Incoterms 2020: who pays, who carries the risk
An incoterm is three letters long and decides several thousand euros. It sets who pays for carriage, the precise moment the goods stop being at the seller's risk, and who handles customs formalities. It settles nothing else — and that is where most misunderstandings begin.
Updated September 2026
What an incoterm settles, and what it does not
The Incoterms® rules are published by the International Chamber of Commerce. The edition in force is that of 2020, applicable since 1 January 2020. It contains eleven rules: seven usable whatever the mode of transport (EXW, FCA, CPT, CIP, DAP, DPU, DDP) and four reserved for sea and inland waterway transport (FAS, FOB, CFR, CIF).
An incoterm answers three questions, and three only:
- Who pays for what — main carriage, loading, unloading, insurance
- Where risk passes — the exact geographical point beyond which damage is your loss, even if you have not yet paid
- Who completes the formalities — export clearance in China, import clearance in the Union
It says nothing about transfer of title, nothing about payment terms, nothing about governing law or the competent court. Those belong to your contract of sale, and their absence cannot be repaired with three letters.
The four rules you actually meet on China
On paper there are eleven. In practice a European buyer meets four — and the choice between them changes the price quoted without changing the price paid.
What each rule transfers
| Rule | Main carriage | Risk passes | Import clearance |
|---|---|---|---|
| EXW | Your cost | At the factory, once made available | You |
| FOB | Your cost | On board the vessel, at the Chinese port | You |
| CIF | Paid by the seller | On board the vessel, at the Chinese port | You |
| DDP | Paid by the seller | On delivery to your door | The seller |
The line to read twice: CIF
Under CIF the seller pays for carriage and insurance to the port of destination. But risk passes to you as soon as the goods are loaded on board at the Chinese port. In other words: for the whole voyage, the goods travel at your risk under a policy someone else took out.
That gap is not an anomaly, it is the rule. It becomes a problem when the level of cover is unknown: the 2020 edition requires the seller, under CIF, to hold minimum cover of the Institute Cargo Clauses (C) type — a restricted cover that leaves out a large share of ordinary damage. CIP, since 2020, requires level (A), the widest.
On a container of value, the question to put to the seller is therefore not « are you insured? » but « at what level? » — and the answer usually amounts to taking out your own policy.
Four mistakes that come back again and again
FOB used for a container or for air freight. FAS, FOB, CFR and CIF are maritime rules, designed for goods loaded on board a vessel. Goods stuffed into a container are handed to a terminal, not hoisted aboard: the rule intended for that case is FCA. FOB is so widely used there that it looks normal, but it leaves a grey area between handover at the terminal and actual loading — precisely where handling damage occurs.
EXW asked of a Chinese supplier. Under EXW it is the buyer who must complete export clearance. A foreign buyer physically cannot do that in China: the factory will have to handle it anyway, outside the contract and under no obligation. FCA solves the problem by putting export on the seller.
DDP accepted without checking. Under DDP the seller clears the goods on import and pays the duty — and, in principle, the VAT — in a country where it usually holds no tax registration. Where the promise is kept, it is sometimes kept by understating the declared value, for which the importer remains answerable.
The edition left out. « FOB Shenzhen » is not enough. A complete reference carries the rule, the named place and the edition: FOB Shenzhen, Incoterms® 2020. Without the edition, two parties can invoke two different texts.
The eleven rules, and what each applies to
Seven rules work whatever the mode of transport. Four are reserved for sea and inland waterway: they assume goods loaded on board a vessel, and become unsuitable as soon as you stuff a container or ship by air.
The eleven Incoterms® 2020 rules
| Rule | Name | Mode | Seller's burden |
|---|---|---|---|
| EXW | Ex Works | Any mode | Minimal |
| FCA | Free Carrier | Any mode | Handover to the carrier |
| CPT | Carriage Paid To | Any mode | Carriage paid |
| CIP | Carriage and Insurance Paid To | Any mode | Carriage and wide insurance |
| DAP | Delivered at Place | Any mode | Delivery, unloading excluded |
| DPU | Delivered at Place Unloaded | Any mode | Delivery and unloading |
| DDP | Delivered Duty Paid | Any mode | Maximal, duty paid |
| FAS | Free Alongside Ship | Sea | Alongside the vessel |
| FOB | Free On Board | Sea | Loading on board |
| CFR | Cost and Freight | Sea | Freight paid |
| CIF | Cost, Insurance and Freight | Sea | Freight and minimum insurance |
Frequently asked questions
- Do Incoterms 2026 exist?
No. The reference in force remains the International Chamber of Commerce's Incoterms® 2020 edition, applicable since 1 January 2020. The ICC revises its rules roughly every ten years — 2000, 2010, 2020 — which makes a 2030 edition plausible, though no date has been announced. Pages advertising « Incoterms 2026 » describe rules that do not exist.
- What is the difference between EXW and FOB?
Under EXW the goods are made available to you at the factory: everything after that is at your cost and risk, including Chinese export clearance. Under FOB the seller moves the goods to the port, completes export formalities and loads them on board; risk passes to you only once they are aboard. Between the two lie inland Chinese transport, port handling and customs formalities.
- Does a FOB purchase include insurance?
No. Of the eleven rules, only two oblige the seller to insure the goods: CIF and CIP. Under EXW, FCA, FOB, CFR, CPT, DAP, DPU and DDP no insurance is owed. That does not mean the goods travel unprotected — the carrier bears liability — but that liability is capped by international conventions, often well below the real value of the cargo.
- What exactly is an incoterm?
A three-letter rule, published by the International Chamber of Commerce, that allocates transport costs, the moment risk passes and responsibility for customs formalities between seller and buyer. It settles neither transfer of title, nor payment terms, nor governing law: those belong to the contract of sale. The edition in force is that of 2020 and contains eleven rules.
- What is the difference between FOB and CIF?
Under FOB the seller delivers the goods on board the vessel at the Chinese port and stops there: sea freight and insurance are your cost. Under CIF it additionally pays freight to the port of destination and takes out insurance. But in both cases risk passes to you at the same place — on loading at the port of departure. Under CIF the goods therefore travel at your risk under a policy taken out by the seller.
- Which incoterm should I choose for importing from China?
FOB remains the most readable basis for comparing two offers: it includes Chinese pre-carriage and export formalities, and leaves you in control of main carriage and insurance. FCA is technically more accurate for goods stuffed into a container. CIF simplifies matters but hides the seller's margin on freight. DDP calls for caution, since the seller must there complete customs formalities in a country where it is not established.
- Why is FCA preferable to FOB for a container?
Because FOB is a maritime rule designed for goods hoisted on board a vessel. A container is handed to a terminal, sometimes several days before it is actually loaded. Between handover at the terminal and loading on board, responsibility is no longer clearly fixed — exactly where handling damage occurs. FCA puts the transfer at the moment of handover to the named carrier, which removes the ambiguity.
- What does DDP mean and should it be accepted?
Delivered Duty Paid: the seller delivers to the agreed address with duty paid. It is the rule that loads the most onto the seller — and that is what should raise an eyebrow. A Chinese supplier generally holds no tax registration in the European Union and cannot therefore act there as importer. Where the promise is nonetheless kept, it is sometimes kept by understating the declared value, for which the real importer remains answerable.
- Does an incoterm decide who owns the goods?
No, and this is the most common confusion. The Incoterms® rules deal only with costs, risks and formalities. Transfer of title belongs to the contract of sale and the law governing it. Goods can perfectly well travel at your risk without yet belonging to you, or belong to you while risk still sits with the seller.
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