Incoterms 2020: The 11 ICC Rules, Risk and Cost

Incoterms 2020 are the eleven three-letter trade terms published by the International Chamber of Commerce as ICC Publication No. 723E, in force from 1 January 2020, which allocate between seller and buyer the point at which the goods are delivered and risk passes, the costs each side bears, and the export and import clearance obligations. They take effect only when the contract of sale names the rule, the place and the edition. They are not legislation, they do not transfer ownership, and they bind nobody except the two parties to the sale.

Each rule is written as ten paired obligations, A1 to A10 for the seller and B1 to B10 for the buyer. Delivery sits at A2, transfer of risks at A3, carriage at A4, insurance at A5, the transport document at A6, export and import clearance at A7, and every cost the rule allocates at A9 and B9. Seven rules work for any mode of transport; four are written for sea and inland waterway carriage only. Choosing from the wrong group is the single most common and most expensive drafting error in international trade, and it is what leaves a seller carrying risk on a container it handed over a week earlier.

What Incoterms are, and the three things they are not

An Incoterms rule is a standardized set of contract obligations, incorporated by reference, that answers one question: where does the seller’s job end and the buyer’s begin. When a contract says FOB Shanghai Incoterms 2020, it pulls an entire ten-article obligation set into the agreement, so the parties do not have to write out who files the export declaration or who pays the load-port terminal charge. Paragraph 5 of the ICC Introduction states the scope as obligations, risk and costs, and nothing beyond.

The rules are published by the International Chamber of Commerce , a private business organization founded in 1919, not by a state or an intergovernmental body. Incoterms is an ICC trademark and the rule text is ICC copyright. The three-letter abbreviations are not ICC marks: FAS, FOB and CIF were in commercial use before the first edition appeared in 1936. Paragraph 15 of the Introduction adds that the trademark symbol need not be used when a rule is incorporated into a sale contract.

What the rules do not decide

Paragraph 7 of the ICC Introduction lists eleven matters outside scope, and the omissions are where most disputes actually arise. The rules do not decide whether a contract of sale exists, the specification of the goods, the time or place or method or currency of payment, the remedies for breach, most consequences of delay, the effect of sanctions, the imposition of tariffs, export or import prohibitions, force majeure or hardship, intellectual property rights, or the method and venue and law of dispute resolution. The Introduction closes the paragraph by stressing that the rules do not deal with the transfer of property, title or ownership.

Paragraph 8 adds the other half of the point: the rules do not supply the law applicable to the contract, and a regime such as the United Nations Convention on Contracts for the International Sale of Goods or a domestic mandatory law may govern alongside them.

Two of those exclusions bite harder than the rest. Sanctions and export prohibitions are excluded outright, so a shipment blocked by a licence refusal or a designation is governed by the contract’s illegality and force majeure clauses and by the applicable law, never by A7. On the carriage side the equivalent gap is closed by drafting, using the BIMCO sanctions clauses , and no Incoterms rule performs that function. And the imposition of a tariff mid-contract is excluded, which is why a duty change is a price-adjustment question for the sale contract rather than something the rule resolves.

Risk and title separating is the design, not a defect. A seller shipping CIF can transfer risk when the goods are on board while holding title until the buyer pays against documents. If the vessel is lost the following day the loss falls on a buyer who never owned and never received the cargo. The Incoterm governs risk and cost; the sale contract governs title and payment; the cargo policy, sized against the cargo insured value , covers the gap.

Who is actually bound

Only the seller and the buyer. Paragraph 40 of the ICC Introduction spells out the limits: a carrier is bound only to issue the transport document its own contract of carriage requires, an insurer is bound only by the policy it agreed with whoever bought it, and a bank looks only at the documentary requirements in the credit and not at the sale contract. A seller who agrees CIF cannot compel a carrier to issue a document the carriage contract does not provide for, and a buyer who agrees FCA cannot compel a bank to accept a presentation the credit does not describe.

That three-way separation is why a well-drafted trade is three reconciled contracts rather than one. The sale contract carries the Incoterm. The contract of carriage, whether a bill of lading , a sea waybill or a voyage charter party , carries the freight and the load and discharge allocation. The credit carries the documents. Each can defeat the others.

The eleven rules and the two groups

Incoterms 2020 divides eleven rules into seven that work for any mode or modes of transport and four written only for sea and inland waterway transport. The group decides whether the delivery point is a place or a vessel, and that single structural fact is what makes the sea-only rules wrong for containers.

The seven any-mode rules are EXW, FCA, CPT, CIP, DAP, DPU and DDP. Use them for road, rail, air, courier, multimodal door-to-door movements and, crucially, for containerized sea freight aboard a container ship of any of the container ship size classes . The four sea and inland waterway rules are FAS, FOB, CFR and CIF. They were written for cargo handed over at the ship: grain poured into a hold, steel slung aboard, crude pumped into tanks. The laytime and demurrage regime that governs those operations sits in the charterparty, never in the sale term.

Within each group the rules run in four families identified by their first letter. E is departure, and EXW alone occupies it. F puts the main carriage on the buyer: FCA, FAS and FOB. C puts the main carriage on the seller but leaves risk at origin: CPT, CIP, CFR and CIF. D is arrival, where the seller carries both cost and risk to the destination: DAP, DPU and DDP.

The A and B article structure

Every rule carries the same ten paired articles, which is what makes the set usable as a system rather than eleven unrelated terms. Paragraph 53 of the ICC Introduction sets out the 2020 order: A1/B1 general obligations, A2/B2 delivery and taking delivery, A3/B3 transfer of risks, A4/B4 carriage, A5/B5 insurance, A6/B6 delivery or transport document, A7/B7 export and import clearance, A8/B8 checking and packaging and marking, A9/B9 allocation of costs, A10/B10 notices.

