Incoterms 2020 Guide: What They Cover and What They Don't

Your seller quotes CIF. You assume insurance is covered. Two months later, your shipment is stolen at port. You file a claim. The insurer says no.

CIF only requires the minimum insurance — and that minimum doesn't include theft. This is one of the most common misunderstandings in international trade. This guide breaks down what Incoterms 2020 actually define, what they leave out, and how to use them correctly.

What do Incoterms actually define?

Incoterms define three things: cost allocation, risk transfer, and delivery obligations between buyer and seller. Published by the International Chamber of Commerce (ICC), these 11 standardized rules clarify who pays for shipping, who bears the risk during transit, and at what point delivery is considered complete.

According to the ICC, Incoterms have been updated nine times since 1936 to reflect changes in global trade. The current version, Incoterms 2020, took effect on January 1, 2020, and remains the latest edition as of 2026.

Each Incoterm specifies:

Who arranges transport — seller, buyer, or either
Who pays for freight and insurance — and to what point
Where risk transfers — the exact moment liability shifts
Who handles export and import clearance

For example, under FOB (Free on Board), the seller's responsibility ends once the goods are loaded onto the vessel. Under DDP (Delivered Duty Paid), the seller handles everything including import duties. Same product, very different obligations.

What don't Incoterms cover?

Incoterms do not address ownership transfer, payment terms, or breach of contract. According to the ICC's official Incoterms 2020 publication, these issues must be handled separately in the sales contract.

This is where many traders get caught. They assume that agreeing on an Incoterm means the deal is fully defined. It isn't. Here's what Incoterms leave out:

Transfer of title — Incoterms say nothing about when ownership of the goods passes from seller to buyer. According to Stevens & Bolton LLP, this must be stated separately in the contract, proforma invoice, and commercial invoice.
Payment terms — Whether payment is by L/C, T/T, or open account is entirely outside the scope of Incoterms.
Breach of contract — If either party fails to perform, Incoterms provide no remedies. That's governed by the sales contract and applicable law (such as CISG).
Product liability — Who is responsible if the product is defective is not an Incoterms issue.

According to the U.S. International Trade Administration (trade.gov), Incoterms are "only part of the whole export contract" and should never be treated as a standalone agreement.

What are the 11 Incoterms 2020 rules?

Incoterms 2020 consists of 11 rules divided into two groups: seven for any mode of transport and four exclusively for sea and inland waterway. The division exists because certain terms define risk transfer at the ship's rail — which only makes sense for vessel-based shipping.

Any mode of transport (7 rules):

EXW (Ex Works) — Buyer picks up at seller's location. Seller's minimum obligation.
FCA (Free Carrier) — Seller delivers to a carrier or named place. Risk transfers at handover.
CPT (Carriage Paid To) — Seller pays freight to destination. Risk transfers at first carrier.
CIP (Carriage and Insurance Paid To) — Like CPT, plus seller provides all-risk insurance (Clause A).
DAP (Delivered at Place) — Seller delivers to destination, not unloaded. Buyer handles import clearance.
DPU (Delivered at Place Unloaded) — Seller delivers and unloads at destination.
DDP (Delivered Duty Paid) — Seller handles everything, including import duties. Maximum seller obligation.

Sea and inland waterway only (4 rules):

FAS (Free Alongside Ship) — Seller places goods alongside the vessel at port.
FOB (Free on Board) — Seller loads goods on board the vessel. Risk transfers at loading.
CFR (Cost and Freight) — Seller pays freight to destination port. Risk transfers at loading.
CIF (Cost, Insurance and Freight) — Like CFR, plus seller provides minimum insurance (Clause C).

According to the ICC, the four sea-only terms should only be used when the seller has direct access to the vessel for loading — typically for bulk cargo or non-containerized goods.

What changed in Incoterms 2020?

Incoterms 2020 introduced three significant changes from the 2010 version. These changes reflect how modern supply chains actually operate — particularly around containerized shipping, insurance gaps, and own-transport arrangements.

1. DAT became DPU

The former Delivered at Terminal (DAT) was renamed Delivered at Place Unloaded (DPU). According to the ICC, the change removes the restriction that delivery must occur at a "terminal." Under DPU, the named place can be any location where the seller is able to unload.

