Incoterms® 2020 Explained: Complete Breakdown of All 11 International Trade Terms

Mihan Jun 17,2026

From EXW to DDP, Clarify Buyer-Seller Liability, Expense & Risk Allocation in One Article | Professional Interpretation by Mihan Logistics

Core Pain Point Introduction

“We finalized pricing on a DDP basis, yet unexpected customs duties worth thousands of US dollars popped up at the destination port – which contracting party is legally liable for such extra charges?” “The sales contract was agreed on FOB terms, but the buyer’s nominated forwarder failed to make space booking, leaving goods stuck at the loading port for a full month and incurring hefty demurrage; who needs to cover the port detention cost?”

Trivial disparities in International Trade Terms directly decide your profit margin, risk control efficiency and end-customer satisfaction. Headquartered in Shenzhen, Mihan Logistics handles tens of thousands of sea, air and land transport shipments every year. Compiled strictly in line with the globally effective Incoterms® 2020 latest rules, this guide sorts out liability scopes of all 11 standard trade clauses, empowering traders to pick optimal Shenzhen trade terms during business negotiation.

I. Definition of International Trade Terms (Incoterms)

Formulated by the International Chamber of Commerce (ICC), International Trade Terms refer to standardized regulatory rules that specify obligation division, risk transfer cutoff and cost-bearing boundary between buyers and sellers during cargo handover, effectively resolving cross-border trade conflicts stemming from inconsistent term interpretation by both contracting sides.

Incoterms® 2020, put into force on January 1, 2020, is the currently valid official version covering 11 distinct trade clauses, split into two categories by applicable transport modes as shown below:

Category	Applicable Terms	Application Scenarios
Terms for all modes of transportation	EXW, FCA, CPT, CIP, DAP, DPU, DDP	Ocean shipping, air freight, land carriage and full multimodal transport
Terms exclusive to sea & inland waterway transport	FAS, FOB, CFR, CIF	Containerized cargo and bulk dry/general cargo seaborne shipment

When ranked by ascending seller’s contractual obligations: Group E (Minimum Liability) → Group F → Group C → Group D (Maximum Liability). Group D clauses impose the most extensive responsibilities on sellers, while Group E shifts most operational risks and costs to purchasers.

II. Detailed Explanation of Four Term Groups

Group E: Departure Terms (Minimum Seller’s Obligations)

EXW (Ex Works) – Ex Factory Delivery

The seller only needs to get goods ready at designated sites such as own factory or warehouse. The buyer is responsible for self-pickup and bears all ensuing transportation fees and contingent risks. The seller is not responsible for cargo loading, export customs clearance or any transport arrangement work.

Group F: Main Carriage Unpaid (Seller completes export customs clearance formalities)

Trade Term	Detailed Regulation
FCA (Free Carrier) – Free at Named Carrier	Seller finishes contractual obligation once consignments are handed over to the carrier appointed by the buyer; applicable to full-range multimodal logistics.
FAS (Free Alongside Ship) – Alongside Vessel Delivery at Loading Port	Seller delivers goods alongside the nominated vessel at stipulated loading port, widely adopted for bulk staple commodities including grain and mineral ore trading.
FOB (Free On Board) – Onboard Shipment at Loading Port	Seller completes cargo loading onto designated seagoing vessel; risk passes to the buyer once goods are stowed onboard. It remains one of the most frequently-used Shenzhen trade terms for China’s export contracts.

Group C: Prepaid Main Carriage (Risk transfers at shipment origin)

Trade Term	Detailed Regulation
CFR (Cost and Freight) – Cost Plus Seafreight	Seller fulfills all FOB commitments and additionally covers ocean freight up to the agreed destination port.
CIF (Cost, Insurance and Freight) – Cost, Insurance & Freight Included	Based on CFR liabilities, the seller is required to arrange minimum marine cargo insurance complying with ICC Institute Cargo Clause C or equivalent cover.
CPT (Carriage Paid To) – Freight Prepaid to Named Destination	Seller pays full transit cost to designated destination, with risk shifting upon goods handover to the first contracted carrier.
CIP (Carriage and Insurance Paid To) – Freight & Insurance Prepaid	On the basis of CPT rules, Incoterms® 2020 compels sellers to purchase higher-grade insurance such as Institute Cargo Clause A coverage.

Group D: Destination Delivery Terms (Maximum Seller’s Contract Liability)

Trade Term	Detailed Regulation
DAP (Delivered At Place) – Delivery at Agreed Destination	Seller transports goods to designated destination address (e.g. buyer’s warehouse doorstep), whereas import customs clearance and all relevant import tariffs fall under the buyer’s accountability.
DPU (Delivered at Place Unloaded) – Delivered Unloaded at Destination	In addition to DAP obligations, the seller is tasked with offloading goods from arriving transport vehicles. Remark: DPU replaced the obsolete DAT clause from Incoterms® 2010, being the single term requiring sellers to undertake destination unloading work.
DDP (Delivered Duty Paid) – Full Duty Paid Destination Delivery	Ranking as the highest-liability clause under Incoterms® 2020, DDP includes full end-to-end freight, insurance premium, export & import customs clearance plus all applicable customs duties and VAT; buyers barely need to handle any formalities.

