Incoterms 2020: which terms should European importers use?
CARVO is a shipment management platform built for small and medium European importers. It replaces the spreadsheets, emails, and WhatsApp groups that import teams use to track their shipments, manage supplier documents, and stay on top of customs deadlines. One of the first things CARVO asks when you create a shipment is the Incoterm — because it determines who's responsible for what, and ultimately, what the shipment will cost you.
What are Incoterms?
Incoterms are a set of 11 standardised trade terms published by the International Chamber of Commerce (ICC) that define who pays for what, who bears the risk, and at what point responsibility transfers from seller to buyer in an international trade transaction. They've been in use since 1936 and are updated roughly every 10 years. The current edition is Incoterms 2020, in effect since 1 January 2020. There is no "Incoterms 2025" or "Incoterms 2026" — the next revision is expected around 2030.
Incoterms don't cover everything in a sales contract. They don't determine the price of goods, the payment method, or what happens if something goes wrong. What they do is create a shared understanding between buyer and seller about transport, risk, and costs — which, for importers, directly affects your landed cost.
The 11 Incoterms 2020 at a glance
The 11 terms are grouped into two categories: 7 that work for any mode of transport, and 4 that are restricted to sea and inland waterway transport.
Any mode of transport
| Term | Full name | Risk transfers to buyer when... | Who arranges main carriage? |
|---|---|---|---|
| EXW | Ex Works | Goods are available at seller's premises | Buyer |
| FCA | Free Carrier | Goods are delivered to the carrier at the named place | Buyer |
| CPT | Carriage Paid To | Goods are delivered to the carrier (seller pays carriage to destination) | Seller |
| CIP | Carriage and Insurance Paid To | Same as CPT + seller must arrange insurance (Institute Cargo Clauses A) | Seller |
| DAP | Delivered at Place | Goods arrive at destination, ready for unloading | Seller |
| DPU | Delivered at Place Unloaded | Goods are unloaded at destination | Seller |
| DDP | Delivered Duty Paid | Goods are delivered, cleared for import, duties paid | Seller |
Sea and inland waterway only
| Term | Full name | Risk transfers to buyer when... | Who arranges main carriage? |
|---|---|---|---|
| FAS | Free Alongside Ship | Goods are placed alongside the vessel at port | Buyer |
| FOB | Free On Board | Goods are loaded on board the vessel | Buyer |
| CFR | Cost and Freight | Goods are loaded on board (seller pays freight to destination) | Seller |
| CIF | Cost, Insurance and Freight | Same as CFR + seller must arrange insurance (Institute Cargo Clauses C) | Seller |
The terms range from minimum seller responsibility (EXW — the seller just makes goods available at their premises) to maximum seller responsibility (DDP — the seller handles everything including import duties).
FOB vs CIF vs DAP: which should European importers use?
Most European SMB importers buying from Asia will use one of three terms: FOB, CIF, or DAP. Here's how they compare.
| FOB | CIF | DAP | |
|---|---|---|---|
| Who arranges ocean freight? | Buyer | Seller | Seller |
| Who arranges insurance? | Optional (usually buyer) | Seller (minimum cover, Clauses C) | Optional (usually seller) |
| Risk transfers when? | Goods loaded on vessel at origin port | Goods loaded on vessel at origin port | Goods arrive at destination |
| Buyer handles import clearance? | Yes | Yes | Yes |
| Buyer pays import duties? | Yes | Yes | Yes |
| Best for | Importers who want to control freight costs and choose their own forwarder | Importers who want the supplier to handle shipping and basic insurance | Importers who want the supplier to deliver to their door (minus duties) |
The practical recommendation: If you have a good freight forwarder you trust, FOB gives you the most control over costs and routing. If you'd rather your supplier handle the shipping, CIF is the simplest option — but check the insurance cover, because CIF only requires minimum coverage (Institute Cargo Clauses C), which may not be enough for high-value goods. DAP is increasingly common for intra-EU shipments where customs clearance isn't involved.
Common mistakes importers make with Incoterms
Using FOB for containerised shipments
FOB means risk transfers when goods are "loaded on board the vessel." But with containerised cargo, containers are delivered to the terminal days before loading — creating a grey area where neither party clearly bears the risk. The ICC recommends FCA (Free Carrier) for container shipments because risk transfers at the terminal when the container is handed over, not when it's eventually loaded onto the ship. In practice, FOB remains the most commonly used term for ocean imports from Asia, but if you're negotiating new supplier contracts, consider FCA.