2. FCA now allows an on-board bill of lading

Under Incoterms 2010, sellers using FCA for container shipments often couldn't get an on-board B/L — which banks require for letter of credit payment. According to the ICC, Incoterms 2020 now allows the buyer to instruct the carrier to issue an on-board B/L to the seller. This was designed to make FCA more practical for containerized cargo, where the ICC recommends FCA over FOB.

3. CIP insurance raised to Clause A

Under Incoterms 2010, both CIF and CIP required minimum insurance at Institute Cargo Clauses (C). Incoterms 2020 raised CIP to Clause (A) — "all risks" coverage — while CIF stays at Clause (C). According to the ICC Academy, this change reflects that CIP is more commonly used for manufactured goods, which typically need broader protection than bulk commodities shipped under CIF.

Why does the CIF insurance gap matter?

Under CIF, the seller must provide insurance at Institute Cargo Clauses (C) for a minimum of 110% of the invoice value. That sounds adequate. But Clause (C) is the narrowest standard marine coverage available.

According to the official Institute Cargo Clauses (C) published by Lloyd's Market Association, Clause (C) only covers:

Fire or explosion
Vessel stranding, grounding, sinking, or capsizing
Overturning or derailment of land conveyance
Collision with external objects
Discharge of cargo at a port of distress
General average sacrifice and jettison

According to Sedgwick, a global claims management firm, Clause (C) does not cover theft, pilferage, water damage, rough handling, or natural disasters. These are among the most common causes of cargo loss for manufactured goods.

By contrast, Clause (A) — now required under CIP — covers all risks of loss or damage except specifically excluded perils (such as willful misconduct and inherent vice). The protection gap between Clause (C) and Clause (A) is significant, yet many buyers don't realize it exists until they file a claim.

Which Incoterm should you use?

The right Incoterm depends on your transport mode, experience level, and how much control you want over logistics and cost. There is no single best choice — but there are common mismatches.

Container shipments: The ICC recommends FCA over FOB for containerized cargo. Under FOB, risk transfers when goods are loaded on the vessel — but containers are typically delivered to the terminal days before loading. FCA transfers risk at the terminal handover, which better matches the actual logistics.

If you want insurance included: CIF provides minimum coverage (Clause C). CIP provides all-risk coverage (Clause A). If your goods are high-value or theft-prone, CIP offers significantly better protection.

If the buyer wants full control: EXW places nearly all responsibility on the buyer. But according to the U.S. International Trade Administration, EXW creates export compliance risks for the seller — because the buyer handles export clearance, the seller may not be able to prove the goods actually left the country.

If the seller wants turnkey delivery: DDP covers everything including import duties. But the seller must be able to handle customs formalities in the buyer's country — including VAT or GST registration in some jurisdictions.

How do you write Incoterms correctly in a contract?

An Incoterm must be written with the three-letter code, the named place, and the version year. Without all three, the term is ambiguous and may not hold up in a dispute.

Correct format:

FOB Busan Port (Incoterms 2020)
CIF Rotterdam (Incoterms 2020)
FCA Seller's Warehouse, Seoul (Incoterms 2020)

Common mistakes:

Writing "FOB" without specifying a port — "FOB Korea" could mean any port in the country.
Spelling out the term instead of using the acronym — writing "Free on Board" may create confusion about whether you mean the ICC definition or the U.S. domestic UCC definition.
Omitting the year — without "(Incoterms 2020)," there's no clarity on which version applies.
Adding conflicting terms — if the contract says "EXW Shanghai" but also states "seller retains risk until delivery in San Jose," the two provisions contradict each other.

According to the ICC, Incoterms must be expressly incorporated into the sales contract. They do not apply by default, even in international transactions.

Quick reference checklist

Incoterms define cost, risk, and delivery — not ownership, payment, or breach
Always specify: three-letter code + named place + "(Incoterms 2020)"
CIF insurance = Clause (C), minimum coverage only. CIP = Clause (A), all-risk
For containers, consider FCA over FOB
DDP requires the seller to handle import clearance — confirm you can do this before agreeing
EXW creates export compliance gaps for sellers — FCA is often a safer alternative
Title transfer must be stated separately in the contract
Incoterms don't apply unless written into the contract