1. What Incoterms® 2020 solve —and what they do not
The International Chamber of Commerce's Incoterms® 2020 rules help identify the delivery point, when the risk of loss or damage moves from seller to buyer, which party arranges carriage, and how certain costs and formalities are allocated.
2. Select the rule that matches the actual operation
Incoterms® 2020 contains eleven rules. Seven may be used for any mode of transport, including multimodal movements, while four are reserved for sea or inland waterway transport.
| Group | Rules | Practical use |
|---|---|---|
| Any mode | EXW, FCA, CPT, CIP, DAP, DPU and DDP | Road, air, rail, containers and multimodal combinations. |
| Sea / inland waterway | FAS, FOB, CFR and CIF | Transactions where delivery is directly linked to the vessel and port. |
When containerised cargo is handed to the carrier at a terminal before it is on board the vessel, ICC guidance says the parties should consider FCA rather than FOB. The selected rule should mirror the physical flow instead of relying on habit.
3. The precise place matters as much as the three letters
The safest wording is: [selected rule] [named port, place or point] Incoterms® 2020. For example: FCA Seller's warehouse, Santiago, Chile, Incoterms® 2020.
Vague wording such as “FOB Chile” or “DAP Santiago” leaves critical questions unanswered: which terminal or address, who unloads, and where risk changes hands? Under the “C” rules, the destination paid for by the seller is not necessarily the place where risk transfers to the buyer.
4. Paid carriage does not always mean seller's risk
Under CPT, CIP, CFR and CIF the seller arranges and pays carriage to the named destination, but risk may transfer earlier. Commercial, finance and insurance teams should understand this distinction rather than assume that the party paying freight retains risk until arrival.
CIP and CIF require the seller to arrange insurance, but at different coverage levels. CIP is designed for any mode and requires broader cover; CIF is limited to sea or inland waterway transport and provides minimum cover. Additional insurance can be agreed in the sales contract.
5. Mistakes that create cost and disputes
- Selecting the rule after price negotiation without checking the logistics flow.
- Leaving out the exact place or the “2020” edition.
- Confusing the paid destination with the risk-transfer point.
- Using FOB or CIF for containerised cargo delivered before loading without considering FCA or CIP.
- Assuming Incoterms® determine title, payment, penalties, force majeure or dispute resolution.
- Failing to align the rule with documentary credit, insurance, carriage and customs requirements.
6. Checklist before closing the sale
- Define where the goods will physically be delivered.
- Confirm who arranges each transport leg and pays surcharges.
- Identify the exact point where risk transfers.
- Confirm responsibility for export, transit and import formalities.
- Check whether insurance is required and at what level.
- Align the rule with payment terms and required documents.
- Write the complete clause with the precise place and “Incoterms® 2020”.
Official sources consulted
Informational content. Contractual, customs and documentary requirements must be validated for each transaction, product, country and mode of transport.