Incoterms 2020: a shipper’s field guide to the eleven rules

FOB, CIF, DAP, DDP, the four acronyms that decide who pays for what when cargo crosses a border. A practical, no-legalese breakdown with the one mistake that costs US importers the most.

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Incoterms are eleven three-letter rules that allocate cost, risk, and paperwork between buyer and seller. They are updated every ten years; the 2020 set is the current one. Most disputes we mediate trace back to a contract that used a rule from the 2010 edition without saying so.

The three you will actually use

Of the eleven rules, three account for the overwhelming majority of contracts we see on transatlantic and transpacific lanes into the US.

• FOB (Free On Board), seller’s responsibility ends when the cargo is loaded onto the vessel at origin port. Buyer pays ocean freight, insurance, and US import duties.
• CIF (Cost, Insurance, Freight), seller pays to bring cargo to destination port including insurance. Buyer pays US import clearance and inland delivery.
• DAP (Delivered At Place), seller delivers to the buyer’s door, buyer pays import duty. This is the most common term in e-commerce and 3PL contracts.

The one mistake that costs the most

DDP, Delivered Duty Paid, is the only rule where the seller pays US import duty. It is also the rule most often chosen by sellers who do not have a US broker. When the cargo lands, the forwarder discovers the seller has no importer of record, the shipment is held, and demurrage starts accruing at roughly $180 per day per container. We have seen this turn a $12,000 shipment into a $27,000 one.

“Never sign DDP unless you have a named importer of record in the US. If you can’t name them, use DAP.”

A rule of thumb

Sellers who are new to the US market should use DAP and let the buyer handle their own duty. Buyers who want a fixed landed cost should insist on DDP, but only with a forwarder who has confirmed they can act as importer of record at CBP. Terms look small in a contract; they decide six-figure outcomes at the border.