Incoterms 2020
Incoterms 2020: the 11 rules, explained for US importers
The short answer
All 11 rules in one table
| Rule | Mode | Risk passes to the buyer | Main freight | Insurance | US duty |
|---|---|---|---|---|---|
| EXW, Ex Works | Any mode | When the goods are placed at the buyer's disposal at the named place, before loading | Buyer | Buyer (not required) | Buyer |
| FCA, Free Carrier | Any mode | At the named place: when loaded onto the buyer's vehicle if that place is the seller's premises, otherwise when the goods are placed at the disposal of the buyer's carrier | Buyer | Buyer (not required) | Buyer |
| CPT, Carriage Paid To | Any mode | When the goods are handed to the first carrier, in the origin country | Seller | Buyer (not required) | Buyer |
| CIP, Carriage and Insurance Paid To | Any mode | When the goods are handed to the first carrier, in the origin country | Seller | Seller (Clauses A, at least 110%) | Buyer |
| DAP, Delivered at Place | Any mode | At the named destination, on the arriving vehicle, ready for unloading | Seller | Seller (not required, but the seller carries the risk) | Buyer |
| DPU, Delivered at Place Unloaded | Any mode | At the named destination, once the goods are unloaded | Seller | Seller (not required, but the seller carries the risk) | Buyer |
| DDP, Delivered Duty Paid | Any mode | At the named destination, on the arriving vehicle, ready for unloading | Seller | Seller (not required, but the seller carries the risk) | Seller |
| FAS, Free Alongside Ship | Sea and inland waterway | Alongside the buyer's vessel at the port of loading | Buyer | Buyer (not required) | Buyer |
| FOB, Free On Board | Sea and inland waterway | When the goods are on board the vessel at the port of loading | Buyer | Buyer (not required) | Buyer |
| CFR, Cost and Freight | Sea and inland waterway | When the goods are on board the vessel at the port of loading | Seller | Buyer (not required) | Buyer |
| CIF, Cost, Insurance and Freight | Sea and inland waterway | When the goods are on board the vessel at the port of loading | Seller | Seller (Clauses C, at least 110%) | Buyer |
Insurance: CIP and CIF are the only rules that make a party insure. Under the others the party carrying the risk usually insures, but is not required to.
Which Incoterm should a US importer use?
Most US importers buy FOB or FCA and book the ocean freight themselves. That keeps the carrier, the sailing and the freight cost in your hands, and the supplier's price covers getting the goods to the port or the container yard. For containers, FCA matches how the box is actually handed over (at the terminal, before loading); FOB is still the term most Asian suppliers quote.
Under CFR and CIF the seller books the freight, so the seller picks the carrier, and charges at the US port are often billed to you at arrival. DDP also hands US customs to the seller: simple, but you give up control of the classification and value declared for your goods.
Do Incoterms change the US duty you pay?
Not the rate, and usually not the amount. The United States charges duty on the price paid for the goods without the international freight and insurance (19 U.S.C. 1401a(b)(4)(A)). A CIF or CFR price includes those costs, so your customs broker deducts them when the invoice or the freight bill shows them. The same goods bought FOB and CIF should end up with the same dutiable value.
To see the duty on a product, put its HTS code and the dutiable value into the Gateway tariff calculator.
The rules one by one
Any mode of transport
- EXW: Ex Works
Risk passes: when the goods are placed at the buyer's disposal at the named place, before loading.
- FCA: Free Carrier
Risk passes: at the named place: when loaded onto the buyer's vehicle if that place is the seller's premises, otherwise when the goods are placed at the disposal of the buyer's carrier.
- CPT: Carriage Paid To
Risk passes: when the goods are handed to the first carrier, in the origin country.
- CIP: Carriage and Insurance Paid To
Risk passes: when the goods are handed to the first carrier, in the origin country.
- DAP: Delivered at Place
Risk passes: at the named destination, on the arriving vehicle, ready for unloading.
- DPU: Delivered at Place Unloaded
Risk passes: at the named destination, once the goods are unloaded.
- DDP: Delivered Duty Paid
Risk passes: at the named destination, on the arriving vehicle, ready for unloading.
Sea and inland waterway only
- FAS: Free Alongside Ship
Risk passes: alongside the buyer's vessel at the port of loading.
- FOB: Free On Board
Risk passes: when the goods are on board the vessel at the port of loading.
- CFR: Cost and Freight
Risk passes: when the goods are on board the vessel at the port of loading.
- CIF: Cost, Insurance and Freight
Risk passes: when the goods are on board the vessel at the port of loading.
Incoterms questions
What are the 11 Incoterms 2020 rules?
Seven rules for any mode of transport: EXW, FCA, CPT, CIP, DAP, DPU and DDP. Four rules for sea and inland waterway transport only: FAS, FOB, CFR and CIF.
Which Incoterm is best for importing from China to the US?
Most US importers buy FOB or FCA and book the ocean freight themselves, which keeps control of the carrier, the cost and the timing. CIF and CFR leave the freight with the seller, and DDP leaves US customs with the seller too.
Do Incoterms change the US import duty?
Not the rate. The United States charges duty on the price of the goods without international freight and insurance (19 U.S.C. 1401a(b)(4)(A)), so the same goods bought FOB or CIF should carry the same duty when the freight and insurance are shown separately.
Who pays US import duty?
The importer of record. That is the buyer under every Incoterms rule except DDP, where the seller clears US customs and pays the duty.
Do Incoterms decide when ownership passes?
No. Incoterms rules deal with delivery, risk, costs and customs formalities. Title, payment and what happens on a breach are set by the rest of the sales contract.
Sources
- International Chamber of Commerce: Incoterms 2020
- International Trade Administration (trade.gov): Know Your Incoterms
- 19 U.S.C. 1401a(b)(4)(A): price actually paid or payable
Incoterms® is a registered trademark of the International Chamber of Commerce. This guide explains the rules in our own words; the ICC publication is the authoritative text.