That order is new in 2020, and the change is not cosmetic for anyone reading an old clause. Incoterms 2010 put delivery at A4, transfer of risks at A5, costs at A6 and the delivery document at A8. A legacy contract, clause library or trade-finance checklist that cross-references an article number by digit alone now points somewhere different. A clause reading insurance per A3 means Incoterms 2010 CIF; the same words read against Incoterms 2020 point at transfer of risks.

The seven any-mode rules

The any-mode group runs from EXW, where the seller does least, to DDP, where the seller does most, with the delivery point moving from the seller’s own gate to the buyer’s named destination. Reading them in order shows the obligation migrating across the table one rule at a time.

EXW (Ex Works)

EXW delivers when the goods are placed at the buyer’s disposal at the named place, not loaded on any collecting vehicle, and risk passes at that point under EXW A2 and A3. The seller does nothing else: no loading, no export clearance, no carriage, no insurance. The buyer collects, exports, carries, insures and imports.

The export clearance allocation is what makes EXW a poor international term. EXW B7 puts export formalities in the seller’s own country on the buyer, and B9(c) puts the export duties and customs costs there too. A foreign buyer frequently has no standing to file an export declaration in the seller’s jurisdiction. Paragraph 22 of the ICC Introduction and EXW Explanatory Note 6 both direct such a buyer to FCA, under which the seller clears for export because the seller is the party positioned to do it.

Loading is the second trap. Risk passes when the goods are placed, not loaded, yet in practice the seller usually loads, because it owns the forklift and its site access rules exclude the buyer’s personnel. EXW Explanatory Note 5 warns that the parties should therefore agree in advance who bears the risk of loading, since the rule has already moved it to the buyer.

FCA (Free Carrier)

FCA delivers the goods, cleared for export, to the carrier the buyer nominated, at a named place, and FCA A2 splits into two situations. If the named place is the seller’s premises, delivery occurs when the goods are loaded onto the buyer’s collecting transport. If it is anywhere else, delivery occurs when the goods, still on the seller’s arriving vehicle and ready for unloading, are placed at the disposal of the buyer’s carrier.

The seller clears for export under FCA A7 and owes no import or transit clearance obligation. Where the cargo is regulated, the A7 formalities include the shipper’s dangerous goods declaration under the IMDG Code and, at the terminal end, the document of compliance for carriage of dangerous goods the receiving ship must hold. The buyer contracts and pays the main carriage, and neither party owes the other an insurance obligation. Where the parties agree, FCA A4 lets the seller contract for carriage on usual terms at the buyer’s risk and cost, which is how a great deal of FCA business is actually run.

Which carrier counts is a live question when several are involved. Paragraph 33 of the ICC Introduction makes the point that even where the seller engages a road haulier to reach the named place, risk transfers where the goods reach the buyer’s nominated carrier, not where the seller hands them to its own subcontractor. Name the point in the contract and the question does not arise.

CPT (Carriage Paid To)

CPT is FCA with the main carriage moved to the seller, and it is the first rule where the cost point and the risk point separate. The seller contracts and pays carriage to the named destination, but delivery and risk transfer under CPT A2 and A3 when the goods are handed to the carrier the seller contracted under A4. If the goods are damaged in transit, the loss is the buyer’s, on a voyage the buyer neither arranged nor paid for.

Where the seller strings several carriers together and the parties have not agreed a delivery point, the position is genuinely unsettled. Paragraph 34 of the ICC Introduction says the relevant carrier is likely to be regarded, at any rate in some jurisdictions, as the first carrier to whom the seller hands over the goods, and opens the paragraph by acknowledging that different legal systems may reach different solutions. The fix is one sentence in the contract naming the delivery point.

CPT carries no insurance obligation. CPT A5 requires only that each party give the other the information it needs to obtain cover. A CPT buyer bearing risk from origin and holding no policy is uninsured for the whole main carriage.

CIP (Carriage and Insurance Paid To)

CIP is CPT with a seller insurance obligation bolted on, and the level of that cover is the headline change of the 2020 edition. CIP A5 requires cargo insurance complying with the cover provided by Institute Cargo Clauses (A) 1/1/09, or similar clauses appropriate to the means of transport used, which is the all-risks wording. Under Incoterms 2010 the CIP obligation sat at Clauses (C), the narrow named-perils wording, in what was then A3.

The A5 obligation carries five components, and the article is routinely satisfied on the first alone. Cover must be for at least 110 percent of the contract price, in the contract currency, from the A2 delivery point to at least the named destination, placed with insurers or an insurance company of good repute, and it must entitle the buyer, or any other person having an insurable interest, to claim directly from the insurer. War and strikes risks are not included by default: CIP A5 requires the seller to obtain them at the buyer’s cost where the buyer so requires and where they are procurable.

Risk still passes at the origin handover, exactly as under CPT. The insurance is what bridges the buyer’s exposure across a carriage it does not control. Paragraph 70 of the ICC Introduction confirms that the parties remain free to agree a different level under CIP, and says expressly that this includes a lower level, which is a point most summaries of the 2020 change omit.

DAP (Delivered at Place)

DAP is the first of the three arrival rules, and it inverts the C-rule logic: risk does not pass until the goods reach the destination. DAP A2 delivers when the goods are placed at the buyer’s disposal on the arriving means of transport, ready for unloading, at the named place of destination. The seller bears cost and risk to that point and clears for export and transit; the buyer clears for import and pays the import duty and taxes. Transit formalities are not trivial on a long overland or canal and strait routing, where several customs territories may be crossed before the goods reach the named destination.