III. Quick Lookup Table for Five Most Popular International Trade Terms

Term	Seller’s Core Responsibilities	Buyer’s Core Responsibilities	Risk Transfer Boundary	Main Application Scenarios
EXW	Prepare finished goods at factory premises	All transport, customs clearance and tax expenses	Upon buyer’s on-site pickup at factory	Sellers without independent export qualification; buyers with overseas local agents for self-collection
FOB	Domestic haulage to loading port, export customs filing and onboard loading	International seafreight, cargo insurance, import clearance & destination tariffs	Right after goods are loaded onto vessel	Buyers controlling logistics via contracted forwarders or managing cost for bulk shipments
CIF	All FOB work + international ocean freight + minimum marine insurance	Import customs clearance and destination import duties	Identical to FOB (after loading on vessel)	Sellers offering port-bound delivery service for buyers lacking ocean freight experience
DAP	Full-cycle logistics & export clearance, doorstep delivery to destination	Import clearance formalities plus all import duties and incidental levies	Prior to import customs clearance after cargo arrival	Clients avoiding clearance paperwork but willing to settle import tax independently
DDP	All-in package including import clearance, customs duty and VAT settlement	Practically zero operational formalities	When goods are formally received by buyer	Cross-border e-commerce retail focusing on optimized buyer shopping experience

For detailed information on international trade terms and Incoterms, please refer to the specialized guide compiled by Mihan Logistics (see link below).

IV. Risk & Cost Pyramid Model

From Seller’s Risk Perspective (Ascending Risk Gradient): EXW (Lowest Risk) < FOB < CIF < DAP < DDP (Highest Risk with upside profit potential)

From Buyer’s Operational Burden Perspective (Ascending Trouble Gradient): DDP (Most Convenient Option) < DAP < CIF < FOB < EXW (Most Cumbersome Arrangement)

Professional Advice from Mihan Logistics

New export startups or enterprises unfamiliar with destination-country customs regulations are suggested to adopt FOB under Incoterms® 2020 to curb uncontrollable risks; after establishing mature overseas supply chains and sufficient experience in customs clearance, businesses can shift to DDP to sharpen market competitiveness.

General Frequently Asked Questions

Q1: What’s the historical link between DDU and DAP?

A1: DDU (Delivered Duty Unpaid) was completely abolished in Incoterms® 2010 and officially superseded by DAP (Delivered At Place). Both clauses share identical core definition: sellers complete destination delivery while buyers bear all import tax costs. DDU shall no longer be stipulated in newly signed trade contracts; DAP is the legally compliant wording under current Incoterms® 2020 provisions.

Q2: Does CIF equal “Landed Price”? Is the seller bound to guarantee successful cargo arrival under CIF?

A2: Negative. Under Incoterms® 2020, CIF only mandates sellers to cover seafreight and basic insurance till destination port, yet cargo risk transfers to buyers once goods get loaded onboard at origin port. If sea transit damage happens, buyers shall file insurance claims directly with underwriters instead of claiming delivery compensation from sellers, who bear no arrival guarantee obligation under CIF.

Q3: Under what circumstances shall traders prioritize FOB as preferred Shenzhen trade terms?

A3: FOB works best when buyers own stable destination clearance resources and cooperative forwarders, sellers have limited insight into overseas import laws, or traders handle low-value bulk goods where buyers need full transportation cost control.

Q4: Is DDP equivalent to the market’s informal “Door-to-door Delivery with Double Clearance & All-in Tax”?

A4: Though final delivery form looks similar, they differ drastically in regulatory compliance. DDP is a lawful standard International Trade Term under Incoterms® 2020, with sellers providing complete official import customs documents and formal tax receipts. Conversely, most grey-market “double clearance all-tax inclusive door delivery” from irregular forwarders resorts to underreporting cargo value or falsifying commodity HS code, which may trigger cargo detention, administrative fines and even criminal penalties once inspected by customs. Mihan Logistics recommends all corporate clients select compliant DDP clauses for formal cross-border orders.

Customized Logistics Services from Mihan LogisticsWith Shenzhen headquarters and interconnected global logistics network, our full-spectrum services cover:

✅ Free professional consultation on International Trade Terms and customized Shenzhen trade terms selection advice
✅ Space reservation service compliant with FOB / CIF / DAP / DDP Incoterms® 2020 provisions
✅ One-stop destination customs clearance and tariff collection agency solution
✅ Cost-effective domestic trucking and customs declaration resources departing from Shenzhen loading ports

Reach out to Mihan Logistics customer service right away to acquire bespoke trade term planning and accurate freight quotation.

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