Incoterms 2020 Explained — Complete Guide for Importers & Exporters

Q: Why should I avoid buying on CIF or CIP?

Three reasons. First, the freight under CIF/CIP looks cheap but destination local charges are inflated. Second, the insurance policy is issued in the origin country and is typically claimable only there — if cargo is damaged, you are filing a claim in a foreign jurisdiction. Third, you lose all control over carrier choice, routing, and schedule. A safer alternative for buyers is FOB (or FCA for containers) with freight and insurance arranged by a forwarder you trust.

Q: Who issues the insurance under CIF and CIP?

The seller. Under Incoterms 2020, CIF requires Institute Cargo Clauses C (limited perils), while CIP requires Institute Cargo Clauses A (all risks). The policy is issued in the seller's country, under the seller's local law. The buyer is the beneficiary but typically must claim in the origin jurisdiction.

Q: What changed in Incoterms 2020 vs Incoterms 2010?

Four main changes: DAT was renamed DPU (Delivered at Place Unloaded); CIP insurance was raised to Institute Cargo Clauses A while CIF stayed at Clauses C; FCA was clarified to allow on-board Bill of Lading for letters of credit; and security-clearance obligations were expanded across all terms.

Q: Do Incoterms cover VAT and customs duty?

Partially. Incoterms allocate responsibility for import and export clearance but do not set tax rates. In Israel, VAT on imports is paid by the importer of record on the customs declaration regardless of the Incoterm. Under DDP the seller typically pays import duty, but VAT treatment must be handled carefully to preserve the buyer's input VAT recovery.

In This Guide

What Incoterms Are (and Aren't)
The Four Groups at a Glance
Group E — EXW
Group F — FCA, FAS, FOB
Group C — CFR, CIF, CPT, CIP
⚠ Why CIF and CIP Are Dangerous for Buyers
Group D — DAP, DPU, DDP
FOB vs FCA — The Critical Distinction
Which Term Should You Use?
Frequently Asked Questions

1. What Incoterms Are (and Aren't)

Incoterms (short for International Commercial Terms) are a set of three-letter codes published by the International Chamber of Commerce (ICC) in Paris. The current version — Incoterms 2020 — took effect on January 1, 2020 and will be the reference standard until the next revision.

Each Incoterm is a shorthand that answers three questions at once: who pays for transport, who pays for insurance, and where exactly does risk transfer from seller to buyer. Getting this right is critical — it determines whether a headline freight quote reflects the real landed cost, or only a fraction of it.

What Incoterms DO govern

Allocation of transport cost between seller and buyer
Point at which risk of loss or damage transfers
Responsibility for export and import clearance
Who arranges insurance (and whether it is even mandatory)
Who loads, unloads, and bears associated terminal fees

What Incoterms do NOT govern

Transfer of title / ownership — that is a matter for your sales contract
Payment terms (letter of credit, T/T, open account)
VAT, customs duties, or tax liability
Sanctions, export controls, or compliance screening
Breach-of-contract remedies or dispute jurisdiction

2. The Four Groups at a Glance

The 11 terms of Incoterms 2020 fall into four groups, ordered by how much responsibility sits with the seller. Group E is the minimum seller obligation; Group D is the maximum.

Group	Terms	Seller's role	Transport mode
E	EXW	Makes goods available at own premises	Any mode
F	FCA, FAS, FOB	Delivers to main carrier at origin; buyer pays main freight	FCA — any · FAS, FOB — sea only
C	CFR, CIF, CPT, CIP	Pays main freight (and CIF/CIP also insurance), but risk transfers at origin	CFR, CIF — sea only · CPT, CIP — any
D	DAP, DPU, DDP	Delivers goods to named place at destination	Any mode

3. Group E — EXW (Ex Works)

EXW is the minimum obligation for the seller. The seller simply makes the goods available at their factory, warehouse, or yard — not even loaded onto the buyer's truck. Every single cost and risk from that point onward is on the buyer: loading, origin trucking, export clearance, main freight, import clearance, destination trucking, and insurance.

Who should use EXW: almost nobody. It is popular among Chinese suppliers because it quotes a very low-looking price, but it puts export clearance responsibility on a buyer who has no presence in the origin country. In practice, most forwarders will handle the origin side as a service, but the legal responsibility still sits with you.

