Incoterms 2020 Explained:
All 11 Shipping Terms for E-Commerce Sellers (2026)
Your Chinese supplier just used a three-letter code you have never seen before. This guide explains all 11 Incoterms in plain English, tells you who pays what under each term, and helps you pick the right one for your imports.
Quick Answer:
Incoterms are 11 standardized trade rules published by the International Chamber of Commerce (ICC). They define three things for every international shipment: (1) who pays for what, (2) who carries the risk of loss or damage, and (3) at what point responsibility transfers from seller to buyer. For most e-commerce sellers importing from China, two Incoterms matter most: FOB (you arrange freight and customs) and DDP (the carrier handles everything). The other 9 terms sit between these two extremes.
What Are Incoterms?
Incoterms (International Commercial Terms) are a set of 11 trade rules published by the International Chamber of Commerce (ICC). The current version is Incoterms 2020, effective since January 1, 2020.
Incoterms are not laws. They are voluntary rules that buyers and sellers agree to include in their contracts. When you see "FOB Shenzhen Incoterms 2020" in a purchase order, it means both parties agreed to follow the FOB rules from the 2020 edition.
Each Incoterm answers three questions:
- Who pays for what? Product, freight, insurance, customs, duties, delivery.
- Who carries the risk? If the goods are damaged or lost during transit, whose problem is it?
- Where does responsibility transfer? At the factory, the port, the destination, or somewhere in between?
For e-commerce sellers, Incoterms determine your total landed cost, your risk exposure, and how many logistics vendors you need to manage.
All 11 Incoterms 2020 at a Glance
Any Mode of Transport (7 Rules)
| Term | Full Name | Seller Handles | Buyer Handles | Risk Transfers | Guide |
|---|---|---|---|---|---|
| EXW | Ex Works | Makes goods available at factory | Everything from factory door | At factory | EXW Guide |
| FCA | Free Carrier | Delivery to carrier + export clearance | Freight + insurance + customs + duties | At carrier | FCA Guide |
| CPT | Carriage Paid To | Freight to destination | Insurance + customs + duties | At first carrier | CPT Guide |
| CIP | Carriage and Insurance Paid To | Freight + all-risks insurance | Customs + duties | At first carrier | CIP Guide |
| DAP | Delivered at Place | Delivery to destination | Customs + duties + unloading | At destination (before unloading) | DAP Guide |
| DPU | Delivered at Place Unloaded | Delivery + unloading | Customs + duties | After unloading | DPU Guide |
| DDP | Delivered Duty Paid | Everything including customs + duties | Nothing | At destination | DDP Guide |
Ocean Freight and Inland Waterway Only (4 Rules)
| Term | Full Name | Seller Handles | Buyer Handles | Risk Transfers | Guide |
|---|---|---|---|---|---|
| FAS | Free Alongside Ship | Delivery alongside vessel | Loading + freight + insurance + customs + duties | Alongside vessel | FAS Guide |
| FOB | Free on Board | Loading on vessel + export clearance | Freight + insurance + customs + duties | On board vessel | FOB Guide |
| CFR | Cost and Freight | Freight to destination port | Insurance + customs + duties | On board vessel | CFR Guide |
| CIF | Cost, Insurance and Freight | Freight + minimum insurance to port | Customs + duties + additional insurance | On board vessel | CIF Guide |
Key Takeaway: From EXW (buyer does everything) to DDP (carrier does everything), the 11 Incoterms form a spectrum of increasing seller responsibility. The more the seller or carrier handles, the simpler it is for the buyer but the higher the quoted price.
Want the simplest option? DDP carriers on AiDeliv handle everything from factory to warehouse. One price.
Get DDP Rates →Which Incoterm Should You Use? A Decision Guide for E-Commerce Sellers
Forget the 11-term list. For most online sellers, the real decision is between three options:
Option 1: DDP (Delivered Duty Paid)
Best for: First-time importers, Amazon FBA sellers, anyone who wants one all-inclusive price.
- Carrier handles freight, customs, duties, and delivery
- You pay one price and receive goods at your warehouse
- No customs broker, no bonds, no ISF filings
- On AiDeliv, carriers compete for your shipment through a reverse auction
Trade-off: The quoted price is higher because it includes everything. But the total cost is often lower than managing FOB yourself because carriers have volume-based rates.
Option 2: FOB (Free on Board)
Best for: Experienced importers with established freight forwarders and customs brokers.
- Supplier delivers goods on the vessel
- You arrange freight, insurance, customs, and delivery separately
- More control over each cost component
- Requires managing 3-5 vendors
Trade-off: Lower product quote, but higher logistics complexity. Your total landed cost depends on how well you negotiate each component.