Unloading is the buyer’s, with a carve-out that is regularly missed. DAP B9(b) puts the unloading costs on the buyer unless such costs were for the seller’s account under the contract of carriage. Where the seller booked a door-to-door service whose rate already includes discharge, it cannot recover the same operation from the buyer a second time.

DAP suits a seller willing to carry the goods to the buyer’s site but unwilling to take on a foreign customs regime. It is also the rule the ICC points to when a seller has been tempted by DDP and cannot lawfully perform import clearance in the destination.

DPU (Delivered at Place Unloaded)

DPU is the rule that was DAT, Delivered at Terminal, until the 2020 edition, and it is the only Incoterms rule requiring the seller to unload at destination. DPU A2 reads that the seller must unload the goods from the arriving means of transport and must then deliver them by placing them at the disposal of the buyer. Delivery, and therefore risk transfer, is complete only once the goods are on the ground.

The rename did two things. It removed a misleading label, because the 2010 Guidance Note for DAT already defined terminal broadly enough to include any place whether covered or not, so the word was narrowing the rule in readers’ minds without narrowing it in the text. And it moved DPU behind DAP in the listing, because DAP delivery happens before unloading and DPU one step after, so the new order tracks increasing seller obligation. Paragraphs 74 and 75 of the ICC Introduction carry both points.

The operational warning sits in the same paragraph 75: where the named place is not a terminal, the seller should make sure it is somewhere the seller is able to unload the goods. A DPU sale to a rural site with no crane, no forklift and no labour is a delivery obligation the seller cannot perform, and the risk stays with the seller until it does. Import clearance and duty remain the buyer’s, as under DAP.

DDP (Delivered Duty Paid)

DDP is the maximum seller obligation and the mirror image of EXW. The seller delivers at the named destination, ready for unloading, having cleared the goods for export, transit and import, and having paid all import duties and taxes under DDP A7 and A9(d). The buyer takes delivery and unloads under B9(b), subject to the same contract-of-carriage carve-out as DAP.

The exposure is tax rather than transport. Import duties and taxes in most destinations include import VAT or GST, and a seller with no establishment or registration there may be unable to act as importer of record, unable to reclaim the input tax it has paid, or both. The Incoterms rules do not address tax registration or importer of record and import VAT status, which are matters for the destination’s own customs and tax law, so the rule can impose a liability the seller has no mechanism to discharge or recover.

The ICC’s own advice is to avoid it in those circumstances. Paragraph 22 of the Introduction states that a seller owing obligations performable only in the buyer’s country would be better advised to sell under DAP or DPU. The full duty and tax stack a DDP seller funds is the subject of the landed cost and import duty article.

The four sea and inland waterway rules

FAS, FOB, CFR and CIF fix delivery against the vessel itself, alongside for FAS and on board for the other three, which is why they work for bulk and break-bulk and fail for containers. They run F then C on the same logic as the any-mode group: under the F rule the buyer arranges and pays the main carriage, under the C rule the seller does.

FAS (Free Alongside Ship)

FAS A2 delivers when the goods are placed alongside the vessel nominated by the buyer, on the quay or in a lighter, at the named port of shipment. Risk passes there. From that point the buyer bears loading, the ocean carriage and everything after. The seller clears for export; the buyer clears for import.

FAS suits bulk and break-bulk and heavy-lift cargo that the buyer’s terminal or vessel will load, and commodity sales concluded at the load port. It is rare in general trade and never correct for a container, which is not delivered alongside anything in the sense the rule means.

FOB (Free On Board)

FOB A2 delivers when the goods are placed on board the vessel nominated by the buyer, at the loading point the buyer indicates at the named port of shipment, and risk passes at that moment. The buyer contracts and pays the ocean carriage; the seller clears for export and bears cost and risk up to and including loading.

FOB imposes no insurance obligation on either party. FOB B5 states that the buyer has no obligation to the seller to make a contract of insurance. Since the buyer bears risk from the moment the goods are on board, a buyer that does not arrange its own cover carries the whole voyage uninsured. The frequent claim that an FOB buyer must insure is wrong as a matter of the rule, even where it is right as a matter of prudence.

CFR (Cost and Freight)

CFR is FOB with the ocean freight moved to the seller. The seller delivers on board and contracts and pays carriage to the named port of destination, but risk transfers on loading under CFR A2 and A3. The seller pays the freight to the discharge port and is off risk from the load port, which is the C-rule split in its clearest form.

Discharge costs are where CFR disputes concentrate. CFR B9(c) puts unloading costs, including lighterage and wharfage, on the buyer, unless those costs were for the seller’s account under the contract of carriage. Whether they were depends on whether the seller booked liner terms or free out, which is a question about the carriage contract and the applicable free in and out and liner terms , not about the Incoterm.

CFR carries no insurance obligation. It is the sea-only analogue of CPT, meant for bulk and break-bulk, and CPT is the correct any-mode term for a container.

CIF (Cost, Insurance and Freight)

CIF is CFR with insurance, and it is the sea-only twin of CIP with a deliberately different cover level. The seller delivers on board, pays the ocean freight to the named port of destination, and buys cargo insurance for the buyer’s benefit. Risk passes on loading, so the insurance bridges the buyer’s exposure across the voyage.

