Incoterms 2020 Explained for Importers: EXW, FOB, CIF, DDP and More

Incoterms 2020 are a set of eleven standard trade terms, published by the International Chamber of Commerce (ICC), that say who arranges and pays for transport, who handles customs, and the point at which risk of loss passes from seller to buyer. When a supplier quotes "FOB Shenzhen" or "CIF Mombasa", they are using an Incoterm. This guide gives importers Incoterms explained in plain language: the main rules, the differences that cause the most mistakes, and how to pick the right one for your order.

What Incoterms are and what they do not do

Incoterms are short three-letter codes that you add to a sales contract, together with a named place. For example: "FOB Ningbo Incoterms 2020". They answer three questions: who pays for what, who carries the risk of damage or loss during each stage, and who is responsible for export and import clearance.

They do not cover everything. Incoterms do not decide the price, when you must pay, who owns the goods, or what happens if the goods are defective. They also do not replace a contract. Those points belong in your purchase agreement. For legal details, read the ICC rules themselves or ask a lawyer or customs broker.

Always write the version with the term (for example "Incoterms 2020") and name a place. Older versions exist and are still valid if both parties choose them, so being specific avoids confusion.

The 11 Incoterms 2020 rules

The rules are grouped by transport mode. Seven can be used for any mode of transport, including sea, air, road and rail. Four are for sea and inland waterway transport only.

Any mode of transport

EXW (Ex Works). The seller makes the goods available at their own premises. The buyer arranges almost everything else, including loading, export clearance and transport.
FCA (Free Carrier). The seller delivers the goods, cleared for export, to a carrier or place named by the buyer. Risk passes at that point.
CPT (Carriage Paid To). The seller pays for carriage to a named destination, but risk passes to the buyer earlier, when the goods are handed to the first carrier.
CIP (Carriage and Insurance Paid To). Like CPT, and the seller also buys insurance. Under Incoterms 2020, the insurance must be at a higher level of cover (the ICC "A" clauses).
DAP (Delivered at Place). The seller delivers to a named place in the destination country, ready for unloading. The buyer unloads and clears imports.
DPU (Delivered at Place Unloaded). The seller delivers and unloads at the named place. This rule replaced DAT in the 2020 version.
DDP (Delivered Duty Paid). The seller delivers to the named place and handles import clearance and duties. This puts the most responsibility on the seller.

Sea and inland waterway only

FAS (Free Alongside Ship). The seller delivers the goods alongside the ship at the named port. Used mostly for bulk or heavy cargo.
FOB (Free On Board). The seller delivers the goods on board the ship named by the buyer at the port of loading. Risk passes once the goods are on board.
CFR (Cost and Freight). The seller pays freight to the destination port, but risk passes to the buyer when the goods are on board at the origin port.
CIF (Cost, Insurance and Freight). Like CFR, and the seller also buys minimum insurance for the buyer's benefit.

Where cost and risk change hands

The key idea is that cost and risk do not always pass at the same place. With CIF, the seller pays for the sea freight and insurance to your port, but the risk of damage during the voyage is already yours once the goods are on the ship. That is why the insurance exists. With DAP, both cost and risk stay with the seller until the delivery place.

A rough sense of the spectrum helps: EXW places the least responsibility on the seller, and DDP places the most. FCA, FOB and the C-rules sit in between. The more the seller does, the more cost is built into the price, so a DDP price is not directly comparable with an EXW price. See our guide to comparing supplier quotes to adjust for this.

EXW vs FOB: the difference importers care about

With EXW, the buyer is responsible from the seller's door. That includes loading the goods onto the truck, export clearance and local transport to the port. Many importers find this hard in a country they do not know, because export clearance normally needs someone in the exporting country. With FOB, the seller takes the goods to the port, clears them for export and loads them on the ship. You take over from there.

For most first-time importers buying from a factory abroad, FOB (or FCA, for containerised goods) is easier than EXW, because it keeps the export steps with the seller. EXW can still make sense if you have a trusted forwarder in the seller's country who handles everything.