4. Group F — FCA, FAS, FOB

In Group F, the seller delivers the goods to a carrier nominated by the buyer at the origin. The seller handles export clearance. From that handover point, the buyer pays the main freight and bears the risk.

FCA (Free Carrier) — Seller delivers to the first carrier at a named place (factory, trucking yard, container yard, airport). Any mode of transport. The most flexible and modern of the F terms — and the correct choice for containerised and air cargo.
FAS (Free Alongside Ship) — Seller delivers goods alongside the vessel at the named port of shipment. Sea only. Rarely used outside bulk and break-bulk cargo.
FOB (Free On Board) — Seller delivers goods on board the vessel at the named port. Risk transfers once cargo is loaded. Sea only. The most commonly used — and most commonly mis-used — term in international trade.

5. Group C — CFR, CIF, CPT, CIP

Group C is where Incoterms get tricky. In all C-terms, the seller pays for the main freight — but the risk transfers to the buyer at origin, not at destination. That mismatch between cost transfer and risk transfer is the single most misunderstood concept in Incoterms.

CFR (Cost and Freight) — Seller pays cost and freight to destination port. Sea only. No insurance obligation.
CIF (Cost, Insurance and Freight) — CFR plus minimum marine insurance arranged by the seller. Sea only.
CPT (Carriage Paid To) — Seller pays carriage to named destination. Any mode. The multimodal equivalent of CFR.
CIP (Carriage and Insurance Paid to) — CPT plus insurance. Any mode. The multimodal equivalent of CIF.

⚠ Our strong advice: avoid buying on CIF or CIP

On the surface, CIF and CIP look attractive: the sea or air freight is paid by the seller, and insurance is included. Many importers accept these terms thinking they are getting a good deal. In practice, they are three traps wrapped in one:

The freight quote looks cheap — destination charges are inflated — When the seller controls the freight, they typically work with a forwarder who quotes the freight at cost or below, then makes back the margin (and more) on destination local charges billed to the buyer at arrival. The "cheap" freight becomes expensive once THC, D/O, storage, and agency fees land on your invoice.
The insurance policy is issued in the origin country — Under CIF/CIP the seller procures the insurance. That policy is issued under the laws of the seller's country and, in most cases, can only be claimed there. If your cargo is damaged, you are suddenly litigating or filing a claim in a foreign jurisdiction, in a foreign language, against an insurer you have no relationship with.
You have zero control over carrier, routing, and timing — The seller books the vessel or flight. You cannot influence the carrier, the transshipment hub, the service loop, or the arrival date. If the carrier they picked is slow or unreliable, you own the delay — not them.

Our recommendation: as the buyer, use FOB (for containerised sea freight the correct term is FCA) and arrange your own freight and insurance through a forwarder and insurer you trust. You will see the true landed cost, control the carrier choice, and have recourse under your own local insurance law. The small effort of managing the freight leg yourself is worth it.

6. Group D — DAP, DPU, DDP

Group D terms put the maximum obligation on the seller. The seller delivers the goods to a named place at destination and bears all cost and risk up to that point.

DAP (Delivered at Place) — Seller delivers to named destination, ready for unloading. Buyer handles import clearance and unloading.
DPU (Delivered at Place Unloaded) — Like DAP, but the seller also unloads the goods. Replaced DAT (Delivered at Terminal) in the 2020 revision.
DDP (Delivered Duty Paid) — Maximum seller obligation. Seller bears everything, including destination import duty and VAT. Looks convenient to the buyer, but often more expensive because the seller has to handle import clearance in a country they don't operate in.

7. FOB vs FCA — The Critical Distinction

If you take only one thing from this guide, let it be this: FOB is a sea-only term that was designed for break-bulk cargo loaded directly onto a vessel. For containerised cargo — which is how 99% of manufactured goods move today — the correct term is FCA, not FOB.

	FOB	FCA
Transport mode	Sea only	Any mode (sea, air, road, rail, multimodal)
Point of risk transfer	When cargo is loaded on board the vessel	When cargo is handed to the first carrier at named place
Designed for	Break-bulk, bulk cargo loaded directly on vessel	Containerised cargo, air freight, truck freight
Named place example	"FOB Shanghai"	"FCA Shanghai CY" / "FCA Ningbo CFS"

Why this matters in practice: when a buyer signs a contract for containers on FOB terms, risk technically only transfers once the container is on the ship. But the seller usually hands over to the forwarder at the container yard days earlier. If damage occurs between the CY and the vessel — during stacking, yard movement, or loading — there is a legal gap that neither party clearly owns. FCA closes that gap by transferring risk at the handover to the first carrier.