CIF A5 requires cover complying with Institute Cargo Clauses (C) 1/1/09 or similar clauses, on the same terms as CIP A5 in every other respect: at least 110 percent of the contract price, in the contract currency, from the A2 delivery point to at least the named port of destination, with an insurer of good repute, and giving the buyer a direct right of claim. Clauses (C) is a named-perils wording and does not respond to many ordinary transit losses that a manufactured-goods buyer expects to recover. Paragraph 70 of the ICC Introduction records that CIF was deliberately held at the minimum while CIP was raised.

The direct right of claim matters more than most summaries suggest. A loss on a CIF voyage is not recovered through the seller’s own claim on its policy; the buyer, as the party with the insurable interest, claims against the insurer itself. Getting the certificate or policy into the buyer’s hands is therefore part of performing the sale, not an administrative afterthought.

The ship’s rail left the rules in 2010

The ship’s rail is not in Incoterms 2020 and was not in Incoterms 2010. Incoterms 2000 FOB A5 put risk transfer at the point the goods passed the ship’s rail; the 2010 revision replaced that formulation with on board across FOB, CFR and CIF, and 2020 kept it. Any contract, checklist or article still describing FOB risk by reference to the rail is describing a rule that has not existed for over fifteen years.

The change is more than terminology. The rail was an imaginary vertical plane that produced genuinely awkward results for cargo dropped during the lift, and the courts spent decades on it. Pyrene Co Ltd v Scindia Navigation Co Ltd [1954] 2 QB 402, where a fire tender was dropped before it crossed the rail, is the case most often cited, and it is a case about the old formulation. On board is a physical state rather than a plane, and it resolves the dropped-lift question by asking simply whether the goods reached the ship.

Where risk passes under each rule

Risk passes at one identified moment under every Incoterms 2020 rule, fixed by A2 and confirmed by A3, and it never depends on payment, on title, or on who arranged the carriage. The table below states the moment for each rule and the delivery-related detail that decides it.

Three patterns fall out. Risk climbs from the seller’s gate under EXW to the buyer’s destination under the D rules. The four C rules break the climb, passing risk at origin while carrying cost to destination. And only DPU makes the physical act of unloading part of delivery.

The C-rule split: risk at origin, cost to destination

Under CPT, CIP, CFR and CIF the seller pays carriage to the named destination and yet is off risk from the origin handover. Paragraph 26 of the ICC Introduction puts it in one line: delivery and destination in the C rules are necessarily not the same place. A buyer reading seller pays freight to Rotterdam and inferring that the seller is on risk to Rotterdam has misread the rule by an entire ocean.

The commercial consequence is specific. A CIF or CFR buyer must satisfy itself about the vessel, the route and the cover even though it chose none of them, and it is the buyer, as the party on risk, that will be called to contribute in general average after a casualty on a voyage the seller booked. Where the seller is also the voyage charterer, its exposure to demurrage and laytime overrun at the discharge port arises under the charterparty, not under A9, and whether it can pass that cost to the buyer is a sale-contract question the Incoterm does not answer. The same separation runs through the whole family of forms set out in charter parties overview : the notice of readiness that starts laytime, the deadfreight claim for a short-loaded parcel, and the incorporation questions handled in charterparty bills and incorporation all belong to the carriage side of the deal.

The procure option and string sales

Every rule except EXW lets the seller perform A2 either by delivering the goods itself or by procuring goods already so delivered. FCA Explanatory Note 4 and FOB Explanatory Note 3 both give the reason in the same words: the reference to procure caters for multiple sales down a chain, known as string sales, particularly though not exclusively common in the commodity trades.

Without that wording an intermediate seller in a chain could not perform. A trader that buys a cargo already on board and sells it on the same day never touches the goods, cannot place them on board, and would be in breach of a delivery obligation expressed purely as a physical act. Procurement makes the documentary passing of an afloat cargo a performance of A2, which is what allows the contract of affreightment and the string sales and commodity trade chains behind most bulk trades to function.

Cost allocation under A9 and B9

Incoterms 2020 gathers every cost each rule allocates into a single article, A9 for the seller and B9 for the buyer, covering packing, pre-carriage, export clearance, terminal handling at both ends, the main carriage, insurance where required, unloading, and import duties and taxes. Paragraphs 67 to 69 of the ICC Introduction describe this as a one-stop list, with the individual items also left in their home articles for anyone reading a single obligation.

The consolidation is presentational. Nothing moved between the parties, and A9/B9 in 2020 are the equivalent of A6/B6 in 2010, simply longer. What it removes is the older problem of a cost appearing in the carriage article of one rule and the clearance article of another, which made comparing two rules on cost a page-turning exercise.

The unloading and discharge carve-outs

Four rules allocate unloading or discharge to the buyer subject to the same qualification, and the qualification is where the disputes are. DAP B9(b), DDP B9(b), CFR B9(c) and CIF B9(c) all put the cost on the buyer unless such costs were for the seller’s account under the contract of carriage. DPU carries no such carve-out, because unloading is inside A2 and A9(a) runs the seller’s cost through to the moment the goods are unloaded and delivered.

Read that against the booking. A seller shipping CIF on liner terms has bought a freight rate that already includes discharge into the terminal, so those discharge costs were for its account under the carriage contract and B9(c) does not shift them back. A seller shipping CIF free out has not, and the buyer pays. The Incoterm has not changed; the carriage contract has.

Terminal handling and the double-charge problem

Origin and destination terminal handling charges follow the delivery point. Under FCA at a terminal, origin handling up to the delivery point is the seller’s and everything after is the buyer’s. Under FOB, the seller carries the cost of getting the goods on board, which on a conventional berth includes the lift. Under the C rules the seller’s freight covers the main carriage and whatever the carriage contract bundles with it.