Assuming CIF insurance covers everything
CIF only requires the seller to arrange minimum insurance cover under Institute Cargo Clauses C. This covers named risks (fire, explosion, sinking, collision) but not all risks. If your goods are valuable or fragile, you'll want to arrange your own all-risks cover on top — or negotiate CIP instead, which requires the higher Institute Cargo Clauses A (all-risks) coverage.
Using EXW for international purchases
EXW (Ex Works) puts export clearance responsibility on the buyer. This sounds like it gives you control, but in practice, a foreign buyer often can't legally handle export formalities in the seller's country. The ICC recommends FCA over EXW for international transactions — it keeps export clearance with the seller (who's best positioned to handle it) while still transferring risk early.
Thinking "DDU" is still a valid term
DDU (Delivered Duty Unpaid) was replaced by DAP (Delivered at Place) back in the 2010 revision. They're functionally similar — the seller delivers to the destination and the buyer handles import duties. If you see DDU on a carrier platform or old contract, it means the same thing as DAP, but use DAP in any new agreements.
How Incoterms affect your landed cost
The Incoterm you choose determines which costs are included in your supplier's price and which you pay separately. Buy FOB and your supplier's invoice covers the goods and getting them to the port. Buy CIF and the invoice also includes ocean freight and insurance. Buy DDP and the invoice covers everything including duties.
This matters because your true cost per unit — your landed cost — includes freight, insurance, duties, and handling on top of the product price. If you don't know which of those are bundled into your supplier's quote, you can't calculate your margin accurately. CARVO tracks the Incoterm on every shipment and factors it into landed cost calculations, so you always know which costs are included in the supplier price and which are yours to add.
For a detailed guide on calculating landed cost, see How to calculate landed cost for EU imports.
Sources
- Incoterms 2020 — International Chamber of Commerce (ICC Publication No. 723E)
- FCA or FOB? EXW or FCA? — ICC Academy guidance articles
- Know Your Incoterms — US International Trade Administration (trade.gov)
Frequently asked questions
What are Incoterms?
Incoterms are 11 standardised trade terms published by the International Chamber of Commerce (ICC) that define who pays for transport, insurance, and customs — and when risk transfers from seller to buyer — in international trade transactions.
Are Incoterms 2020 still current?
Yes. Incoterms 2020 is the current edition, in effect since 1 January 2020. The ICC typically revises the rules every 10 years, so the next update is expected around 2030. There is no "Incoterms 2025" or "Incoterms 2026."
What's the difference between FOB and CIF?
Under FOB, the buyer arranges and pays for ocean freight. Under CIF, the seller arranges and pays for freight and minimum insurance. In both cases, risk transfers when goods are loaded on the vessel, and the buyer handles import clearance and duties.
Which Incoterm is best for importing from China to Europe?
FOB is the most commonly used term for ocean imports from Asia. It gives the importer control over freight forwarder selection and shipping costs. CIF is a good alternative if you prefer your supplier to handle shipping arrangements. For containerised cargo, the ICC recommends FCA over FOB, though FOB remains dominant in practice.
Do Incoterms apply to intra-EU trade?
Yes. While there are no customs duties between EU member states, Incoterms still define who arranges transport, bears risk, and pays for freight. DAP and FCA are commonly used for intra-EU shipments.
Who chooses the Incoterm — buyer or seller?
It's negotiated between both parties as part of the sales contract. As the buyer, you should specify your preferred Incoterm when requesting a quotation. The choice affects both your costs and your risk exposure.
What changed between Incoterms 2010 and 2020?
The main changes: DAT (Delivered at Terminal) was renamed to DPU (Delivered at Place Unloaded). CIP now requires higher insurance cover (Institute Cargo Clauses A instead of C). FCA added a provision for the buyer to instruct the carrier to issue an on-board Bill of Lading to the seller, solving a long-standing problem with Letters of Credit.
Is DDU still a valid Incoterm?
No. DDU (Delivered Duty Unpaid) was replaced by DAP (Delivered at Place) in the 2010 revision. They're functionally similar, but DDU is no longer an official ICC term. Use DAP in new contracts.