8. Which Term Should You Use?

For importers (buyer side)

Containerised sea freight (FCL or LCL): prefer FCA. Control your own freight, insurance, and carrier.
Break-bulk / bulk sea cargo: FOB is still valid and correct.
Air freight: FCA (handover at airport cargo terminal). Never FOB for air.
Samples or small parcels: DAP or DDP from a known courier (DHL/FedEx/UPS) is acceptable.
Avoid: EXW (export responsibility falls on you), CIF / CIP (see warning above).

For exporters (seller side)

Default: FCA Ashdod / Haifa — deliver to carrier, your responsibility ends cleanly.
If the buyer insists on a door-to-door price: quote DAP. Avoid DDP unless you have a customs broker in the destination country.

Frequently Asked Questions

What is the difference between FOB and FCA?

FOB (Free On Board) is a sea-only term where risk transfers when cargo is loaded on board the vessel. FCA (Free Carrier) is a multimodal term where risk transfers earlier — when cargo is handed to the first carrier at a named place (container yard, airport, truck terminal). For containerised cargo and air freight, FCA is the correct term. FOB is appropriate only for break-bulk or bulk cargo loaded directly onto a vessel.

Why should I avoid buying on CIF or CIP?

Three reasons. First, the sea freight under CIF looks cheap but destination local charges are inflated to recover the margin. Second, the insurance policy is issued in the origin country and is typically claimable only there — if cargo is damaged, you are filing a claim in a foreign jurisdiction. Third, you lose all control over carrier choice, routing, and schedule, so any delay becomes your problem with no recourse against the seller. A much safer alternative for buyers is FOB (or FCA for containers) with freight and insurance arranged by a forwarder you trust.

Is EXW cheaper than FOB?

Only on the supplier's quote. EXW excludes origin loading, trucking, and export clearance — costs the buyer has to pay separately. By the time you add those costs back in, EXW is usually equal to or more expensive than FOB. The real problem with EXW is not the price but the legal responsibility for export clearance sitting with a buyer who has no presence in the origin country.

Who issues the insurance under CIF and CIP?

The seller. Under Incoterms 2020, CIF requires minimum cover (Institute Cargo Clauses C — limited perils), while CIP requires higher cover (Institute Cargo Clauses A — all risks). The policy is issued in the seller's country, under the seller's local law, usually with a local insurer the buyer has never heard of. The buyer is named as the beneficiary but must typically claim in the origin jurisdiction. This is why experienced importers almost always arrange their own insurance through a carrier in their own country and work in FOB/FCA instead.

What changed in Incoterms 2020 vs Incoterms 2010?

Four main changes. First, DAT (Delivered at Terminal) was renamed and broadened to DPU (Delivered at Place Unloaded). Second, CIP insurance requirements were raised to Institute Cargo Clauses A (all risks); CIF stayed at Clauses C. Third, FCA was clarified to allow buyers to instruct the carrier to issue an on-board Bill of Lading to satisfy letters of credit. Fourth, the guidance on security-related clearance obligations was expanded across all terms.

Can I change the Incoterm after an order is placed?

Only with written agreement from both parties. The Incoterm is part of the sales contract, and changing it changes who pays what and where risk transfers. Any change should be documented in an amendment to the sales contract and reflected on the commercial invoice and the Bill of Lading. Do not rely on verbal agreements — if something goes wrong, the documented Incoterm is what controls.

Do Incoterms cover VAT and customs duty?

Partially. Incoterms allocate who is responsible for import and export clearance, but they do not set tax rates or determine who ultimately absorbs VAT. In Israel, VAT on imports is paid by the importer of record on the customs declaration, regardless of the Incoterm. Under DDP, the seller typically agrees to pay import duty but the VAT treatment must be handled carefully to preserve the buyer's ability to recover input VAT.

Source: International Chamber of Commerce (ICC), Paris — Incoterms 2020 (ICC Publication No. 723E, effective 1 January 2020); Institute of London Underwriters — Institute Cargo Clauses A/B/C (2009 wordings, referenced under CIF and CIP); Israeli Ministry of Economy import guide (gov.il).

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Incoterms 2020 Explained — The Complete Guide for Importers & Exporters