Incoterms 2020 Guide: Complete Overview for Importers

What Are Incoterms?

Incoterms are globally standardized trade terms published by the ICC that define responsibilities of sellers and buyers in international transactions. They specify who pays for shipping, insurance, customs clearance, and where risk transfers. The current edition is Incoterms 2020, published by the ICC in 2019 to succeed Incoterms 2010. Choosing the right Incoterm saves 5-15% on total costs by clearly assigning each cost component.

There are 11 rules: 7 for any transport mode (EXW, FCA, CPT, CIP, DAP, DPU, DDP) and 4 for sea/inland waterway only (FAS, FOB, CFR, CIF). I tell new importers to focus on three: FOB (for sea freight when you want control), CIF (for simplicity when you're starting out), and DDP (for door-to-door when you want zero customs hassle). Those three cover 90% of ecommerce importing scenarios. When people ask me "which Incoterm should I use?" my answer is always the same: "It depends on your experience level and who you trust more — yourself or your supplier."

Incoterms At a Glance

I reference this table constantly when planning shipments. The most important column is "Risk Transfers" — that's the legal handoff point where damage responsibility shifts from seller to buyer. For FOB, risk transfers when goods cross the ship's rail. For CIF, same point — even though the seller pays for freight, you own the risk once goods are on board. That surprises a lot of people. They think "CIF means the supplier is responsible until it arrives." Wrong. CIF means the supplier pays for freight and insurance, but YOU bear the risk if something happens in transit. That's why you need your own insurance or verify the supplier's policy covers your interest. I learned this when a CIF shipment from China arrived with water damage. The supplier's insurance paid out to them, not to me. I had to fight for reimbursement for months.

FOB vs CIF vs DDP for Ecommerce

For ecommerce and small business importers, three Incoterms cover 90%+ of transactions. FOB is most common for China sourcing - supplier loads onto vessel, you arrange shipping. CIF when you want supplier to handle shipping (check for hidden markups). DDP increasingly popular with Amazon FBA sellers for door-to-door, duty-paid delivery.

FOB and CIF account for 60% of all international trade mentions (source: ICC Trade Registry). Experienced importers prefer FOB for cost control; beginners prefer CIF for simplicity. Amazon FBA sellers increasingly use DDP because it means goods arrive at the fulfillment center with duties paid and ready for immediate receipt. The trade-off is price — DDP quotes from suppliers typically include a 10-20% markup on freight compared to what you'd pay arranging it yourself. I tell clients to get both FOB and DDP quotes, then compare. If the DDP markup is under 12%, the convenience might be worth it. If it's over 20%, arrange your own shipping.

How Incoterms Affect Landed Cost

Example: $10,000 electronics from China to US. FOB: Product ($10,000) + shipping ($1,200) + insurance ($60) = $11,260 at port. Duty (8%) = $901. Clearance + inland = $450. Total: $12,611. CIF: Supplier includes shipping and insurance in quote. Same $11,260 dutiable value, same total cost - just different who pays. DDP: Supplier handles everything. Expect all-in price of ~$13,000-14,000 (includes supplier's freight markup).

Bottom line: Incoterm doesn't change total cost much, but controls who manages each leg. FOB gives you control. CIF gives simplicity. DDP removes all customs complexity. I always recommend starting with CIF for your first 2-3 shipments, then switching to FOB once you have a freight forwarder relationship. One client ignored this advice — started with FOB, chose a bad forwarder, and his first container sat at port for 12 days because nobody had filed the ISF. The $500 in demurrage fees was a hard lesson in the value of simplicity.

Using the Calculator with Different Incoterms

Select your Incoterm in the shipping section. FOB: calculator adds estimated freight and insurance for your route. CIF: ensure entered product value includes shipping and insurance. DDP: shows all-in delivered cost including duties, clearance, and final delivery.

The Incoterm selector in the calculator was designed to eliminate confusion. Select FOB and the calculator automatically adds freight and insurance based on lane rates. Select CIF and it assumes those costs are already included. The beauty is you can toggle between them and see the impact on landed cost instantly — no manual recalculations needed.

Frequently Asked Questions