Incoterms 2020 Explained: All 11 Rules + Interactive Chart

Incoterms 2020 are the 11 three-letter trade rules published by the International Chamber of Commerce (ICC) that decide who pays for each step of an international shipment, who handles customs, and the exact point where the risk of loss or damage passes from the seller to the buyer. If you import from China to India, the Incoterm written on your proforma invoice decides your real landed cost and who takes the loss if a container is damaged at sea.

This guide explains every one of the Incoterms 2020 rules in plain language, with an interactive explorer, a full who-pays-what chart, an Incoterm finder and practical tips for Indian importers buying from Chinese suppliers.

What are Incoterms 2020?

Incoterms is short for International Commercial Terms. Each rule is a short code, such as FOB or DDP, that buyers and sellers add to a sales contract so both sides know the same thing: where the seller delivers, who books and pays the transport, who clears export and import customs, who insures the goods and when the risk moves across.

The ICC published the first Incoterms in 1936 and has revised them about once every ten years since 1980. Incoterms 2020 is the ninth revision. It was released in September 2019 and came into force on 1 January 2020, and it remains the current edition used in trade contracts worldwide, including on most quotations from Chinese factories.

What Incoterms 2020 do not cover

Incoterms are often misunderstood, so it helps to know their limits. An Incoterm does not decide:

• when ownership (title) of the goods passes to the buyer
• the price, payment terms or currency, or how a letter of credit works
• what happens if one party breaches the contract, or which law applies
• the HS code, customs duty rate or product certifications such as BIS

Those points belong in the rest of your sales contract and purchase order. The Incoterm only allocates delivery, costs, risk, transport, insurance and customs tasks.

The 11 Incoterms 2020 rules at a glance

The 11 rules are split into two groups, depending on how the goods travel.

Rules for any mode or modes of transport (7): EXW (Ex Works), FCA (Free Carrier), CPT (Carriage Paid To), CIP (Carriage and Insurance Paid To), DAP (Delivered at Place), DPU (Delivered at Place Unloaded) and DDP (Delivered Duty Paid). Use these for air freight, road, rail, courier, containers and multimodal shipments.

Rules for sea and inland waterway transport only (4): FAS (Free Alongside Ship), FOB (Free On Board), CFR (Cost and Freight) and CIF (Cost, Insurance and Freight). These are meant for cargo loaded directly onto a ship, especially bulk and break-bulk goods.

E, F, C and D families: the easy way to remember

The first letter of each rule tells you how far the seller’s job goes. This is the fastest way to understand the whole Incoterms 2020 set.

The C-terms cause the most confusion. Under CFR, CIF, CPT and CIP the seller pays freight all the way to India, but the risk has already passed to you at the port or carrier in China. These are called the two critical points: one for risk, one for cost. Try CIF in the explorer above and you will see the risk bar turn blue in China while the cost bar stays orange until the Indian port.

Each of the Incoterms 2020 rules explained

Below is every Incoterms 2020 rule in the order of the seller’s growing responsibility, with a practical note for importers bringing goods from China to India.

EXW – Ex Works (named place)

The seller only makes the goods available at its premises or another named place, packed for export. It does not load them onto your truck and does not clear them for export. Risk passes to you the moment the goods are placed at your disposal.

EXW looks cheap on a quotation, but it gives the buyer the most work. In China, the export declaration has to be filed through a registered exporter, which an Indian buyer usually is not. Unless an agent in China handles pickup and export clearance for you, ask the supplier to quote FCA instead.

FCA – Free Carrier (named place)

The seller clears the goods for export and hands them to the carrier or forwarder you nominate at a named place. If that place is the seller’s own premises, the seller also loads your vehicle. If it is somewhere else, such as a forwarder’s warehouse in Yiwu or Guangzhou, the seller delivers on its own truck, ready for unloading.

FCA is the ICC’s recommended rule for containers and consolidated LCL cargo, because the goods are usually handed over at a warehouse or terminal days before the ship sails. Since 2020, the parties can also agree that the buyer’s carrier issues an on-board bill of lading to the seller, which helps when payment is made by letter of credit.

FAS – Free Alongside Ship (named port of shipment)

The seller places the goods alongside the vessel, on the quay or on a barge, at the named port of shipment and clears them for export. Risk and costs pass to the buyer at that point, so loading onto the ship is the buyer’s job.

FAS suits bulk and break-bulk cargo such as steel coils, timber or heavy machinery. It is rarely the right choice for containerised goods from China.

