Incoterms 2020 Explained: FOB, CIF, EXW, DDP & More

Incoterms 2020 explained simply: these are the 11 standard trade terms published by the International Chamber of Commerce (ICC) that spell out exactly where the seller’s job ends and the buyer’s begins. Whether you’re weighing FOB, CIF, EXW or DDP — or trying to work out why the same shipment can be priced three different ways — this guide covers all 11 Incoterms 2020 rules with a clear cost-and-risk chart, plus how to choose the right term for your China imports.

What Are Incoterms?

Incoterms (short for International Commercial Terms) are a set of 11 three-letter abbreviations that define the responsibilities of buyers and sellers in international trade. The ICC first published them in 1936, and the current edition — Incoterms 2020 — came into force on 1 January 2020.

Each term answers four questions about a shipment:

1. Who pays the transport — and how far along the journey?
2. Who carries the risk — and at which exact point does it transfer from seller to buyer?
3. Who handles export and import customs clearance?
4. Who pays the duties, taxes and insurance?

One thing Incoterms do not cover is the point at which ownership (title) of the goods passes — that’s set separately in your sales contract. What they do govern is cost, risk, and the division of logistics duties. For a China importer, that’s usually the difference between a clean, predictable landed cost and a nasty surprise at the border.

The 11 Incoterms at a Glance

There are 11 rules in Incoterms 2020, split into two groups: 7 rules for any mode of transport, and 4 rules for sea and inland waterway only.

The names tell most of the story: E terms leave almost everything to the buyer, F terms have the buyer paying the main freight, C terms have the seller paying it, and D terms have the seller carrying the goods all the way to the destination country.

The 4 Incoterms Families

All 11 rules group into four families, and knowing the family tells you the big picture before you memorise any single term.

• E (Departure) — EXW. The seller’s obligation is minimal: make the goods available at their own premises. The buyer does everything else, including loading and export clearance.
• F (Main Carriage Unpaid) — FCA, FAS, FOB. The seller delivers to a carrier named by the buyer; the buyer pays the main freight and takes risk from delivery.
• C (Main Carriage Paid) — CPT, CIP, CFR, CIF. The seller pays the main freight (and, for CIP and CIF, insurance), but risk still passes early — once the goods are handed to the carrier or placed on board.
• D (Arrival) — DAP, DPU, DDP. The seller takes on full responsibility and cost of delivering to the destination; only the import side (duties, clearance) varies between the three.

The C-family is the subtle one: the seller pays for carriage but the risk transfers much earlier. That distinction — paying for something you no longer own the risk of — is where most Incoterms misunderstandings happen.

The 7 Any-Mode Rules

These work for road, rail, air, and sea — and they’re the terms most China importers actually use today.

EXW (Ex Works)

The seller makes the goods available at their factory or warehouse — that’s it. The buyer handles loading, export clearance in China, all transport, import clearance, and all duties. In practice, EXW is risky for a first-time importer because the buyer must arrange collection and Chinese export documentation themselves. It’s mostly used when the buyer already has a freight forwarder on the ground in China.

FCA (Free Carrier)

The seller delivers the goods to a carrier (or a named place) and clears them for export. From that handover, the buyer pays and bears risk. FCA is the flexible, modern replacement for FOB when goods are containerised or move by more than one mode — because a container handed to a trucker isn’t literally “placed on board” a ship at the seller’s door.

CPT (Carriage Paid To)

The seller pays freight to the named destination, but risk passes to the buyer as soon as the goods are handed to the first carrier. The buyer pays nothing for the main leg, but any damage after handover is on them — which is why buyers often ask for insurance separately.

CIP (Carriage and Insurance Paid To)

Identical to CPT, plus the seller must insure the goods. Under Incoterms 2020, CIP requires the seller to take out Institute Cargo Clauses (A) cover — the broadest level. This is a key upgrade from the 2010 edition, and it matters because Clause (A) covers “all risks” rather than a narrow named list.