The double charge arises when the carrier’s freight already recovers a terminal charge that the terminal also bills to the receiver, or when a forwarder rebills an origin charge the seller has already paid. Terminal tariffs and their structure sit with the terminal operator, described in ports and terminals overview , while the ship-side equivalents are the port dues and disbursements the vessel’s agent settles. A9 and B9 do not police it: they allocate the cost once, on the assumption that each cost is incurred once. Reconciling a destination invoice against the term and the ocean freight cost and surcharges in the booking is the only way to catch it, and the surcharge layer, including the bunker adjustment factor , is where most of the ambiguity lives. The base rate itself moves with the container market described in ocean freight rates and the capacity discipline of the liner shipping alliances ; on the tanker side a CFR or CIF cargo is priced off Worldscale rather than a box tariff.

FCA against FOB: the container question

FOB is wrong for a container because it passes risk when the goods are on board, and a container is handed to the carrier at a terminal days before it is loaded. The seller stays on risk through gate-in, terminal dwell, stack handling and the lift, over cargo it has already surrendered and can no longer inspect, for a period whose length it does not control.

The ICC says so in the rule itself. FOB Explanatory Note 2 states that the FOB rule is not appropriate where goods are handed over to the carrier before they are on board the vessel, gives handover at a container terminal as the example, and says parties should consider using the FCA rule rather than the FOB rule. Paragraph 66 of the Introduction asks whether that advice survived the 2020 changes and answers yes.

Nothing prohibits FOB on a container, and a contract on those terms is enforceable. The rule simply does not describe what happens, and the mismatch surfaces only when a box is crushed in a stack or lost in a container stack collapse during the window when the seller is on risk and assumed it was not. Containers lost at sea after loading are a different question, falling on whichever party the rule puts on risk from the on-board moment.

The FCA A6/B6 on-board bill of lading option

Incoterms 2020 added a mechanism at FCA A6 and B6: where the parties agree, the buyer must instruct its carrier to issue an on-board bill of lading to the seller once the goods are loaded, and the seller must then provide that document to the buyer, typically through the banks. It exists because an FCA seller delivers before loading and so, on the face of it, cannot tender the on-board document a documentary credit usually demands.

Two limits keep it from being a complete fix. Paragraph 64 of the Introduction says it is by no means certain that the seller can obtain an on-board bill of lading from the carrier, and FCA Explanatory Note 6 adds that the carrier may or may not accede to the buyer’s request. The document is issued at the buyer’s cost and risk, and the seller takes on no obligation as to the terms of the carriage contract.

The second limit is a timing trap that catches sellers under credits. FCA Explanatory Note 6 warns that the dates of delivery inland and of loading on board will necessarily be different, which may well create difficulties for the seller under a letter of credit. Build the latest shipment date and the presentation period around the on-board date, because that is the date the bank will read.

CIF against CIP: cover, level and currency

Both rules oblige the seller to insure for the buyer’s benefit, and Incoterms 2020 separated the levels: CIP A5 requires Institute Cargo Clauses (A) 1/1/09, the all-risks wording, while CIF A5 holds at Clauses (C) 1/1/09, the narrowest named-perils wording. Under Incoterms 2010 both sat at Clauses (C), in what was then A3 of each rule.

The reasoning the ICC gives is the cargo. CIF is the maritime commodity rule, where a bulk parcel of ore or grain is not exposed to the handling and pilferage risks that dominate a manufactured-goods claim file. CIP is used for finished goods moving door to door across several modes, which is the profile Clauses (A) was written for.

What Clauses (A), (B) and (C) actually cover

The three wordings are published by the Lloyd’s Market Association and the International Underwriting Association and are drafted for use with the MAR 91 policy form. Institute Cargo Clauses (A) 1/1/09, reference CL382, covers all risks of loss or damage to the subject-matter insured, subject to the exclusions in clauses 4 to 7. Clauses (B) 1/1/09, CL383, and Clauses (C) 1/1/09, CL384, are named-perils wordings, with (C) the narrower of the two. The full structure and the exclusion set are covered in the cargo insurance and Institute Cargo Clauses article.

The words or similar clauses in A5 do real work and are widely misread. A market wording that provides all-risks cover on different paper satisfies CIP A5. A named-perils policy does not, however well rated the insurer, because it does not comply with the cover provided by Clauses (A). The 1/1/09 editions remain the current standard wordings; they replaced the 1/1/82 set, and nothing has superseded them.

When the buyer should insure regardless

Cargo cover under A5 is not the only policy in the picture, and confusing it with the others is common. Hull and machinery insurance covers the ship for its owner, and the carrier’s liability to cargo interests sits with its P&I club . Neither responds to the buyer for a cargo loss; only the A5 policy, or the buyer’s own, does.

Nine of the eleven rules place no insurance obligation on anybody. Under EXW, FCA, CPT, DAP, DPU, DDP, FAS, FOB and CFR, A5 and B5 require only the exchange of information needed to obtain cover. That silence is not a statement that cover is unnecessary; it means the party on risk arranges its own.

Two situations warrant the buyer buying cover even where the seller is obliged to. On CIF, Clauses (C) leaves ordinary handling and pilferage losses uncovered, so a buyer of anything other than a homogeneous bulk parcel should either contract for a higher level or buy a top-up sized against the cargo insured value . And on any C rule, the buyer bears risk from origin on a carriage it did not select, so its own policy is the only cover whose terms it controls. Temperature-controlled cargo sharpens the point, because a claim under reefer container refrigeration failure turns on set-point and data-logger evidence held by the carrier, not by either party to the sale.