FOB – Free On Board (named port of shipment)

The seller clears the goods for export and loads them on board the vessel you nominate at the named port, such as FOB Ningbo, FOB Shanghai, FOB Shenzhen or FOB Qingdao. Risk passes once the goods are on board. From there, you pay the ocean freight, insurance, Indian destination charges, customs duty and delivery.

FOB is the term most Chinese suppliers quote, and it works well when you have your own forwarder, because you control the freight rate and the charges at the Indian port. Remember that FOB is a sea-only rule: “FOB Shenzhen Airport” is not a valid Incoterm. Use FCA for air cargo.

CFR – Cost and Freight (named port of destination)

The seller loads the goods on board and pays the ocean freight to the named Indian port, for example CFR Nhava Sheva or CFR Mundra. Even so, the risk passes to you when the goods are on board in China. Insurance is not included, so you should arrange cover for the sea voyage yourself.

CIF – Cost, Insurance and Freight (named port of destination)

CIF is CFR plus insurance. The seller must buy marine insurance for your benefit, but only minimum cover under Institute Cargo Clauses (C), for at least 110% of the contract value. Clause C covers listed major events such as fire, sinking or collision, not everyday handling damage or theft.

For electronics, machinery, furniture and other manufactured goods, ask the seller for Clause (A) cover or buy your own top-up policy. Also be careful with very low CIF prices to Indian ports: the seller’s forwarder may recover its margin through high destination charges that you pay on arrival.

CPT – Carriage Paid To (named place of destination)

The seller pays the carriage to a named place in India, such as Delhi air cargo terminal or ICD Tughlakabad, but the risk passes when the goods are handed to the first carrier in China. CPT works for any mode, so it is a natural choice for air freight, courier and container shipments where the seller books the transport.

CIP – Carriage and Insurance Paid To (named place of destination)

CIP is CPT plus insurance, and this is where Incoterms 2020 made a real change. The seller must now buy all-risks cover under Institute Cargo Clauses (A), for at least 110% of the contract value. That makes CIP the safer C-term for high-value goods such as electronics, instruments and spare parts.

DAP – Delivered at Place (named place of destination)

The seller delivers the goods to the named place in India on the arriving vehicle, ready for unloading, and carries the risk until then. You unload the goods, clear Indian customs and pay the duty and IGST. Under DAP you still need an Importer Exporter Code (IEC), a customs broker and funds for the duty when the cargo lands.

DPU – Delivered at Place Unloaded (named place of destination)

DPU replaced DAT (Delivered at Terminal) in 2020. It is the only Incoterm that makes the seller unload the goods at destination. Delivery can be at any place, not only a terminal, so make sure the seller is actually able to unload at the place you name. Import clearance and duty remain with you.

DDP – Delivered Duty Paid (named place of destination)

DDP puts the maximum obligation on the seller: transport, export and import clearance, customs duty, taxes and delivery to your named place. You simply receive the goods.

A Chinese factory usually cannot act as the importer in India by itself, so DDP shipments from China normally run through an Indian import agent who files the Bill of Entry and pays the duty. Before you agree, ask who the importer on record is and what GST invoice you will receive. Read more in our guide to DDP shipments from China to India and the comparison of DDP vs DAP shipping.

Incoterms 2020 chart: who pays what

The table below shows each Incoterms 2020 obligation and charge, from export packing in China to import clearance in India. Tap a rule code in the header to highlight it and update the explorer above.

What changed from Incoterms 2010 to Incoterms 2020?

Most of the rules stayed the same, but Incoterms 2020 made several practical changes that matter for importers:

• DAT became DPU. Delivered at Terminal was renamed Delivered at Place Unloaded, so the seller can unload at any agreed place, not only a terminal.
• Higher insurance under CIP. CIP now requires all-risks cover under Institute Cargo Clauses (A). CIF still requires only the minimum Clauses (C).
• FCA and on-board bills of lading. Buyer and seller can agree that the buyer’s carrier issues an on-board bill of lading to the seller, which makes FCA work with letters of credit.
• Own means of transport. The rules now accept that a buyer may collect with its own vehicle under FCA, and a seller may deliver with its own vehicle under DAP, DPU and DDP.
• Security costs. Security-related requirements such as container screening are now allocated clearly between buyer and seller.
• Clearer cost lists. All costs are listed together in articles A9 and B9 of each rule, which reduces disputes over terminal handling charges.
• Explanatory notes and a new order. Each rule now starts with user notes, and delivery and risk appear earlier in the text.

