Incoterms 2020 guide, 11 terms and when to use each
All 11 Incoterms 2020 (EXW, FCA, CPT, CIP, DAP, DPU, DDP, FAS, FOB, CFR, CIF): which one to pick, risk and cost transfer, sea vs multimodal, and the points most often confused.
What are Incoterms?
Incoterms ("International Commercial Terms"), published by the International Chamber of Commerce (ICC), are a set of 11 standardized terms that define the risk, cost, and responsibility split between buyer and seller in an international transaction. The current version is Incoterms 2020. A single three-letter code in the contract has the same meaning across the world.
Important: Incoterms are more than transport responsibility. Risk transfer (who is liable from when), cost split (who pays for what), export/import clearance, all depend on the term. Wrong term = mispriced quote from the start.
The 11 terms at a glance
| Code | Name | Mode | Cost | Risk |
|---|---|---|---|---|
| EXW | Ex Works | Any mode | Buyer pays everything (incl. loading). | Risk passes at seller's premises. |
| FCA | Free Carrier | Any mode | Seller pays loading + export clearance; freight on buyer. | Passes when handed to buyer's carrier at the named place. |
| CPT | Carriage Paid To | Any mode | Seller pays freight + export clearance. | Passes at first carrier, even though seller pays freight. |
| CIP | Carriage and Insurance Paid To | Any mode | CPT + broad-cover insurance (ICC A). | Same as CPT. |
| DAP | Delivered at Place | Any mode | Seller pays freight + insurance; import clearance + unloading on buyer. | Passes at destination, before unloading. |
| DPU | Delivered at Place Unloaded | Any mode | Seller pays freight + insurance + unloading; import clearance on buyer. | Passes after unloading at destination. |
| DDP | Delivered Duty Paid | Any mode | Seller pays everything incl. import clearance + taxes. | Stays with seller until buyer's door. |
| FAS | Free Alongside Ship | Sea only | Seller pays delivery to loading port + export clearance. | Passes alongside the ship (buyer loads). |
| FOB | Free On Board | Sea only | Seller pays loading + export clearance; freight + insurance on buyer. | Passes when loaded on board. |
| CFR | Cost and Freight | Sea only | Seller pays freight + export clearance; insurance on buyer. | Same as FOB, on loading. |
| CIF | Cost, Insurance and Freight | Sea only | Seller pays freight + minimum insurance (ICC C) + export clearance. | Same as FOB/CFR. |
Which term, when?
New customer, payment by L/C. CIF or CFR, clean docs for the bank, B/L as core evidence. CIF if minimum insurance is in.
Road to Europe, known buyer, T/T advance. FCA or DAP. FCA is flexible (handover at seller\'s factory or customs). DAP delivers door-to-door, but import clearance is on the buyer.
Known country, buyer wants you to handle all taxes. DDP. Risky but closes the sale, only if you know the destination tax system.
Low-value, fast courier. DAP or DPU. Doorstep experience.
Bulk sea, buyer arranges the ship. FOB or FAS. Hand over at the loading port.
3 commonly confused points
- CIF/CFR are sea-only. Don\'t use them for container road or air, CPT/CIP is the right counterpart. In L/Cs, the wrong term triggers a discrepancy.
- FCA needs an exact location. "FCA Istanbul" isn\'t enough, use "FCA Sabiha Gökçen cargo terminal", "FCA İkitelli seller warehouse".
- CIF insurance is minimum (ICC C). Insufficient for sensitive/high-value cargo. CIP automatically uses broad (ICC A); for CIF, the buyer may want additional cover.
How to write it in the contract
Three-letter code + specific place + Incoterms 2020 reference:
CIF Hamburg Port, Incoterms 2020FCA Ataşehir Warehouse, Incoterms 2020DAP Munich Buyer Warehouse, Incoterms 2020
Not specifying the version (just "CIF Hamburg") is risky, old Incoterms 2010 may be interpreted differently.
How Sighthem helps
Sighthem\'s order and quote screens offer all 11 Incoterms one-click, each with a short tooltip; the term flows automatically into the contract and the proforma PDF. The Country Profile page suggests an Incoterm per country (based on general market practice), a starting point when entering a new market.
Frequently Asked Questions
Most common Incoterm for Turkish exporters?
CIF, for sea shipments. For road shipments to Europe, FCA and DAP are also common. CIF is popular because the seller covers freight and minimum insurance, the buyer pays before seeing docs, and banks understand it well.
Which Incoterm fits L/Cs best?
Clean and consistent docs are key in L/Cs. CIF, CFR, FOB are most common because the B/L is the cleanest evidence. EXW and DDP are tough in L/Cs, high doc-mismatch risk.
Is EXW easiest for the seller?
On paper yes. In practice no, the export customs declaration still needs to come from the seller (buyer wants the CED for VAT refund). Opposite of DDP, heavy on paper, safe in practice.
Is DDP risky?
Yes, seller takes on import clearance, duties, and possible foreign VAT. Requires knowledge of the destination tax system. Use only in markets you know well.