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Incoterms 2020: who pays what and where risk transfers
The 11 Incoterms 2020 rules explained for real operations: costs, risk, insurance and the mistakes that cost the most money (EXW on export, FOB with containers, DDP without thinking about VAT).
The ICC Incoterms are 11 rules that allocate three things between seller and buyer: who pays for each leg, who bears the risk at each point and who handles each formality. They do not govern ownership or payment — only costs, risk and logistics obligations.
The 11 rules in two groups
Seven rules work for any mode of transport: EXW, FCA, CPT, CIP, DAP, DPU and DDP. Four are sea-only: FAS, FOB, CFR and CIF. The 2020 novelty was DPU (Delivered at Place Unloaded), which replaced DAT.
The logic of the ladder
From EXW to DDP, each rule shifts more costs and obligations onto the seller. Under EXW the buyer does almost everything (including collection at the factory); under DDP the seller takes on everything, even import clearance and taxes in the destination country.
Cost and risk do not always travel together
This is the most common conceptual mistake. Under CPT, CIP, CFR and CIF the seller pays for the main carriage, but risk transfers earlier: when the goods are handed to the first carrier (CPT/CIP) or on board the vessel (CFR/CIF). If the cargo is lost mid-voyage, it is the buyer’s problem even though the seller paid the freight.
Insurance: CIP is not CIF
Only two rules require insurance: CIP and CIF, and at different levels. Since 2020, CIP demands all-risk cover (Institute Cargo Clauses A), while CIF settles for minimum cover (Clauses C). For high-value cargo under CIF, additional insurance is often worth buying.
Mistakes that cost money
- EXW on export: the seller controls neither export clearance nor obtains proof of exit to justify the VAT exemption. FCA is usually the better choice.
- FOB with containers: the goods change hands at the terminal, not on board. For containers, the ICC recommends FCA.
- DDP without analysing taxation: the seller becomes the importer in the destination country, with VAT and customs obligations it often cannot fulfil.
You can compare all 11 rules, see the risk transfer point and the leg-by-leg cost split with the interactive Incoterms 2020 matrix on this site.