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September 23, 2026
Incoterms 2020 Explained: A Practical Guide with Kerala Examples
All 11 rules in one table, where risk passes, what changed in 2020, and the mistakes exporters and importers make most often.
Incoterms are the three-letter terms such as FOB, CIF and EXW that appear on almost every export quote and invoice. Published by the International Chamber of Commerce (ICC), they define who arranges and pays for each stage of transport, who handles customs, and the exact point where risk passes from seller to buyer. This guide explains Incoterms 2020 in plain language, with examples from Kerala’s export trade.
The 11 Incoterms 2020 rules
Incoterms 2020 contains 11 rules in two groups: seven that work for any mode of transport, and four that are only for sea and inland waterway transport.
| Rule | Name | Mode | Risk passes to buyer when… | Main transport paid by |
|---|---|---|---|---|
| EXW | Ex Works | Any | Goods are placed at the buyer’s disposal at the seller’s premises, not loaded | Buyer |
| FCA | Free Carrier | Any | Goods are handed to the buyer’s carrier at the named place | Buyer |
| CPT | Carriage Paid To | Any | Goods are handed to the first carrier | Seller |
| CIP | Carriage and Insurance Paid To | Any | Goods are handed to the first carrier (seller also insures) | Seller |
| DAP | Delivered at Place | Any | Goods arrive at the named destination, ready for unloading | Seller |
| DPU | Delivered at Place Unloaded | Any | Goods are unloaded at the named destination | Seller |
| DDP | Delivered Duty Paid | Any | Goods arrive at destination, cleared for import with duties paid | Seller |
| FAS | Free Alongside Ship | Sea | Goods are placed alongside the vessel at the port of shipment | Buyer |
| FOB | Free on Board | Sea | Goods are loaded on board the vessel at the port of shipment | Buyer |
| CFR | Cost and Freight | Sea | Goods are loaded on board at the port of shipment | Seller |
| CIF | Cost, Insurance and Freight | Sea | Goods are loaded on board at the port of shipment (seller also insures) | Seller |
Two quick rules of thumb: the seller handles export clearance in every rule except EXW, and the buyer handles import clearance in every rule except DDP.
The “C” rules trap
Under CPT, CIP, CFR and CIF the seller pays for transport to the destination, but risk passes much earlier, at shipment. So if a container of pepper shipped CIF Jebel Ali is damaged at sea, the buyer bears that risk, even though the seller paid the freight. That is why the C rules have two critical points: one for cost and one for risk.
What changed in Incoterms 2020
- DAT became DPU. Delivered at Terminal was replaced by Delivered at Place Unloaded, because the place of unloading need not be a terminal.
- Higher insurance under CIP. CIP now requires broader cover (Institute Cargo Clauses A), while CIF still requires only minimum cover (Clauses C) unless agreed otherwise.
- On-board bills of lading under FCA. Buyer and seller can agree that the buyer’s carrier issues an on-board bill of lading to the seller, which helps with letters of credit.
- Own transport allowed. FCA, DAP, DPU and DDP now recognise that the buyer or seller may use their own vehicles.
- Clearer cost and security allocation. Costs and security-related obligations are listed more clearly for each rule.
Worked examples from Kerala
A Kochi spice exporter selling to Dubai
The buyer wants to control shipping, so the exporter quotes FCA Cochin container freight station. The exporter clears export customs and delivers the goods to the buyer’s nominated carrier. From that moment the buyer pays freight and carries the risk.
A seafood exporter shipping frozen shrimp to Europe
The buyer prefers a delivered price, so the exporter quotes CIF Rotterdam, or better for containers, CIP Rotterdam. The exporter pays freight and insurance to Rotterdam, but risk passes to the buyer once the container is handed over at origin. Because seafood is high value and perishable, the higher insurance level of CIP is often worth it.
A Kerala importer buying machinery from China
The supplier quotes FOB Shanghai. The Kerala importer must book the ocean freight, insure the cargo, and arrange import clearance and delivery from Kochi or Vizhinjam port.
Common mistakes
- Using FOB or CIF for containers. These rules are designed for goods loaded directly on board. For containerised cargo, the ICC recommends FCA, CPT or CIP, because the seller usually hands over the container at a terminal long before it is loaded.
- Forgetting the named place. “FOB” alone is incomplete. Always state the place, for example “FOB Cochin Port, Incoterms 2020”.
- Using EXW for exports from India. Under EXW the buyer is responsible for export clearance, which a foreign buyer usually cannot do in India. FCA is normally a better fit.
- Agreeing DDP without checking costs. DDP makes the seller responsible for import duties and taxes in the buyer’s country, which can be expensive and complex.
- Assuming Incoterms cover everything. They do not decide price, payment terms, ownership transfer or what happens if the contract is breached.
Learn Incoterms properly
Incoterms are taught in depth in Frontline Academy’s import export course, freight forwarding programmes and the PG Diploma in Logistics and Supply Chain Management, using real quotes and documents from Frontline Group’s logistics operations.
Talk to a counsellor at your nearest campus
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Frequently asked questions
How many Incoterms are there in 2020?
Eleven: EXW, FCA, CPT, CIP, DAP, DPU and DDP for any mode of transport, and FAS, FOB, CFR and CIF for sea and inland waterway transport.
What is the difference between FOB and CIF?
Under both, risk passes to the buyer when goods are loaded on board at the port of shipment. Under FOB the buyer pays ocean freight and insurance; under CIF the seller pays freight to the destination port and minimum insurance.
Who pays customs duty under DAP?
The buyer. Under DAP the seller delivers to the named destination, but import clearance and duties are the buyer’s responsibility. Only DDP puts import duties on the seller.
Are Incoterms 2010 still valid?
Parties can still choose any version in their contract, but Incoterms 2020 is the current version. Always state the version, for example “CIF Jebel Ali, Incoterms 2020”.
Which Incoterm is best for exporters in Kerala?
For most containerised exports, FCA, CPT or CIP is safer than FOB or CIF. The best choice depends on who controls freight, the payment method and the buyer’s requirements.
Do Incoterms decide who owns the goods?
No. Incoterms deal with delivery, risk, costs and customs responsibilities. Ownership and payment are decided by the sales contract.