DAP (Delivered at Place)

The seller delivers the goods to a named destination, ready for unloading — but the buyer handles import clearance and pays the duties and taxes. DAP is effectively “DDP minus the import bill”. It suits buyers who want the seller to carry goods to their door but want to keep their own customs broker and importer status.

DPU (Delivered at Place Unloaded)

The seller delivers and unloads the goods at the named place — the only term where the seller is responsible for unloading. DPU replaced DAT (Delivered at Terminal) in the 2020 edition. After unloading, the buyer handles import clearance and duties.

DDP (Delivered Duty Paid)

The maximum seller obligation. The seller does everything: export clearance, freight, import clearance, all duties and taxes, and delivery to the buyer’s door. The buyer simply receives the goods. DDP is the most popular term among e-commerce sellers and Amazon FBA importers because it produces one all-in landed cost. See our dedicated DDP vs DDU vs DAP comparison, or our DDP shipping from China service page.

The 4 Sea-Only Rules

These four apply only to sea and inland waterway transport — never air or road.

FAS (Free Alongside Ship)

The seller delivers the goods alongside the vessel at the named port. Risk and cost pass to the buyer from that point; the buyer handles loading, freight and everything after. FAS is niche — mostly bulk or break-bulk cargo.

FOB (Free on Board)

The seller delivers the goods once they are placed on board the vessel at the named port of shipment — and that exact moment is when risk transfers to the buyer. FOB is one of the most-used terms for full-container and bulk sea freight from China, because it gives the buyer control of the ocean leg and the freedom to use their own forwarder.

CFR (Cost and Freight)

The seller pays the cost and freight to the destination port, but risk passes to the buyer once the goods are placed on board at origin. The buyer’s obligation starts at the destination port: unloading, import clearance, and duties are theirs.

CIF (Cost, Insurance and Freight)

Identical to CFR, plus the seller must insure the goods. Note a subtlety: under Incoterms 2020, CIF keeps its traditional Institute Cargo Clauses (C) insurance requirement — a narrower cover than CIP’s upgraded Clause (A). CIF is common for buyers who want the seller to arrange ocean freight and basic insurance, but savvy importers often supplement that Clause (C) cover because it protects against fewer risks.

Buyer vs Seller: Cost, Risk & Customs Chart

The chart below condenses all 11 terms into one view — who pays, who carries risk, and who clears which border.

The pattern to remember: the further down the D-group you go, the more the seller does — and the more convenient (and expensive) it is for the buyer.

How to Choose the Right Incoterm for Your China Imports

For most importers buying from China, the real decision is between three terms — and it usually maps to one question: how much logistics do you want to handle yourself?

• EXW or FOB — You already have a freight forwarder and want control of the ocean or air leg. FOB is the sea-freight workhorse; it lets you route through your own forwarder and negotiate your own sea freight from China rate. Expect a lower unit price but more moving parts to manage.
• CIF or CIP — You want the seller to arrange and pay the main freight (plus insurance), but you’ll still handle import clearance and duties at your end. Good for buyers with an importer record in their own country.
• DDP — You want one all-in price and none of the customs work. The seller (or your forwarder) handles everything to your door. This is the standard for Amazon FBA prep shipments, because Amazon does not act as importer of record, and for first-time importers who don’t have a local tax ID.

Here’s the practical rule of thumb we give China importers:

• First order or small parcels → choose DDP. The convenience is worth the markup while you learn the route.
• Full containers or high-value goods → choose FOB or CIF with your own forwarder to keep control of cost and declarations.
• Air freight for urgent restocks → CPT/CIP, or DDP-air if you want the whole thing handled. Our air transportation from China lane runs on these terms daily.

Incoterms 2020 Changes You Should Know

If you’re working from an old supplier contract or an outdated template, two 2020 changes will catch you out:

1. DAT was renamed DPU. Delivered at Terminal became Delivered at Place Unloaded in 2020 — a name change that also widens the delivery point beyond terminals to any named place.
2. CIP insurance was upgraded from Institute Cargo Clauses (C) to Clause (A) — the broadest cover. CIF stayed at Clause (C), which is why CIF can be cheaper but leaves more risk on the buyer.