Incoterms 2020 Explained: All Eleven Rules and Who Pays What

Most Incoterms disputes are not disagreements about the rule. They are two parties using the same three letters to mean different things, or using a sea term on a road movement, or assuming that an Incoterm settles who needs an EORI number. This guide lists all eleven rules with the mode each is for, sets out who clears customs under each, and covers the three changes that came in with the 2020 edition. It also explains why FCA causes more confusion in the UK than any other rule — including on one of our own pages, which is where this article started.

What are Incoterms, and what do they not cover?

Incoterms are eleven standardised three-letter rules published by the International Chamber of Commerce that allocate, between a buyer and a seller, who arranges carriage, who bears the cost, where risk passes and who clears customs. They are contractual shorthand, not law: they bind because the parties write them into the contract of sale. Three things they do not do are the usual source of disputes. They do not transfer title to the goods. They do not set the payment terms. And they do not override customs law — an Incoterm says who should clear, not whether a declaration is required. The current edition is Incoterms 2020, published by the ICC.

What are the eleven Incoterms 2020 rules?

Seven work for any transport mode; four are for sea and inland waterway only. Using a sea-only term for a road or air movement is the commonest drafting error in the whole set.

Our Incoterms glossary entry gives the short definition of each.

What changed between Incoterms 2010 and 2020?

Three changes matter commercially and the rest is drafting. DAT — Delivered At Terminal — was renamed DPU, Delivered At Place Unloaded, which widened it from a terminal to any agreed place. The insurance level under CIP was raised to all-risks cover while CIF deliberately stayed at the minimum level, so the two are no longer symmetrical and choosing CIF for a high-value consignment leaves the buyer thinly covered. And FCA gained an option for the buyer to instruct the carrier to issue an on-board bill of lading, which closed a long-standing problem for sellers needing that document for a letter of credit. If your contract still says DAT, it is on the 2010 edition.

Why is FCA so often misunderstood?

Because the letters collide with three other things, and because "Free Carrier" sounds like a description of the carrier rather than of the delivery point. FCA is an Incoterm meaning the seller delivers when the goods are handed to a carrier nominated by the buyer — it says nothing about the vehicle, the operator or any standard the carrier meets. In the UK the same three letters are the Financial Conduct Authority, which regulates financial services and has no role in transport whatsoever. We can say this with feeling: one of our own service pages carried the phrase "FCA-compliant vehicles" until we removed it on 9 October 2026. It was meaningless, and at 2,900 searches a month for "fca incoterms" we were clearly not alone in the confusion.

Which Incoterm puts the most work on the seller, and which on the buyer?

EXW and DDP are the two ends of the scale, and both are riskier than they look. Under EXW the buyer takes everything, including loading the goods at the seller's own premises and completing the seller's export formalities — which a foreign buyer frequently cannot do, because export declarations are usually made by an established exporter. Under DDP the seller takes everything, including import clearance and duty in the buyer's country, which the seller frequently cannot do for the same reason in reverse. The practical advice from both ends: prefer FCA over EXW, and DAP over DDP, unless you genuinely have a presence at the far end.

What is the difference between DAP and DDP?

One word in the name and the entire import clearance in practice. Under DAP the seller delivers the goods to the named place ready for unloading, and the buyer handles import clearance and pays duty and import VAT. Under DDP the seller does all of that too. The gap is a cost the seller usually cannot calculate in advance and often cannot legally discharge, because an import declaration normally requires an EORI and a VAT registration in the destination country. DDP looks customer-friendly on a quotation and becomes a problem at the border. If you want the DDP experience without the exposure, quote DAP and tell the buyer what clearance will cost.

What is the difference between CIF and FOB?

Who pays the ocean freight and the insurance — but both are sea-only terms and both deliver on board, which surprises people. Under FOB the seller's responsibility ends when the goods are on board the vessel and the buyer arranges and pays for carriage and insurance. Under CIF the seller pays the freight and takes out insurance, but risk still passes on board, so the buyer carries the risk of a loss the seller insured. That asymmetry is deliberate and is the reason CIF disputes exist at all. Neither term should appear on a road or air movement, where CPT and CIP are the equivalents.

Which Incoterm should you use for a UK-to-EU road movement?

