Incoterms 2020: international delivery terms explained
What are Incoterms and why do they matter for international trade?
Incoterms (International Commercial Terms) are internationally recognised trade terms that clarify international transactions. First published in 1936 and most recently updated as Incoterms 2020, effective from 1 January 2020, these 11 standardised rules underpin reliable global trade.
Why Incoterms matter for your business
- Reduce legal risks and prevent costly misunderstandings
- Clarify responsibilities between buyer and seller
- Specify who pays for transport, insurance and customs duty
- Define exactly when risk transfers from seller to buyer
- Are recognised by courts and authorities worldwide
Expert advice: Always state the delivery term using its three-letter code or full English name, the specified town and place, followed by “Incoterms 2020”, to avoid misunderstandings.
What exactly do Incoterms govern?
Incoterms clearly establish:
- Who pays for transport, insurance and other costs
- From or to which place the goods must be transported
- Whether loading and unloading are included in the obligations
- When risk transfers from seller to buyer
The 3 most commonly used Incoterms in international trade
1. EXW: Ex Works (available at the seller’s premises)
How it works:
- The buyer is responsible for the entire transport chain
- The seller only makes the goods available at their premises
- The buyer handles loading, transport and all related costs
Transfer of risk: When the goods are available at the seller’s named place
Insurance recommendation: The buyer needs comprehensive insurance from the collection point
Best for: Purchases within Sweden or within the EU, where no export clearance is needed. If you are buying from outside the EU, the ICC recommends FCA instead.
2. DAP: Delivered at Place
How it works:
- The seller arranges transport to the agreed destination
- The seller bears the risk up to the destination
- The buyer handles import clearance and unloading
Transfer of risk: When the goods arrive at the destination, ready for unloading
Insurance recommendation: The seller arranges insurance to the agreed destination
Best for: Deliveries where the seller wants control of transport without handling import formalities
3. DDP: Delivered Duty Paid
How it works:
- The seller has maximum responsibility in the delivery chain
- The seller bears all costs up to the place of delivery: export clearance, transport, import clearance, duty and import VAT
- DDP requires no insurance, but the seller bears the risk all the way and should therefore insure the goods
- Check that the seller can actually clear the goods for import in Sweden. A seller outside the EU that is not registered for VAT here pays the import VAT to Swedish Customs, and the ICC warns that the tax cannot always be recovered from the buyer. If the seller cannot clear the import, choose DAP or DPU instead
- The buyer only needs to receive the goods at the named destination
Transfer of risk: When the goods are delivered and ready for unloading at the destination
Insurance recommendation: The seller needs comprehensive insurance covering the entire transport chain
Best for: Buyers wanting a straightforward, ready-to-use delivery solution without administrative burdens
Overview of all Incoterms 2020 rules
| Incoterm | Transport responsibility | Transfer of risk | Export/import responsibility | Recommended for |
|---|---|---|---|---|
| EXW | Buyer | When available at the seller’s premises | Buyer for both | All modes of transport |
| FCA | Buyer (after the first carrier) | When handed to the first carrier | Seller (export), buyer (import) | All modes of transport |
| CPT | Seller | When handed to the first carrier | Seller (export), buyer (import) | All modes of transport |
| CIP | Seller (including insurance) | When handed to the first carrier | Seller (export), buyer (import) | All modes of transport |
| DAP | Seller | On arrival at the destination | Seller (export), buyer (import) | All modes of transport |
| DPU | Seller (including unloading) | On unloading at the destination | Seller (export), buyer (import) | All modes of transport |
| DDP | Seller | On arrival at the destination | Seller for both | All modes of transport |
| FAS | Buyer (after the quay) | When placed alongside the vessel | Seller (export), buyer (import) | Sea transport |
| FOB | Buyer (after loading) | When the goods are on board the vessel | Seller (export), buyer (import) | Sea transport |
| CFR | Seller | When the goods are on board the vessel | Seller (export), buyer (import) | Sea transport |
| CIF | Seller (including insurance) | When the goods are on board the vessel | Seller (export), buyer (import) | Sea transport |
A closer look
CIP: Carriage and Insurance Paid To
- The seller pays: Transport and insurance to the named place
- Transfer of risk: When handed to the first carrier
- Special feature: Requires a higher level of insurance (Institute Cargo Clauses A)
- Best for: Valuable goods needing comprehensive insurance cover
DPU: Delivered at Place Unloaded
- The seller pays: Transport and unloading at the named place
- Transfer of risk: After unloading at the destination
- Special feature: The only Incoterm under which the seller is responsible for unloading
- Best for: Heavy or bulky equipment requiring special handling
FCA: Free Carrier
- The seller delivers to: The agreed place or carrier
- Transfer of risk: When handed to the carrier
- Special feature: Flexibility in the delivery location
- Best for: Container freight and multimodal transport
CPT: Carriage Paid To
- The seller pays: Transport to the named destination
- Transfer of risk: When handed to the first carrier
- Special feature: No obligation for the seller to arrange insurance
- Best for: Sellers wanting control of transport while transferring risk early
How to choose the right Incoterm for your business
Your choice of Incoterm directly affects the transaction’s risk, costs and administrative burden. Consider these key factors:
1. Assess your experience
- New importers: Choose FCA rather than EXW when buying from outside the EU. Under EXW you, as the buyer, must clear the goods for export in the seller’s country yourself. The ICC recommends EXW mainly for domestic trade.
- New exporters: Start with FCA or DAP. You then handle export clearance but leave the import to the buyer.
- Experienced traders: More complex terms such as CIP/CIF can improve cost control
2. Assess your negotiating position
- Strong position: Choose terms that suit your control and cost structure
- Weaker position: Focus on terms that minimise risk and complexity
3. Consider the goods’ characteristics
- Sensitive or high-value goods: Consider terms that let you retain control over transport arrangements
- Standard goods: Simpler terms focused on cost efficiency may be suitable
4. Mode of transport and destination
- Sea transport: FAS, FOB, CFR and CIF apply only to sea and inland waterway transport. According to the ICC, FOB and FAS should not be used where the goods are handed to the carrier before they are on board, for example at a container terminal; choose FCA in that case. Where more than one mode of transport is used, which is common in container freight, the ICC recommends CPT instead of CFR and CIP instead of CIF.
- Multimodal transport: FCA, CPT, CIP, DAP and DDP are flexible across all modes
- Complex destinations: Choose terms under which the more experienced party handles local formalities
Common Incoterms mistakes to avoid
- Choosing the wrong Incoterm for the transport mode, such as FOB for road transport, or FOB, CFR and CIF for containerised goods handed over at a terminal
- Defining the delivery place unclearly: always specify the exact address or terminal
- Mixing old and new versions of Incoterms
- Relying solely on Incoterms without a supporting sales agreement
- Underestimating insurance needs, especially where risk transfers early
Improve international transactions with the right delivery terms
Using Incoterms correctly can significantly improve international transactions by:
- Reducing the risk of costly disputes and misunderstandings
- Making logistics more efficient through clear responsibilities
- Optimising costs for transport and insurance
- Simplifying administration in cross-border trade
Need expert help with Incoterms?
Contact us for professional advice on using Incoterms in your international transactions. Our team helps you choose the right delivery terms for your particular situation, goods and market.
Read on
Who declares and pays on import is covered on our page about importing into Sweden.
The same for exports is covered on our page about exporting from Sweden.
More guides are collected in our customs guides.