DAP, DPU and DDP compared

The three delivered rules differ on exactly two questions: who unloads at the named destination, and who clears the goods for import and pays the duty. Everything else, including the seller carrying cost and risk to the destination, is common to all three.

The rule that most often gets chosen for the wrong reason is DDP, picked because a buyer asked for a delivered-duty-paid price and neither side checked whether the seller could lawfully be the importer. DAP with a separate customs-clearance service, bought by the buyer from a broker, delivers the same commercial outcome without putting a foreign seller into a tax regime it cannot operate in.

What changed from Incoterms 2010 to Incoterms 2020

Paragraph 62 of the ICC Introduction lists seven substantive changes, not the five that most summaries carry, and two of the omitted ones matter in practice. The presentational changes at paragraphs 57 and 58 add an eighth item that affects anyone reading an old article reference.

Security obligations at A4 and A7

Incoterms 2020 states the security-related requirements inside the carriage obligation at A4 and the clearance obligation at A7 of every rule, with the associated costs picked up at A9 and B9. Paragraph 76 of the ICC Introduction records where they sat before: in 2010 security entered through A2/B2 and A10/B10, which made them easy to overlook.

The allocation follows the rule’s own logic. Whichever party is responsible for a given carriage or clearance step is responsible for its security requirements and the cost of meeting them, which covers advance manifest filings, container screening and the operator programmes described in maritime security and risk . The underlying ship and port-facility regime, SOLAS Chapter XI-2 maritime security , applies regardless of the sale term.

The own-means-of-transport change

Incoterms 2010 assumed throughout that the party responsible for carriage would engage a third-party carrier. That left a gap for the very common case where a seller delivers on its own trucks or a buyer collects with its own vehicle. Incoterms 2020 closes it: A4 of DAP, DPU and DDP now requires the seller to contract or arrange carriage at its own cost, and the buyer’s own vehicle is contemplated under FCA.

The wording matters for anyone drafting around it. A rule requiring the seller to contract for carriage would be breached by a seller that simply drove the goods over, however punctually. Arrange covers the case, and it is the second of the seven changes that summaries routinely leave out.

The Explanatory Notes for Users

The Guidance Notes of the 2010 edition were commentary. The Explanatory Notes that replaced them are described at paragraph 77 of the Introduction as intended both to help users choose the right rule and to provide those deciding or advising on disputes or contracts governed by Incoterms 2020 with guidance on matters that might require interpretation.

That second function is why the Notes are cited throughout this article rather than treated as gloss. They sit at the head of each rule in Publication No. 723E, and several of the load-bearing practical statements about the rules, the FOB container warning at Explanatory Note 2 and the FCA on-board timing warning at Explanatory Note 6 among them, appear there and nowhere else.

What did not change, and is widely believed to have

The Verified Gross Mass point is the most useful of these because it is a deliberate silence rather than an oversight. Paragraphs 60 and 61 record that the drafters considered the SOLAS obligation and concluded the obligations and costs were too specific and complex to warrant explicit mention in the rules. SOLAS Chapter VI Regulation 2 puts the duty on the shipper regardless, and the verified gross mass and container weight declaration article covers the obligation itself. Allocate the cost expressly, because no rule does it for you.

Incoterms, the transport document and the letter of credit

An Incoterm allocates delivery, but a documentary credit pays against documents, so the rule chosen must be capable of producing the transport document the credit calls for. That reconciliation, done before the goods ship rather than after, is what prevents the commonest and most avoidable trade-finance failure.

The documents themselves sit outside the rules. A6 requires the seller to provide the usual transport document for the carriage contracted, and where the seller contracts carriage under a C rule that document must enable the buyer to claim the goods from the carrier and, unless otherwise agreed, to sell the goods in transit by transferring the document. Whether the carrier will actually issue such a document is a carriage question, not an Incoterms question, per paragraph 40 of the Introduction.

What UCP 600 expects

The letter of credit and UCP 600 framework is the one most trades run on. UCP 600, ICC Publication No. 600, in force from 1 July 2007, governs a credit that incorporates it. Article 20 covers a port-to-port bill of lading and requires it to name and be signed by the carrier or the master or a named agent, to indicate that the goods have been shipped on board a named vessel at the port of loading stated in the credit by pre-printed wording or a dated on-board notation, to show shipment from the stated port of loading to the stated port of discharge, and to be the sole original or the full set. A multimodal or combined transport document falls under Article 19 instead.

Article 27 requires a clean transport document, meaning one bearing no clause or notation expressly declaring a defective condition of the goods or their packaging, and adds that the word clean need not appear even where the credit calls for a clean on-board document. Article 28 governs the insurance document: it must be issued and signed by an insurance company, an underwriter or their agents, cover notes are not accepted, and under Article 28(e) the document must not be dated later than the date of shipment unless it shows cover effective from a date no later than shipment.

Article 28(f)(ii) sets the insurance amount where the credit is silent: at least 110 percent of the CIF or CIP value of the goods, and where that value cannot be determined from the documents, the greater of the amount for which honour or negotiation is requested and the gross invoice value. The figure coincides with CIP A5 and CIF A5 by design, but the two are separate obligations owed to different parties: A5 is owed by the seller to the buyer, and Article 28 is a standard a bank applies to a presentation.

Which rules can produce which document

The C rules and FOB produce an on-board bill of lading in the ordinary course, because the seller either contracts the carriage or delivers on board. FCA and CPT and CIP produce a received-for-shipment document unless the A6/B6 mechanism is invoked, because the seller’s delivery is complete before loading. EXW and the D rules leave the transport document with whichever party contracts the carriage.