FOB vs CIF: who controls the shipping

With FOB, you book and pay the main sea freight and arrange the insurance. This gives you control over the forwarder and the cost, and it often suits importers who ship regularly. With CIF, the seller books the freight and buys the insurance, and quotes a price to your destination port. That is convenient, but you do not pick the carrier, and the minimum insurance cover may be lower than you want. Ask the seller what cover they will buy and consider extra insurance if the cargo is valuable.

Whichever you choose, remember that duties, taxes, port charges at arrival and inland delivery are normally yours under both. Our landed cost guide shows how to add them up.

DDP meaning and when it makes sense

DDP meaning in short: the seller delivers the goods to your door or named place with import duties and taxes already paid. It sounds like the easiest option for a buyer, and for small parcels it often is. But there are cautions. The seller must be able to handle import clearance in your country, which is not always possible or legal for a foreign company. Pricing may hide the real cost of duties. And if something goes wrong at customs, responsibilities can become unclear. Many importers prefer DAP and handle their own clearance through a local broker so they control the declared value and classification. Check what your customs authority allows, and speak to a customs broker.

Which Incoterm to choose

When people ask which Incoterm to choose, the answer depends on your experience, your product and your transport mode. Use these questions:

Do you have a forwarder and know the import process? If yes, FOB or FCA gives control. If no, a delivered term such as CIF or DAP may be simpler to start, with the cost built into the price.
Is the cargo containerised or air freight? If so, use FCA, CPT or CIP instead of FOB, CFR or CIF (see the mistake section below).
Do you want control over freight cost? FOB or FCA keeps the freight decision with you.
How valuable or fragile is the cargo? Think about insurance and who carries risk where.
What does your payment method need? A letter of credit, for example, may require specific documents tied to the term. Check with your bank.

Common Incoterms mistakes

Using FOB for containerised cargo. The sea-only rules assume goods are placed on board the ship. In container shipping, the seller hands goods to the carrier or terminal before loading, so ICC guidance suggests FCA, CPT or CIP for containers. Many traders still say FOB, so make sure both sides understand the exact point of transfer.
Not naming a place. "FOB China" is not enough. Write "FOB Shanghai" or "FCA supplier's warehouse, address".
Assuming CIF means full insurance. CIF has a minimum level of cover. Check the actual policy.
Believing the term decides ownership or payment. It does not.
Choosing EXW without export help. Exports need clearance in the origin country.
Comparing quotes on different terms. An EXW price and a CIF price differ by freight and insurance at least.
Assuming DDP removes all customs risk. Customs rules, declared value and licences still matter.

Incoterms and your shipping documents

The agreed term affects who produces which documents and who needs them at the destination. The commercial invoice, packing list and bill of lading should show the term and place consistently. Our guide to bill of lading, commercial invoice and packing list explains these documents. If you ship from Africa, see the exporter-side view in Incoterms for African exporters.

Frequently asked questions

Are Incoterms law? No. They are voluntary contract terms that apply only if you include them in your contract. They are widely used and recognised, but local laws still apply.

Is Incoterms 2020 still the current version? Incoterms 2020 is the version this guide covers. The ICC revises the rules roughly every ten years, so check the ICC for the latest edition before you sign a contract.

What changed from 2010 to 2020? DAT became DPU, CIP now requires higher insurance cover, FCA allows an arrangement for an on-board bill of lading, and the rules recognise that sellers or buyers may use their own transport.

What is the best Incoterm for a beginner? Many beginners choose FOB or FCA with a good forwarder, or a delivered term if they need simplicity. There is no single best, so match it to your experience.

Who pays for insurance under FOB? Nobody is obliged to under the FOB rule, but the buyer carries the risk during the voyage, so the buyer normally insures the cargo.

Can I mix Incoterms in one deal? You can use a different term for different shipments, but each contract should state one clear term for each delivery.

Getting started

For your next order, ask every supplier to quote on the same Incoterm and name the place. State it in your request for quotation on Comilmart so offers come back comparable. Always confirm duties, taxes and documents with a licensed customs broker or forwarder in your country; this article is general information only. Comilmart connects buyers with verified sellers across Africa, and there are no listing fees to get started.