Incoterms® 2020 —
cost vs. risk, at a glance
cost vs. risk, at a glance
Incoterms are a set of 11 standard terms published by the ICC that define who arranges and pays for each stage of a shipment, and — separately — at what point the risk of loss or damage passes from seller to buyer. Those two things don't always transfer at the same time, which is where most disputes start.
Who's responsible for what, and when.
A plain-English guide to Incoterms® 2020 and the trade-offs between sea, air, rail, road, and express shipping — built around the one question that actually matters: at what point does risk pass from seller to buyer?
EXW
Ex Works
The seller's only job is to have the goods ready for pickup at their own premises. The buyer arranges and pays for everything from that point on — loading, export clearance, freight, and import.
Risk transfers immediately, at the seller's premises, before pickup
Best for:
Buyers who already have their own forwarder and want full control of the entire journey.
FCA
Free Carrier
The seller delivers the goods, cleared for export, to a carrier or place the buyer names. From there, the buyer's carrier takes over.
Risk transfers once the named carrier takes the goods
Best for:
Container shipments where the buyer wants to control the main freight without arranging factory pickup.
CPT
Carriage Paid To
The seller pays to get the goods all the way to the named destination — but risk passes to the buyer much earlier, the moment goods are handed to the first carrier.
Risk transfers at handover to the first carrier — well before the destination the seller is paying to reach
Best for:
Buyers comfortable taking on risk early, in exchange for the seller booking and paying the freight.
CIP
Carriage and Insurance Paid To
Identical to CPT, except the seller must also buy cargo insurance for the buyer's benefit — and at a higher minimum coverage level than CIF requires.
Risk transfers at handover to the first carrier — the same point as CPT, despite the added insurance
Best for:
Higher-value cargo where the buyer wants strong insurance coverage arranged on their behalf.
DAP
Delivered at Place
The seller carries cost and risk all the way to the named destination, ready for unloading. The buyer handles unloading and import clearance.
Risk transfers on arrival at the named destination, before unloading
Best for:
Buyers who want hands-off delivery but are set up to clear their own imports.
DPU
Delivered at Place Unloaded
The same as DAP, but the seller is also responsible for unloading the goods at destination — the only Incoterm that requires this.
Risk transfers only after the seller unloads at destination — the latest transfer point of any Incoterm
Best for:
Deliveries to a site that doesn't have its own unloading equipment or crew.
DDP
Delivered Duty Paid
Maximum obligation for the seller: cost, risk, and import duties/taxes, all the way to the buyer's door.
Risk transfers on arrival at the named destination, before unloading — same point as DAP
Best for:
Buyers who want one all-in door-to-door price with zero customs involvement of their own.
FAS
Free Alongside Ship
The seller delivers when the goods are placed alongside the vessel at the origin port — for example, on the quay — before loading.
Risk transfers once goods are placed alongside the vessel
Best for:
Bulk or break-bulk cargo (grain, machinery) loaded straight from the quayside — rarely used for containers.
FOB
Free on Board
The seller delivers once the goods are loaded on board the vessel at the origin port. From there, the buyer arranges and pays the main sea freight.
Risk transfers once goods are loaded on board
Best for:
The classic sea-freight setup, where the buyer wants to shop around for freight rates.
CFR
Cost and Freight
The seller pays the freight to the destination port — but risk still passes to the buyer once the goods are on board at origin, exactly as in FOB.
Risk transfers on board at the origin port — the same point as FOB, even though the seller is paying freight all the way to destination
Best for:
Buyers happy to arrange their own insurance while letting the seller book the vessel.
CIF
Cost, Insurance and Freight
The same as CFR, plus the seller must buy minimum cargo insurance for the buyer. One of the most-used terms in sea freight — and one of the most misunderstood, since it's easy to assume the seller is on the hook until arrival.
Risk transfers on board at the origin port — same as FOB/CFR — even though the seller is paying freight and insurance to destination
Best for:
Buyers new to importing who want the seller to handle freight and basic insurance, while understanding the risk already sits with them mid-voyage.