A documentary credit demanding a full set of clean on-board bills of lading against an FCA sale is therefore a mismatch unless the parties have adopted A6/B6 and the carrier has agreed to play. Where documents arrive after the ship, the trade reaches for a letter of indemnity to secure delivery without production of the original bill, which is a carriage-side workaround and not something any Incoterms rule authorizes. Where the trade runs on a non-negotiable document instead, electronic bills of lading and sea waybills change the analysis again, because a sea waybill is not a document of title and cannot be used to sell the goods afloat. The carriage regimes behind those documents, the Hague-Visby Rules , the earlier Hague Rules 1924 , the Hamburg Rules 1978 and the Rotterdam Rules 2008 , govern the carrier’s liability and are untouched by the sale term.

Incoterms and the customs value

The Incoterm does not set the customs value. It determines which costs are already inside the invoice price, and the destination’s own valuation law then decides whether freight, handling and insurance belong in the dutiable base. Article 1.1 of the WTO Customs Valuation Agreement makes the transaction value the primary basis, and the six methods that follow it are the subject of customs valuation and the WTO Agreement . Article 8.2 then does something the Agreement does nowhere else: it leaves each Member to provide, in its own legislation, for the inclusion in or exclusion from customs value, in whole or in part, of the cost of transport to the place of importation, the loading and unloading and handling charges associated with that transport, and the cost of insurance.

That single article is what splits the world into CIF-basis and FOB-basis territories. Neither is a compliance failure; both are exercises of a choice the Agreement expressly confers.

Two practical consequences follow. In a CIF-basis territory, an importer buying FOB does not pay less duty: it must add the freight and insurance it arranged and arrives at substantially the same value, so the marketing claim that buying FOB reduces duty is simply wrong there. In the United States and the other FOB-basis territories the opposite trap applies: a CIF invoice that does not identify freight and insurance separately is dutiable in full, because there is nothing on the face of the document to deduct.

The EU rule has a wrinkle worth naming. Article 71(1)(e) runs the addition to the point of introduction into the customs territory, not to the importer’s door, and Article 72(a) excludes carriage after entry. A DDP or DAP price covering inland carriage past the frontier therefore requires a deduction, which is the opposite of the intuition most importers bring.

India adds an overlay with no equivalent in the WTO Agreement: where the actual costs are not ascertainable, Rule 10(2) deems transport at 20 percent of the FOB value and insurance at 1.125 percent of the FOB value. That is a strong reason to document actual freight on an Indian import rather than accept a deemed figure.

Classification is a separate question

Valuation decides how much the goods are worth for duty. Classification decides the rate applied to that value, and it is a Harmonized System question under the nomenclature maintained by the World Customs Organization , currently HS 2022, the seventh edition, in force since 1 January 2022, with HS 2028 taking effect on 1 January 2028. The Incoterm touches valuation only. It has no effect whatever on the tariff heading, and a reader who arrives expecting the term to change the duty rate has conflated the two inputs. How the two combine into a delivered figure is worked through in landed cost and import duty and its duty-and-tax build, with the volumetric basis behind a freight quote covered in CBM and chargeable weight .

Writing the Incoterm into the contract

A usable Incoterm reference carries four elements, and dropping any of them creates an ambiguity that the rule cannot resolve for you.

1. The three-letter code. CIF, FCA, DAP, and so on, from the group that matches the mode.
2. The named place, port or point, stated as precisely as the rule and the geography allow. Paragraph 14 of the ICC Introduction asks for the greatest possible geographical specificity.
3. The edition. Incoterms 2020, or an earlier edition if that is genuinely what the parties mean.
4. The words Incoterms rules, so the reference is unmistakably to the ICC set and not to a domestic term of the same name.

The ICC’s own worked examples are CIF Shanghai Incoterms 2020 and DAP No 123, ABC Street, Importland Incoterms 2020. The second shows the level of precision the D rules reward. Where the place is a port or a city, naming its UN/LOCODE alongside the plain name removes the ambiguity between two ports of the same name in different countries.

How precise the named place must be

Precision matters most where the named place is the delivery point, which is the E and F rules and the D rules. EXW Explanatory Note 3 and FCA Explanatory Note 3 both warn that where the precise point is not named, the seller may select the point that best suits its purpose. A buyer that agrees FCA Shanghai has agreed to a city and given the seller the choice of where inside it delivery occurs.

Under a C rule the named place is the destination to which the seller must contract and pay for carriage, and never the delivery point, per paragraph 12 of the Introduction. Vagueness there costs money rather than risk, because it leaves open how far the seller’s freight obligation runs. Under a D rule vagueness costs both, since DAP A4 lets the seller select the point at the named destination if none is agreed.

Variants, and what they do not say

The rules do not prohibit adding words to a term, and the trades add them constantly: FOB stowed and trimmed, CIF landed, DDP excluding VAT, EXW loaded. Section X of the ICC Introduction permits such alterations and then states the condition: if the allocation of costs is altered, the parties should also state clearly whether they intend to vary the point at which delivery is made and risk transfers.

That is the whole problem with variants in one sentence. FOB stowed and trimmed plainly moves the stowage and trimming cost to the seller. Whether it also moves the delivery point past the stow is a question different legal systems have answered differently, and the abbreviation carries no answer. The stowage factor and the load and discharge terms in the charterparty govern the physical operation, while the sale term governs the allocation between seller and buyer, and a variant that touches one without addressing the other creates exactly the gap it was meant to close. Write the cost, the delivery point and the risk point as three separate statements.

Choosing a rule

The choice follows from four questions, answered in order, because the answer to each constrains the next.

