Incoterms 2020 Common Terms Explained

As the universal rule formulated by ICC, Incoterms 2020 is widely adopted in international logistics and cross-border trade. Clear selection of trade terms can effectively avoid disputes over freight, customs clearance, tariff and cargo damage compensation. Below we analyze the most frequently used terms in daily freight business.

EXW (Ex Works) – Factory Delivery

The seller only prepares goods at the factory or warehouse. All procedures including loading, export customs declaration, international transportation and import clearance shall be undertaken by the buyer. The risk transfers once goods are ready for pickup. It is suitable for buyers with mature global logistics teams.

FOB (Free On Board) – Free On Board at Loading Port

Only applicable for sea and inland water transport. The seller completes domestic trucking, export declaration and loading on board. All international freight, destination port charges and import formalities belong to the buyer. Risk transfers after goods are loaded onto the vessel. It remains the most popular term for China's export shipments.

CIF (Cost, Insurance and Freight)

Based on FOB, the seller pays ocean freight and minimum cargo insurance to the destination port. It should be noted that risk transfer point stays the same as FOB. Many merchants mistakenly believe CIF covers full risks until delivery to buyers.

DPU (Delivered at Place Unloaded)

Renamed from DAT in Incoterms 2020. Compared with DAP, the seller is responsible for unloading goods at destination. Import clearance and duties are still the buyer's obligations.

DDP (Delivered Duty Paid)

The term with maximum obligations for sellers. The seller covers all links: export shipment, international transport, destination customs clearance, tariff and VAT. Goods will be delivered to the buyer's warehouse after tax clearance. Widely used for cross-border e-commerce and Amazon FBA shipments.