Incoterms: the 11 rules behind every export quote
Incoterms are standard trade rules published by the International Chamber of Commerce that define where the seller delivers, when risk passes to the buyer, and who pays for which transport, clearance and insurance costs. The current version, Incoterms 2020, has 11 rules; closeout deals mostly use EXW, FCA, FOB, CIF and sometimes DAP.
Reviewed by Tyler Kober · Updated
Key takeaways
- Incoterms 2020 has 11 rules: 7 for any mode of transport and 4 for sea and inland waterway only.
- An Incoterm sets delivery, risk and cost split; it does not set price, payment terms or when ownership passes.
- Always write the rule, the named place and the version, for example FCA [named place] Incoterms 2020.
What are Incoterms?
Incoterms are standard trade rules published by the International Chamber of Commerce (ICC). Each rule is a three-letter code that tells buyer and seller where delivery happens, when risk passes, and who pays for transport, export and import clearance, and insurance. The current edition is Incoterms 2020, in effect since 1 January 2020.
The 11 rules of Incoterms 2020
| Group | Rules | Notes |
|---|---|---|
| Any mode of transport | EXW, FCA, CPT, CIP, DAP, DPU, DDP | Use these for containers and trucks |
| Sea and inland waterway only | FAS, FOB, CFR, CIF | Delivery is at or on board the vessel |
In short: EXW puts the most on the buyer; DDP puts the most on the seller. Changes in the 2020 edition include DPU replacing DAT, CIP requiring broader insurance than CIF, and an option for FCA buyers to have the seller obtain an on-board bill of lading.
How Incoterms are used in closeout deals
Closeout trade leans on a few rules:
- EXW: buyer collects at the seller's warehouse and handles everything, including export clearance.
- FCA: seller clears export and hands the goods to the buyer's carrier, loaded if at the seller's premises. Often the best fit for container exports.
- FOB: seller delivers on board the ship at the port of shipment.
- CIF and CFR: seller pays ocean freight (and with CIF, minimum insurance) to the destination port; risk still passes at loading.
- DAP: seller delivers to a named place at destination, not cleared for import.
Write the rule, named place and version every time, for example "FCA [seller's warehouse address], Incoterms 2020." A bare "FOB" in a US quote may mean the domestic shipping term, not the Incoterm.
Example
An exporter and a seller agree on a container of footwear. The seller first quotes EXW. Because the exporter cannot file US export formalities easily and wants the seller to load, they agree on FCA at the seller's warehouse, Incoterms 2020. The contract separately sets the payment method and timing, and states when ownership passes.
The common confusion
Many people believe an Incoterm settles everything about a shipment. It does not cover price, payment, transfer of ownership or remedies for breach. Those belong in the sales contract. And Incoterms apply only when the contract says so. For more on export practice, see FCL vs LCL for export and how exporters buy US closeouts.
Related terms
Frequently asked questions
What are the 11 Incoterms 2020 rules?
For any mode of transport: EXW, FCA, CPT, CIP, DAP, DPU and DDP. For sea and inland waterway only: FAS, FOB, CFR and CIF. Incoterms 2020 replaced DAT with DPU, raised the minimum insurance under CIP, and let FCA buyers ask for an on-board bill of lading.
Do Incoterms decide when ownership of the goods transfers?
No. Incoterms cover delivery, risk and costs. Transfer of ownership, payment terms, price and what happens if a party breaches are set by the sales contract and the governing law. A closeout contract should cover those points separately, especially when payment is made before the goods ship.
Which Incoterm is most common for closeout exports?
Many closeout loads are sold at the seller's warehouse, so EXW or FCA at the seller's premises is common. FCA is often the better choice because the seller handles export clearance and loading. Experienced exporters with their own forwarder prefer it; newer buyers sometimes ask for CIF or CFR to a named port.
Are Incoterms law?
No. They are private rules that apply only when the contract incorporates them. That is why the contract should name the rule, the place and the version. Without that, different parties may read a term like FOB in different ways, especially in US domestic trade.
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