Incoterms 2020 Complete Guide: FOB, CIF, EXW, FCA, CFR Explained for Exporters

Incoterms — the International Commercial Terms published by the International Chamber of Commerce — define who pays for what in an international shipment, and when risk transfers from seller to buyer. The 2020 revision is the current version. Misusing Incoterms is one of the most common causes of trade disputes. This guide explains each rule clearly and what to use when.

What Incoterms are (and are not)

Incoterms define:

• Who pays for transport, loading, unloading, insurance.
• When risk of loss/damage transfers from seller to buyer.
• Who handles export and import clearance.

Incoterms do not define:

• Ownership transfer (covered by the contract of sale).
• Payment terms (covered separately by LC / TT / DP clauses).
• Force majeure, dispute resolution, warranty (covered by the contract).

> Always state the Incoterm + the named place + version in your contract: e.g., "FOB Mundra Port, Incoterms 2020".

The 11 Incoterms 2020 rules

### Rules for any mode of transport

#### EXW — Ex Works - Risk and cost transfer at the seller's premises. - Buyer handles all transport, export clearance, loading. - Use case: Rare. Buyer has strong India-side logistics. Risky for the seller (seller may not be able to load or clear export).

#### FCA — Free Carrier - Seller delivers, cleared for export, to the carrier named by the buyer at a named place. - Risk transfers on delivery to the carrier. - Use case: Recommended for containerised cargo. Modern replacement for FOB in container shipping.

#### CPT — Carriage Paid To - Seller pays freight to the named destination. Risk transfers when goods are handed to the first carrier. - Use case: Any mode. Insurance is the buyer's responsibility.

#### CIP — Carriage and Insurance Paid To - Like CPT, plus seller buys insurance (Clauses A — all risks, under 2020 revision) to the destination. - Use case: Higher-value or fragile cargo where all-risk cover is needed.

#### DAP — Delivered at Place - Seller delivers to a named destination, not unloaded. Buyer handles import clearance and duties. - Use case: Seller wants to control delivery but not bear import duties.

#### DPU — Delivered at Place Unloaded - Seller delivers, unloaded, at the named destination. Buyer handles import clearance. - Use case: Where the seller is responsible for unloading (e.g., project cargo). Replaces DAT in Incoterms 2020.

#### DDP — Delivered Duty Paid - Seller handles everything including import duties and clearance. - Use case: Maximum seller responsibility. Often impractical because sellers usually cannot clear import in the destination country.

### Rules for sea and inland waterway transport only

#### FAS — Free Alongside Ship - Seller delivers alongside the vessel at the named port. Buyer loads and pays freight. - Use case: Bulk cargo, break-bulk, heavy lifts.

#### FOB — Free On Board - Seller delivers on board the vessel at the named port. Risk transfers once on board. - Use case: Bulk cargo. NOT recommended for containerised cargo — use FCA instead.

#### CFR — Cost and Freight - Seller pays freight to the destination port. Risk transfers on board at origin port. - Use case: Bulk cargo. Insurance is the buyer's responsibility.

#### CIF — Cost, Insurance and Freight - Like CFR, plus seller buys insurance (Clauses C — minimum cover, under 2020 revision) to the destination. - Use case: Bulk cargo. Containerised cargo should use CIP, not CIF.

FOB vs FCA — the containerised cargo trap

Many exporters still use FOB for containerised shipments. This is wrong. Under FOB, risk transfers only when the cargo is on board the vessel. But containerised cargo is handed to the carrier days before loading — at the CY (container yard) or CFS. During this gap, the seller bears risk without control.

The ICC explicitly recommends FCA for containerised cargo. Risk transfers when the container is handed to the carrier, which matches commercial reality.

> Use FOB only for bulk / break-bulk cargo loaded over the ship's rail. Use FCA for containerised cargo.

CIF vs CIP — the insurance trap

• **CIF** — for sea/inland waterway. Insurance is Clauses C (minimum). Often used for bulk cargo.
• **CIP** — any mode. Insurance is Clauses A (all risks) under Incoterms 2020. Used for containerised cargo.

If your buyer wants all-risk insurance on a containerised shipment, use CIP, not CIF.

Who buys insurance under each Incoterm

• **EXW, FCA, FAS, FOB, CPT, CFR**: buyer buys insurance.
• **CIP, CIF**: seller buys insurance (CIP = Clauses A, CIF = Clauses C).
• **DAP, DPU, DDP**: seller typically insures to destination (not mandatory under DAP/DPU/DDP, but practical).

Who pays origin and destination charges

• **Origin THC / CHA / BL / documentation**: seller under FCA, FOB, CFR, CIF, CPT, CIP, DAP, DPU, DDP. Buyer under EXW.
• **Destination THC / clearance / duties**: buyer under EXW, FCA, FOB, CFR, CIF, CPT, CIP. Seller under DDP only.

How to choose the right Incoterm

• **Containerised cargo, buyer-nominated forwarder**: FCA.
• **Bulk / break-bulk**: FOB, CFR or CIF.
• **Seller wants to control freight to destination, but not insurance**: CPT or CFR.
• **Seller wants to control freight and insurance**: CIP or CIF.
• **Seller delivers to buyer's warehouse without bearing duties**: DAP.
• **Seller delivers including duties**: DDP (rare; usually impractical for cross-border sellers).

Common mistakes

• Using FOB for containerised cargo (use FCA).
• Buying only Clauses C insurance under CIF when the buyer expects all-risk cover.
• Quoting CIF without confirming insurance currency and coverage.
• Forgetting to name the port / place in the contract.
• Using DDP without confirming the seller can clear import in the destination country.
• Confusing "risk transfer" with "ownership transfer" — Incoterms do not transfer title.

FAQ

**Q: Which Incoterm is best for containerised exports from India?** A: FCA is recommended by the ICC for containerised cargo. Risk transfers when the container is handed to the carrier, which matches reality.

**Q: What is the difference between FOB and CIF?** A: Under FOB, the buyer pays freight and insurance. Under CIF, the seller pays freight and buys minimum (Clauses C) insurance to the destination.

**Q: Does Incoterms 2020 replace Incoterms 2010?** A: Incoterms 2020 is the current version, but parties can still agree to use 2010 if stated explicitly in the contract.

**Q: Who pays destination THC under FOB?** A: Under FOB, the buyer pays ocean freight and destination THC. The seller pays origin THC, CHA and documentation.

Key Takeaways

• Use FCA (not FOB) for containerised cargo.
• Use CIP (not CIF) when the buyer wants all-risk insurance on containers.
• Always state Incoterm + named place + version: "FOB Mundra Port, Incoterms 2020".
• Incoterms define cost and risk, not ownership or payment.
• DDP is rarely practical for cross-border sellers — use DAP unless you can clear import at destination.

Blueroute Exim (Surat, Gujarat) works on FOB, FCA, CIF and CFR terms. Discuss your preferred Incoterm in your RFQ.