Choosing the right Incoterm helps you define who pays for what, who assumes the risks, and when the goods are delivered. The International Chamber of Commerce’s Incoterms 2020 rules include 11 options, each applicable depending on the mode of transport and your trade agreement.
To choose wisely, you must compare the obligations of the seller and the buyer, paying attention to where the risk shifts and the responsibilities for insurance, transport, and customs. This Incoterms 2020 comparison chart allows you to clearly review these differences and avoid vague agreements.
Some terms apply to any mode of transport; others only to maritime or inland waterway shipments. With this information, negotiating clearer terms and choosing the rule that best suits your operation becomes much easier. Here are the essentials:
Key Points
Each Incoterm distributes costs, risks, and responsibilities differently.
The mode of transport limits the terms you can use.
A clear comparison facilitates the choice and reduces errors in the contract.
How Costs, Risks, and Responsibilities Are Distributed
The Incoterm determines what you must pay and what formalities you must carry out, as well as defining when you assume the risk for the goods. To avoid errors, distinguish between the delivery point, the transfer of risk, and the allocation of costs.
Delivery Point and Transfer of Risk
Delivery doesn’t always occur when the goods arrive at your warehouse. According to the Incoterm, the seller can deliver them at their premises, to the carrier, at a port, or directly to your destination. The risk passes to you at the defined delivery point, even if the seller still pays for part of the transport. For example, with CPT and CIP, the seller arranges and pays for the main transport, but the risk is transferred when they deliver the goods to the first carrier.
With CFR and CIF, the risk passes when the cargo is loaded onto the ship at the port of shipment. Under DAP, DPU, and DDP, the seller retains the risk until the goods arrive at the agreed location; in DPU, they must also unload them.
Important: Always specify the exact location and the applicable version, such as “CIP Madrid, Incoterms® 2020”. Without this information, the Incoterm is incomplete.
The current rules are based on Incoterms® 2020 of the International Chamber of Commerce.
Transport, Insurance, and Customs Clearance Obligations
The seller can pay for transport without assuming risk throughout the journey. Under FCA, CPT, and CIP, the seller typically delivers the goods to the carrier agreed upon by you or the seller.
Under CIP, the seller must also obtain insurance with broader coverage than required under CIF. With CIF and CFR, the seller pays for ocean freight to the port of destination, although you assume risk from the point of shipment: CIF requires insurance, CFR does not.
These terms are only suitable for ocean or inland waterway transport. The seller usually handles export, while you manage import, taxes, and customs clearance. Important: DDP is the exception: the seller assumes almost all obligations, including import formalities. Confirm whether you can legally fulfill these in your country before choosing it.
You can compare the responsibilities of each rule in this Incoterms cost and risk table.
Comparison by mode of transport
You must choose the Incoterm according to the mode of transport, the point where you deliver the goods, and when the risk changes. It is also advisable to separate three elements: contracted transport, payment of costs, and insurance.
Rules applicable to any mode of transport
You can use EXW, FCA, CPT, CIP, DAP, DPU, and DDP with transport by road, rail, air, sea, or combinations of several modes. These rules apply when the cargo passes through a terminal, uses containers, or arrives at a destination that is not a seaport.
Rule
Key point for you
EXW
You collect the goods at the seller’s premises and assume almost all costs and risks.
FCA
The seller delivers the cargo to the carrier you specify.
CPT: The seller pays for transport to the agreed destination, but the risk passes beforehand. CIP: Works like CPT and includes insurance arranged by the seller. DAP: The seller delivers at the destination, without unloading or paying import duties. DPU: The seller delivers and unloads the goods at the destination. DDP: The seller assumes transport, import clearance, taxes, and final delivery. Consult this Incoterms 2020 comparison table to review each party’s obligations. Exclusive rules for maritime and inland waterway transport: Use FAS, FOB, CFR, and CIF only when delivery is made alongside or on board a vessel at a seaport or inland waterway port. Important: Do not use these rules for containerized cargo that