Option 3: EXW (Ex Works)
Best for: Buyers with logistics agents in China. Almost no one else.
- Supplier makes goods available at the factory
- You handle everything from the factory door
- Lowest product price, highest logistics burden
- Need a Chinese agent for export clearance
Trade-off: Cheapest quote, most expensive total cost for most importers.
The Other 8 Terms
| If you see... | It means... | What to do |
|---|---|---|
| FCA | Like FOB for air/multimodal. Seller delivers to carrier. | Acceptable for air freight. Ask for FOB for ocean freight. |
| CIF | Seller pays freight + minimum insurance. | Check the insurance level. You still handle customs. |
| CIP | Seller pays freight + all-risks insurance. | Better insurance than CIF. You still handle customs. |
| CFR | Seller pays freight, no insurance. | Buy your own insurance. You handle customs. |
| CPT | Like CFR for any mode. No insurance. | Buy insurance. You handle customs. |
| DAP | Carrier delivers but you clear customs. | Close to DDP. Consider upgrading to DDP. |
| DPU | Carrier delivers and unloads. You clear customs. | Niche. Only if you need carrier to unload. |
| FAS | Seller places goods next to the ship. Bulk cargo. | Wrong term for containers. Ask for FOB. |
What Changed in Incoterms 2020
If your contracts still reference Incoterms 2010, here are the key updates:
1. DAT replaced by DPU. Delivered at Terminal became Delivered at Place Unloaded. The destination can now be any place, not just a terminal. DPU Guide
2. CIP insurance upgraded. CIP now requires Institute Cargo Clauses (A) all-risks insurance, up from Clauses (C) minimum. CIF kept Clauses (C) unchanged. CIP Guide
3. FCA bill of lading provision. Buyers can now instruct their carrier to issue an on-board B/L to the seller, solving a common problem in letter of credit transactions. FCA Guide
4. Cost consolidation. All costs now appear in articles A9/B9 of each rule for easier reference.
5. Security obligations. Clearer and more detailed security requirements in A4 and A7 of each rule.
Not sure which Incoterm to choose? Start with DDP. Carriers on AiDeliv bid on your shipment with all-inclusive prices.
Run a DDP Auction →The E-Commerce Seller's Incoterms Cheat Sheet
| Your Situation | Recommended Incoterm | Why |
|---|---|---|
| First import from China | DDP | One price, zero logistics work |
| Amazon FBA seller | DDP | Carrier handles customs and FBA delivery |
| Shopify brand, 5+ shipments/year | FOB or DDP | FOB if you have a forwarder; DDP if you want simplicity |
| High-volume importer (20+ shipments/year) | FOB | Control each cost, negotiate rates, established customs broker |
| Air freight shipment | FCA or DDP | FCA if you arrange freight; DDP for all-inclusive |
| Buying from very small factory, no export capability | EXW then FOB or DDP carrier | Arrange Chinese agent for export, or use DDP carrier for factory pickup |
| Commodity imports (raw materials, bulk) | CIF or CFR | Industry standard for commodities |
| High-value goods, insurance matters | CIP or DDP | CIP for all-risks insurance; DDP for all-inclusive |
Frequently Asked Questions
What are Incoterms?
Incoterms are 11 standardized trade rules published by the International Chamber of Commerce (ICC). They define who pays for shipping, insurance, and customs, and when risk transfers from seller to buyer in international trade.
How many Incoterms are there in 2020?
Eleven. Seven for any mode of transport (EXW, FCA, CPT, CIP, DAP, DPU, DDP) and four for ocean freight and inland waterway only (FAS, FOB, CFR, CIF).
Which Incoterm is best for e-commerce sellers?
DDP for simplicity (carrier handles everything) or FOB for control (you arrange freight and customs). Most new importers start with DDP. Experienced importers often prefer FOB for specific lanes where they have negotiated rates.
What changed from Incoterms 2010 to 2020?
DAT was replaced by DPU, CIP insurance was upgraded to all-risks (Clauses A), FCA added a bill of lading provision, costs were consolidated in A9/B9, and security obligations were clarified.
Are Incoterms legally binding?
Incoterms are not laws. They become binding when both parties include them in their contract. The ICC recommends specifying the version: "FOB Shanghai Incoterms 2020."
What is the difference between FOB and DDP?
FOB: seller loads goods on the vessel. You handle freight, customs, and delivery. DDP: the carrier handles everything from factory to your door, including customs and duties. See our DDP vs DAP vs FOB guide.
Individual Incoterms Guides
Related Resources
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