1. Is the cargo containerized or multimodal, or is it handed over at the ship? Containerized and multimodal movements take an any-mode rule. Bulk, break-bulk and heavy lift loaded at the vessel can take a sea-only rule.
2. What transport document does the payment mechanism require? A credit demanding an on-board bill of lading points toward a C rule or FOB, or toward FCA with the A6/B6 mechanism expressly agreed.
3. Which party can lawfully clear customs at each end? Export clearance in the seller’s country is the seller’s to do under every rule except EXW. Import clearance is the buyer’s under every rule except DDP, and DDP is only viable where the seller can register in the destination.
4. Where does each party want risk to sit, and who is buying the cover? The C rules put risk at origin and freight at destination. The D rules keep both with the seller to the destination.

Two rules expose one side badly enough to warrant a specific check. EXW leaves an exporter’s buyer responsible for an export declaration it may be unable to file, and leaves loading risk with a party that will not be doing the loading. DDP leaves a seller liable for a foreign import tax it may be unable to register for or recover.

Worked allocation: FCA Shanghai container terminal against FOB Shanghai

Take forty pallets of finished goods in one forty-foot container, sold from Shanghai. Under FCA Shanghai Pudong Container Terminal Incoterms 2020, the seller clears for export and delivers when the box is at the disposal of the buyer’s carrier at the terminal, on the seller’s arriving vehicle ready for unloading. Risk passes there. Everything from gate-in onward, including terminal dwell, the lift and the voyage, is the buyer’s risk, and the buyer arranges the carriage and any cover it wants.

Under FOB Shanghai Incoterms 2020 the same physical movement produces a different risk line. The seller still hands the box over at the terminal, but delivery does not occur until the container is on board, which may be four or five days later. Through the whole terminal interval the seller carries the risk of a cargo it cannot access, cannot inspect and cannot move, and its policy may not respond because the goods have left its premises and the insurable interest allocation in the contract no longer matches where the goods are. The commercial terms are identical. Only the exposure differs, and only in the seller’s disfavour.

Worked allocation: CIF Rotterdam against DAP buyer’s warehouse

Now take 30,000 tonnes of bulk cargo sold into Rotterdam. Under CIF Rotterdam Incoterms 2020 the seller loads on board, pays the ocean freight to Rotterdam and buys Institute Cargo Clauses (C) cover for at least 110 percent of the contract price in the contract currency. Risk passes on loading, so a casualty on the voyage is the buyer’s loss, recovered by the buyer claiming directly against the insurer. Discharge costs fall on the buyer under B9(c) unless the seller’s carriage contract already covered them, and the buyer clears for import.

Under DAP Buyer’s Warehouse, Rotterdam Incoterms 2020 the seller carries risk the whole way and delivers on the arriving truck ready for unloading. A voyage casualty is the seller’s loss. No insurance obligation arises at all, which surprises people: DAP A5 requires nothing, so a seller carrying risk to a foreign warehouse and buying no cover is uninsured for the entire movement. The buyer unloads, clears for import and pays the duty.

The two rules move the freight, the insurance and the risk in different combinations, and the headline prices are not comparable without rebuilding both to the same delivered basis. That rebuild is the whole point of a landed-cost calculation, and the landed cost calculator on ShipCalculators.com works the duty and tax stack for a given customs value and basis.

Limitations

Incoterms 2020 allocates delivery, risk and cost between a seller and a buyer, and nothing else. It does not supply the governing law, does not create a contract of carriage, does not bind a carrier or an insurer or a bank, and does not decide title, price, payment, breach, force majeure, sanctions, tariffs or the forum for a dispute. A contract that names a rule and leaves the rest unwritten is incomplete, and reading the term as the whole bargain is the error behind a large share of trade disputes.

The rules also depend on the parties supplying a place with enough precision to be operable. Where the named place is a city rather than a point, the risk boundary under an E, F or D rule is decided by whichever party gets to choose, and the ICC’s own answer is that the seller may select the point that suits it. No amount of familiarity with the rule set compensates for a vague named place.

Three structural traps survive the 2020 revision. The C rules split the cost point from the risk point, and no wording in the abbreviation signals it. The sea-only rules remain in daily use on container bookings where the any-mode equivalents are correct, and the rules do not prohibit that, they simply do not describe it. And the insurance obligations under CIF and CIP are minimums matched to a generic cargo profile, not judgments about a particular consignment, so the right level of cover is a separate decision sized against the cargo insured value and the exposures in the cargo claim time bars that follow a loss.

Finally, the statements here follow ICC Publication No. 723E and the Explanatory Notes in it. For a contract that turns on an exact obligation, the controlling text is that publication, not a summary of it, and the customs-value consequences of a chosen term must be checked against the destination’s own implementation of the WTO Customs Valuation Agreement rather than against the general pattern set out above.

Related Articles

• Freight forwarding and Incoterms : the cluster hub placing the sale term inside the full ex-works to landed-cost shipment chain.
• Bill of lading : the transport document and document of title that the FCA A6/B6 on-board notation mechanism was written to accommodate.
• Cargo insurance and Institute Cargo Clauses : what Clauses (A), (B) and (C) 1/1/09 actually cover, behind the CIP and CIF A5 obligations.
• Landed cost and import duty : how the customs value feeds the duty and tax stack the DDP seller funds.
• Cargo insured value : the 110 percent insured sum required by CIP A5 and CIF A5, and how to size cover above it.
• Terminal handling charges : the origin and destination charges that A9 and B9 allocate, and where the double-charge problem arises.
• Verified gross mass and container weight declaration : the SOLAS obligation the ICC deliberately left unallocated by any Incoterms rule.