including freight, insurance, commission”. Stating the Incoterm is the simplest way to tell the broker which of those charges sit inside the price and need to come out of the value.
Incoterms questions often come up alongside classification and valuation work on the same shipment. Surajit Roy works on HS, HTS and ECCN classification questions and offers training and consulting; you can reach him through the contact page.
Sources
- International Chamber of Commerce: Incoterms 2020
- ICC Academy: Incoterms 2020, FAS or FOB?
- U.S. International Trade Administration: Know Your Incoterms
- 19 U.S.C. 1401a, Value (transaction value)
- 19 CFR 152.103, Transaction value
- CBP ruling HQ H131675 (19 May 2011), freight and insurance charges
- 15 CFR 30.3, Electronic Export Information filer requirements and routed export transactions
- 19 CFR 141.86, Contents of invoices
- 19 CFR 141.18, Entry by nonresident corporation
- 15 CFR 758.3, Responsibilities of parties to the transaction
- Regulation (EU) No 952/2013, Union Customs Code (Articles 9, 70–72, 77, 170)
- Finnish Customs: Providing the trader details
- Notification 91/2017-Customs (N.T.), substituting rule 10(2) of the Customs Valuation Rules, 2007
- Customs Act, 1962, section 14
This article explains the law and practice in general terms. It is not legal advice on a specific product or shipment; for that, check the current official sources or ask a qualified adviser.