Incoterms 2020, priced

What Incoterms actually are

Incoterms are published by the International Chamber of Commerce and define three things for a shipment: where the seller's cost obligation ends, where risk transfers, and who handles export and import clearance. They do not define ownership, payment terms, or the quality of the goods — a common misconception that shows up in badly drafted contracts.

Incoterms 2020 is the current version. It renamed DAT to DPU and made a handful of clarifications about containerised cargo and own-transport. If your contract still cites Incoterms 2010, it is not wrong, but it is old.

All eleven rules

Rule	Mode	Risk transfers	Seller pays	Buyer pays
EXW Ex Works	Any	At the seller's premises, before loading	Packing only	Collection, export clearance, everything
FCA Free Carrier	Any	On handover to the carrier at the named place	Export clearance, delivery to carrier	Main carriage onwards
FAS Free Alongside Ship	Sea, bulk	Alongside the vessel at origin port	Export clearance, delivery alongside	Loading, freight, destination
FOB Free On Board	Sea, bulk	On board the vessel at origin port	Export clearance, origin THC, loading	Ocean freight, insurance, destination, duty
CFR Cost and Freight	Sea, bulk	On board at origin — freight paid to destination	Freight to destination port	Insurance, destination charges, duty
CIF Cost, Insurance, Freight	Sea, bulk	On board at origin	Freight plus ICC C cover at 110%	Destination charges, duty, import VAT
CPT Carriage Paid To	Any	On handover to the first carrier	Carriage to the named destination	Insurance, import clearance, duty
CIP Carriage & Insurance Paid To	Any	On handover to the first carrier	Carriage plus ICC A cover at 110%	Import clearance, duty
DAP Delivered At Place	Any	At destination, ready for unloading	Everything except import clearance and duty	Duty, import VAT, clearance
DPU Delivered At Place Unloaded	Any	After unloading at destination	Everything including unloading	Duty, import VAT, clearance
DDP Delivered Duty Paid	Any	At destination, cleared for import	Everything, including duty and clearance	Nothing beyond receiving the goods

Two of these are rarely used in China export: FAS suits bulk commodities loaded by crane, and DPU exists mainly for markets where the buyer has no unloading capability. The other nine cover almost every transaction you will see.

The four that dominate China export

FOB is the default. Roughly three quarters of Chinese supplier quotations are FOB, which means the price includes goods, inland haulage, export declaration, origin terminal handling and loading — and stops at the ship's rail. It is the number a freight forwarder can work with immediately, and it is the number most comparable across suppliers.

CIF is what a supplier quotes when the buyer cannot book freight, or when the supplier is consolidating several buyers' cargo. The price includes ocean freight to the named destination port and cargo insurance at a minimum of 110% of contract value with ICC C cover.

EXW appears when the supplier has no export licence, or when the buyer has a Chinese trading entity. It looks cheapest and is the most dangerous to accept: the buyer becomes responsible for the China export declaration, which requires a Chinese entity or an agent, and for collecting from a factory that may not have a loading dock.

DDP is what marketplace sellers ask for. It is the only term where the seller carries duty and import clearance, and in most markets it requires the seller to have a tax registration at destination — which is exactly where DDP arrangements quietly fail.

Why CIF is not "FOB plus freight"

Because insurance is charged on 110% of the CIF value, and the premium is part of that value, the two are circular. Solving the circle gives:

CIF = (FOB + freight) ÷ (1 − 1.1 × rate)

At a 0.3% rate that is a 0.33% uplift; at 1% it is a 1.1% uplift. Small in percentage, real in cash: on a $200,000 shipment at 1%, that is $2,200 of premium which most hand-built costing sheets never include. Going the other way — turning a CIF quote back into FOB — subtracting freight alone leaves the premium in the number and overstates FOB by exactly that amount.

The FOB / CIF calculator handles both directions with the correct formula, and the reverse panel is there specifically for comparing a CIF quote against an FOB one.

Insurance cover: ICC A, B and C

The Incoterms only require a minimum, and the minimum is weak. ICC C covers major perils — sinking, stranding, fire, collision — and little else. It does not cover theft, non-delivery, water damage from rain, or rough handling. ICC B adds earthquake, volcanic activity, washing overboard and water ingress. ICC A is all risks subject to exclusions.

CIF requires ICC C. CIP requires ICC A. If you sell CIF on consumer goods and the container arrives with water damage, the claim may well fail — the buyer will discover this at the worst possible moment. Many exporters buy an ICC A policy anyway and simply do not advertise the difference; it costs a fraction of a percent more.

The mistakes that cost money

Quoting EXW without checking the buyer can export. The declaration requires a Chinese entity. A buyer without one will discover it at collection, and the goods sit at the factory.

Assuming DDP means "no work for me". DDP makes the seller the importer of record in practice. Without a local VAT number, import VAT becomes an unrecoverable cost — 19–23% in most EU markets.

Using FOB for a container that never touches a ship's rail at origin. Incoterms 2020 recommends FCA for containerised cargo. In practice the market still quotes FOB, so the commercial term is FOB while the risk point is earlier. Know which one you are actually agreeing to.

Leaving the named place blank. "DAP Germany" is not a term, it is an argument. Every Incoterm needs a specific place, and where that place is can move the price by the cost of a domestic haul.

Confusing the Incoterm with the payment term. FOB says nothing about when you get paid. A 30% deposit with FOB is a completely different risk profile from 100% against documents — and both are FOB.