Incoterms 2020, Explained
All 11 Rules In Plain English

Incoterms define exactly where seller responsibility ends and buyer responsibility begins. Here's what each of the 11 current rules actually means.

The Basics

What Incoterms Are For

Published by the International Chamber of Commerce, Incoterms are a standard shorthand for who pays for what, and when risk transfers, in an international sale.

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They Define Risk Transfer

Every Incoterm answers one question. At what exact point does risk (loss, damage) pass from seller to buyer? Getting this wrong on a contract can be an expensive mistake.

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They Define Cost Split

Separately from risk, each term also specifies which costs (freight, insurance, loading, duties) the seller covers versus the buyer.

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Any Mode vs Sea-Only

Seven of the eleven rules work for any transport mode; four (FAS, FOB, CFR, CIF) apply specifically to sea and inland waterway shipments.

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Not Law, Contract Terms

Incoterms aren't government regulation; they're a standardized shorthand parties agree to reference in a sales contract or letter of credit.

The 11 Rules

Incoterms 2020 At A Glance

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EXW, FCA, CPT, CIP

Any mode of transport. EXW (Ex Works): buyer takes on almost everything from the seller's premises. FCA (Free Carrier): seller hands off to buyer's chosen carrier. CPT/CIP: seller pays freight (and insurance, for CIP) to the destination.

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DAP, DPU, DDP

Any mode of transport. DAP (Delivered at Place): seller delivers, ready for unloading. DPU (Delivered at Place Unloaded): seller also unloads. DDP (Delivered Duty Paid): seller covers everything, including import duty, for the maximum seller obligation.

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FAS, FOB

Sea and inland waterway only. FAS (Free Alongside Ship): seller delivers alongside the vessel. FOB (Free on Board): seller delivers once goods are loaded on board, one of the most commonly used and misused terms in shipping.

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4
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CFR, CIF

Sea and inland waterway only. CFR (Cost and Freight): seller pays freight to the destination port. CIF (Cost, Insurance and Freight): same as CFR plus seller arranges insurance, extremely common in Pakistani import documentation and letters of credit.

In Practice

Incoterms In Pakistani Trade

Which terms actually show up most often on Pakistani import and export paperwork.

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FOB Dominates Exports

Pakistani textile and general goods exporters commonly quote and ship under FOB terms, handing responsibility to the buyer once cargo is loaded at the Pakistani port.

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CIF Dominates Imports

General imports into Pakistan are frequently documented as CIF or C&F, with letters of credit citing CIF terms specifically. This is the term to understand first if you're importing.

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DDP Confusion Is Common

DDP is a rising search term among Pakistani e-commerce and import businesses uncertain about who actually pays customs duty under this term. The answer is the seller, which is unusual and worth double-checking before agreeing to it.

Related Reading

Go Deeper On Trade Terms

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FOB vs CIF
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Letter of Credit Basics
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Freight Forwarder vs Customs Agent
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FCL vs LCL Shipping
FAQ

Incoterms Questions, Answered

What importers and exporters ask when an Incoterm shows up on a quote or contract.

How many Incoterms are there in the current version? expand_more
Incoterms 2020 has 11 rules total: EXW, FCA, CPT, CIP, DAP, DPU, DDP (any mode of transport) and FAS, FOB, CFR, CIF (sea and inland waterway only).
What's the difference between FOB and CIF? expand_more
Under FOB, the seller's responsibility ends once goods are loaded onto the vessel. The buyer arranges and pays for freight and insurance from there. Under CIF, the seller also pays the freight and arranges insurance to the destination port, though risk still transfers at loading, same as FOB.
Who pays customs duty under DDP? expand_more
Under DDP (Delivered Duty Paid), the seller bears all costs and risk all the way to the buyer's named destination, including import duties and taxes, the maximum level of seller obligation among all 11 Incoterms.
Are Incoterms legally binding on their own? expand_more
No. Incoterms only apply when a sales contract or letter of credit explicitly references them (e.g. "FOB Karachi, Incoterms 2020"). They're a standardized shorthand, not automatic law.

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