FOB vs CIF vs EXW vs DDP: which is best for imports from China to India?

Choosing between the Incoterms 2020 rules is really a choice about control, cost and convenience. Here is how the four Incoterms 2020 terms Indian importers see most often compare:

Does a CIF invoice reduce customs duty in India?

No. Indian customs duty is charged on the assessable value, which is based on the CIF value of the goods at the Indian port, whatever term appears on your invoice. Under the Customs Valuation Rules, 2007, if you buy FOB, customs adds the actual freight and insurance. If the freight cannot be ascertained, it is taken as 20% of the FOB value, and insurance as 1.125% of the FOB value.

Example: goods bought at USD 10,000 FOB Ningbo, with actual sea freight of USD 800 and no insurance proof, have an assessable value of 10,000 + 800 + 112.50 = USD 10,912.50. Basic customs duty, the Social Welfare Surcharge and IGST are then calculated on that value. The fastest way to see your real figure is the free IFC shipment calculator or the HS code duty pages.

Which Incoterm should a small importer choose?

If you have your own forwarder and import regularly, FOB (or FCA for consolidated cargo) gives the best control over cost. If you want a single price to your shop or warehouse and no customs paperwork, a DDP door-to-door service from an import agent is simpler. Wholesalers and retailers in Delhi markets such as Sadar Bazaar, Karol Bagh, Chandni Chowk, Gandhi Nagar, Nehru Place and Bhagirath Palace often choose DDP for mixed cartons from Yiwu and Guangzhou, while factories and distributors in Mumbai, Ahmedabad, Surat, Ludhiana, Bengaluru and Chennai often buy FOB and clear through their own CHA.

How to write Incoterms 2020 in a contract or proforma invoice

Always use the format: rule + named place or port + “Incoterms® 2020”. The more precise the place, the fewer disputes about who pays loading or terminal charges. Good examples:

• FOB Ningbo, China, Incoterms® 2020
• FCA forwarder’s warehouse, Futian, Yiwu, Zhejiang, China, Incoterms® 2020
• CIF Nhava Sheva (JNPT), India, Incoterms® 2020
• CPT Delhi Air Cargo Terminal, India, Incoterms® 2020
• DAP ICD Tughlakabad, New Delhi, Incoterms® 2020
• DDP your warehouse address, Karol Bagh, New Delhi, Incoterms® 2020

Parties can still choose an older edition such as Incoterms 2010 instead of Incoterms 2020, so always write the year. If you leave it out, the rules of the edition that applied at the contract date may be assumed, which can lead to arguments later.

8 common Incoterms 2020 mistakes Indian importers make

1. Using FOB for air cargo. FOB, FAS, CFR and CIF are sea-only rules. Use FCA, CPT or CIP for air freight.
2. Not naming an exact place. “FCA Guangzhou” is too vague. Name the warehouse, terminal or address.
3. Assuming C-terms move risk to India. Under CFR, CIF, CPT and CIP, risk passes in China even though the seller pays freight.
4. Relying on CIF’s minimum insurance. Clause (C) cover rarely protects manufactured goods against handling damage.
5. Accepting EXW without export support. Someone must be able to file the Chinese export declaration.
6. Ignoring destination charges. Terminal handling, delivery order and CFS charges at the Indian port can wipe out a cheap CIF or CFR price.
7. Forgetting the edition year. Always write “Incoterms® 2020” after the rule.
8. Treating Incoterms as a payment or ownership clause. They are not. Cover payment, title and quality in the contract.

How IFC handles Incoterms 2020 for China to India imports

IFC – Imports From China works with buyers on whichever rule suits the deal. Our team in China can collect goods EXW or FCA from suppliers, check and consolidate them in our warehouses, and ship by sea or air. For buyers who want one price, our door-to-door shipping from China to India service works on a DDP basis, with customs duty and delivery included, across Delhi NCR, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Jaipur, Lucknow, Ahmedabad, Pune and other cities.

Not sure what your landed cost will be under FOB, CIF or DDP? Estimate it in the shipment calculator, convert carton weight with the weight to CBM calculator, or contact IFC for a quote.

Incoterms 2020 FAQs

This guide is general information about the Incoterms 2020 rules and Indian customs practice. It is not legal advice. For the official text, see the ICC Incoterms® rules page. For another detailed walkthrough, see the IncoDocs Incoterms guide. Incoterms® is a registered trademark of the International Chamber of Commerce.