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Incoterms 2020 — the ICC trade-terms framework

Confidence: Likely Updated 2026-06-03 Review by 2026-12-03 Sources 4 Machine-translated Original (JA)
#trade#trade-finance#incoterms#icc#shipping#delivery-terms
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This entry sits under trade INDEX and pairs directly with the letter of credit / documentary credit mechanism, because the Incoterms rule a contract chooses determines which transport and insurance documents an L/C must call for. It also connects to the cargo risk-transfer layer in marine cargo / P&I insurance and to the broader Japan export apparatus mapped in JETRO vs NEXI vs JBIC.

TL;DR

Incoterms (International Commercial Terms) are a set of standardised three-letter trade terms published by the International Chamber of Commerce (ICC). They allocate, between seller and buyer, three things for the delivery of goods: (1) who arranges and pays for carriage, (2) where risk of loss or damage passes, and (3) who handles export / import formalities and costs. The current edition is Incoterms 2020, comprising 11 rules.

What Incoterms do not do is equally important: they are not a contract of sale, they do not transfer title / ownership, they do not set the price or payment method, and they do not govern breach remedies. They define the delivery and cost / risk interface only — the rest stays in the sale contract.

The 11 rules of Incoterms 2020

The rules split into two families by mode of transport.

Rules for any mode (including multimodal)

RuleNameRisk passes (broadly)
EXWEx WorksAt seller’s premises; buyer does almost everything
FCAFree CarrierWhen goods are handed to the carrier named by the buyer
CPTCarriage Paid ToWhen handed to the first carrier; seller pays carriage to destination
CIPCarriage and Insurance Paid ToAs CPT, plus seller buys insurance (higher cover under 2020)
DAPDelivered at PlaceWhen placed at buyer’s disposal at the named place, not unloaded
DPUDelivered at Place UnloadedWhen unloaded at the named place by the seller
DDPDelivered Duty PaidAt destination, with seller bearing import duties / clearance

Rules for sea and inland waterway only

RuleNameRisk passes (broadly)
FASFree Alongside ShipWhen goods are placed alongside the vessel at the named port
FOBFree On BoardWhen goods are on board the vessel at the named port
CFRCost and FreightOn board; seller pays freight to destination port
CIFCost, Insurance and FreightAs CFR, plus seller buys insurance (minimum cover under 2020)

A recurring practical error is using a sea-only term (FOB, CIF) for containerised cargo handed over at an inland terminal — where FCA / CIP are the correct rules, because the seller loses control of the container before it reaches the ship’s rail.

The cost / risk transfer point — the core idea

Every Incoterms rule answers two separate questions that users often conflate:

  • Where does risk transfer? The point beyond which loss or damage to the goods is the buyer’s problem.
  • Up to where does the seller bear cost? Under the “C” terms (CPT, CIP, CFR, CIF), the seller pays carriage to the destination but risk still passes early (at handover / on board). This split — seller pays freight onward, but buyer carries the risk in transit — is the single most misunderstood feature of the framework.

Reading along the alphabet from EXW to DDP roughly tracks increasing seller obligation: EXW puts almost everything on the buyer; DDP puts almost everything on the seller, including import clearance.

What changed from Incoterms 2010 to 2020

The 2020 revision kept the same count (11 rules) but made several substantive changes:

  1. DAT renamed to DPU. “Delivered at Terminal” became “Delivered at Place Unloaded,” to make clear the destination need not be a terminal — it can be any place — and DPU remains the only rule where the seller unloads at destination. (DAP is the not-unloaded counterpart.)
  2. Different insurance cover levels for CIP vs CIF. Under 2020, CIP requires the seller to obtain higher cover — Institute Cargo Clauses (A) (“all risks,” subject to exclusions) — while CIF retains the minimum, Institute Cargo Clauses (C). Parties can always agree a different level, but the defaults now diverge.
  3. FCA optional on-board bill of lading. FCA was revised so the parties can agree the buyer instructs the carrier to issue an on-board bill of lading to the seller after loading — important where an L/C requires an on-board B/L but delivery is FCA.
  4. Own means of transport recognised. FCA, DAP, DPU, and DDP now expressly contemplate carriage by the seller’s or buyer’s own transport, not only via a third-party carrier.
  5. Security-related obligations and costs made explicit, allocated within each rule.
  6. Consolidated cost listing. All costs for a rule are now collected at article A9/B9, so users can see the full cost split for a chosen term at a glance.

Interaction with letters of credit and trade finance

Incoterms and documentary settlement are tightly coupled. The chosen rule dictates which documents exist and who can present them:

  • Under CIF / CIP, the seller procures insurance, so a documentary credit will call for an insurance document in the seller’s presentation. Under FOB / FCA, insurance is the buyer’s concern and is normally not a credit-required document from the seller.
  • Under sea terms, the bill of lading (often an on-board B/L) is the key document of title an L/C demands; the FCA on-board-B/L change in 2020 exists precisely to reconcile FCA delivery with that L/C requirement.
  • The delivery point fixes the latest shipment date and the document that evidences shipment — both core fields in a documentary credit governed by UCP 600.

Because of this, an Incoterms rule should be chosen in tandem with the payment method. A mismatched pair (e.g., a seller agreeing FOB but a credit demanding an insurance document) is a classic source of L/C discrepancies and of the lighter friction seen under a documentary collection.

What Incoterms deliberately leave out

QuestionWhere it actually lives
Transfer of title / ownershipThe sale contract and applicable property law — not Incoterms
Price and payment methodThe sale contract (and the L/C / collection terms)
Breach, remedies, dispute resolutionThe sale contract and its governing law
Tariffs / customs duty ratesNational customs law of importer / exporter
Detailed insurance terms beyond the CIF / CIP minimumsThe cargo policy itself — see [[insurance/marine-insurance-and-pi-cover-market

Treating Incoterms as a complete trade contract is the most common conceptual mistake; they are a standardised module that a contract references, not the contract itself.

Where this sits in the public trade-knowledge stack

Incoterms are, like UCP 600, an ICC-maintained voluntary standard rather than a treaty or statute — their authority comes from near-universal commercial adoption and from being incorporated by reference in sale contracts. They form one leg of a recurring triad in cross-border trade: delivery terms (Incoterms), payment mechanism (documentary credit or documentary collection), and risk cover (cargo insurance plus, on the financing side, export-credit insurance such as NEXI’s products). For how the financing and insurance legs are organised in Japan specifically, route through JETRO vs NEXI vs JBIC and the wider policy-finance INDEX.

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