Usually FCA, DAP or CPT, and almost never a sea term. For a road movement out of GB the practical shortlist is short: FCA if the buyer is arranging the transport, CPT if you are arranging and paying for it but risk should pass early, and DAP if you are delivering to the buyer's door and leaving import clearance to them. Add the named place every time — "FCA" alone is incomplete and "FCA Birmingham" is a term; the named place is where delivery and risk transfer actually happen. See UK versus EU shipping and shipping to the EU after Brexit.

Who clears customs under each rule?

Export clearance and import clearance sit with different parties depending on the term, and this table is the one worth printing.

Where no party is obliged to insure, that does not mean the goods travel uninsured — it means nobody has promised to do it, which is a worse position to discover late. A carrier's goods-in-transit cover is not cargo insurance and is not a substitute.

Does an Incoterm decide whether you need an EORI number?

No. Customs law decides that, and the Incoterm only allocates who does the work. If you are named as the exporter or importer on a declaration you need an EORI number regardless of which term the contract uses, and a DDP seller shipping into the EU typically needs an EU EORI and a local VAT registration as well. This is the most expensive misunderstanding in the set, because the term is agreed by sales and the obligation lands on finance. Our EORI versus VAT entry separates the two numbers.

Do Incoterms apply to a delivery inside the UK?

They can be used, but there is usually no reason to. Incoterms exist to allocate cross-border obligations — export formalities, import clearance, duty, the point where risk passes between territories. A movement between two UK addresses has no customs element at all, so the only thing an Incoterm would allocate is who pays the carrier and when risk passes, which an ordinary sales contract states more clearly in plain English. Seven of the eleven rules exist only to describe a border crossing that a domestic job does not have. If you are quoting a UK delivery, say who pays and when title and risk pass, and leave the three-letter codes for the border. See arranging a UK delivery from overseas.

How do you write an Incoterm into a contract without creating a dispute?

Five steps, and the first two prevent most arguments. (1) Name the rule, the place and the edition: "DAP 14 Example Road, Birmingham B1 1AA, Incoterms 2020". (2) Check the rule matches the mode — no sea terms on a road movement. (3) Say explicitly who insures and to what level, because seven of the eleven oblige nobody. (4) Say who is named as exporter and importer on the declarations, which the Incoterm implies but does not state. (5) Agree what happens if the goods are rejected at the border, which no Incoterm covers. Our customs broker entry explains the declarant role, and European road freight the transport.

Where does the carrier fit, and what are we responsible for?

The carrier is not a party to the Incoterm at all, which is worth stating plainly. An Incoterm allocates obligations between buyer and seller; we contract with whichever of them books us, under the CMR consignment note for the road legs. Goods in transit are insured to £50,000 on our own vehicles and up to £1,000,000 where a consignment moves via partner carriers, with public liability cover of £1,000,000 — and that is carrier liability, not cargo insurance against every risk the Incoterm leaves unallocated. We coordinate customs clearance through partner customs agents and do not act as declarant. Cover terms are in our terms and conditions.

What does each Incoterm cost you in practice?

Not a price, but an exposure — and it is the exposure, not the freight rate, that decides the right rule. Four questions size it. Who can legally make the declaration at each end, since an export declaration usually requires an established exporter and an import declaration an EORI plus a local VAT registration? Who can absorb a duty bill they cannot calculate in advance, which is the DDP seller's problem? Who carries the risk of a loss during a leg the other party arranged, which is the CIF buyer's problem? And who pays for a storage or demurrage charge if clearance stalls, which no Incoterm allocates at all? A rule that answers all four in your favour on paper may be one you cannot actually perform.

Which rules should a UK small exporter avoid?

EXW and DDP, for opposite reasons, and the reasoning is the same both times: you are agreeing to something you may not be able to do. EXW leaves the buyer completing your export formalities from abroad, which a foreign buyer with no UK establishment often cannot, so the goods sit on your loading bay while two parties discover the problem. DDP puts you on the hook for import clearance and duty in a country where you have no EORI, no VAT registration and no agent. Prefer FCA in place of EXW and DAP in place of DDP; both shift one step and remove the impossible obligation. Our UK to Ireland pallets and London to Ireland pages cover the commonest first export route for UK sellers.