Incoterms 2020 Guide for Global Buyers & Importers
Understand who pays for freight, insurance, customs, duties and delivery — and when risk transfers between the buyer and seller.
Updated for 2026 · Based on the current Incoterms® 2020 rules
What are Incoterms?
Incoterms® are standardized international trade terms published by the International Chamber of Commerce (ICC). They establish important responsibilities between buyers and sellers for delivery, transportation, costs and risk.
The current edition is Incoterms® 2020. It contains 11 rules: seven for any mode or combination of transport and four specifically for sea and inland-waterway transport.
For companies sourcing manufactured products from India, understanding Incoterms before requesting quotations or placing purchase orders can help prevent confusion over freight, customs, insurance and delivery responsibilities.
Why Incoterms matter when buying internationally
A supplier’s product price is only one part of the total cost of an international purchase.
When a global buyer purchases CNC-machined components, injection-molded parts, sheet metal components, assemblies, industrial equipment or other manufactured products from an overseas supplier, the transaction also involves transportation, export formalities, insurance, customs and delivery.
Incoterms provide a standardized way to allocate many of these delivery-related responsibilities between the seller and buyer.
This is particularly important when sourcing from India. Two Indian manufacturers can quote apparently similar products at very different prices because their quotations use different delivery terms.
What Incoterms help define
- Where delivery takes place.
- When risk transfers from seller to buyer.
- Who arranges transportation.
- Who handles export formalities.
- Who handles import formalities.
- Which party pays specified transportation costs.
- Insurance responsibilities under applicable rules.
- Loading and unloading responsibilities where applicable.
What Incoterms do not define
Incoterms are not a complete sales contract. They do not replace agreements covering product specifications, quantities, payment terms, quality requirements, warranties, intellectual property, delivery schedules or other commercial conditions.
The four Incoterms groups
The 11 rules are commonly organized into four groups based on how responsibility and delivery move through the transaction.
EXW
Ex Works places the goods at the buyer’s disposal at the named place, such as the seller’s premises.
FCA, FAS & FOB
The seller delivers according to the applicable F-term, while the buyer generally arranges the main carriage.
CPT, CIP, CFR & CIF
The seller arranges specified carriage, but buyers must understand that payment for carriage and transfer of risk are separate concepts.
DAP, DPU & DDP
Delivery responsibilities extend toward the named destination, with different obligations for unloading and import clearance.
All 11 Incoterms 2020 explained
Use these descriptions as a starting point when reviewing international supplier quotations and procurement contracts.
Ex Works
The seller makes the goods available at the named place. The buyer takes on significant responsibility for transportation and other logistics activities.
Free Carrier
The seller delivers the goods to the carrier or another party nominated by the buyer at the agreed place.
Carriage Paid To
The seller arranges carriage to the named destination, while risk transfers at the applicable delivery point under the rule.
Carriage and Insurance Paid To
Similar to CPT, but the seller also arranges insurance according to the requirements of the rule.
Delivered at Place
The seller delivers the goods at the named destination ready for unloading. Import clearance generally remains with the buyer.
Delivered at Place Unloaded
The seller delivers and unloads the goods at the named destination.
Delivered Duty Paid
The seller assumes extensive responsibility, including import clearance and applicable duties under the rule.
Free Alongside Ship
The seller delivers the goods alongside the vessel at the named port of shipment. This rule is for sea and inland waterway transport.
Free on Board
The seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment.
Cost and Freight
The seller arranges carriage to the named destination port, while risk transfers according to the applicable delivery point.
Cost, Insurance and Freight
The seller arranges carriage and insurance to the named destination port under the rule.
Incoterms 2020 comparison table
Compare transport applicability, carriage, insurance and import responsibilities at a glance.
| Incoterm | Transport | Main Carriage | Insurance | Import Clearance |
|---|---|---|---|---|
| EXW | Any mode | Buyer | Buyer | Buyer |
| FCA | Any mode | Buyer | Buyer unless separately arranged | Buyer |
| CPT | Any mode | Seller | Buyer unless separately arranged | Buyer |
| CIP | Any mode | Seller | Seller | Buyer |
| DAP | Any mode | Seller | Not mandated by rule | Buyer |
| DPU | Any mode | Seller | Not mandated by rule | Buyer |
| DDP | Any mode | Seller | Not mandated by rule | Seller |
| FAS | Sea / inland waterway | Buyer | Buyer | Buyer |
| FOB | Sea / inland waterway | Buyer | Buyer | Buyer |
| CFR | Sea / inland waterway | Seller | Buyer | Buyer |
| CIF | Sea / inland waterway | Seller | Seller | Buyer |
Simplified educational comparison. Always review the applicable Incoterms® 2020 rule and the complete commercial contract before assigning contractual responsibilities.
Incoterms when sourcing manufactured products from India
The right delivery term can make supplier quotations easier to compare and help global buyers understand their expected logistics responsibilities.
Do not compare Indian supplier quotations on unit price alone
Imagine two Indian manufacturers quote the same component. Supplier A quotes EXW while Supplier B quotes FOB. The difference between the quoted prices does not necessarily represent a difference in manufacturing cost.
The quotations may simply allocate transportation and delivery responsibilities differently.
For global procurement teams, quotations should therefore be normalized before comparing suppliers.
What buyers should define in an RFQ
- Required Incoterm.
- Named place or port.
- Applicable Incoterms edition.
- Packaging requirements.
- Quality and inspection requirements.
- Required delivery schedule.
- Any special documentation requirements.
Which Incoterm should you consider?
Start with your preferred level of logistics control. The final selection should be based on the actual transaction, transport mode, destination and contractual requirements.
Do you want to control the main international freight?
FCA can be suitable for many transport modes, while FOB is specifically designed for sea and inland-waterway transport.
These C-terms involve seller-arranged carriage. The correct choice depends on transport mode and whether insurance is included under the applicable rule.
Do you want delivery closer to your facility?
These destination-oriented rules place significant delivery responsibility on the seller. DPU additionally requires the seller to unload at the named destination.
These can provide greater buyer control over transportation, depending on the transaction and transport mode.
Do you want the supplier to handle import responsibilities?
DDP places extensive import responsibilities on the seller. Buyers should confirm that the supplier can legally and practically fulfil those obligations in the destination country.
Under DAP, the buyer generally handles import clearance and related import obligations.
6 common Incoterms mistakes buyers should avoid
Understanding these issues can help procurement teams avoid unexpected costs and responsibilities.
Comparing unit prices without normalizing Incoterms
A lower quoted product price does not necessarily mean a lower total landed cost.
Confusing freight cost with risk
Under some C-terms, the seller may pay transportation even though risk has already transferred to the buyer.
Using FOB for every shipment
FOB is specifically intended for sea and inland-waterway transport and should not automatically be applied to air or multimodal shipments.
Leaving the named place unclear
The Incoterm should be accompanied by a sufficiently precise named place, port or destination.
Assuming DDP is always the best option
DDP gives the seller extensive responsibility, but the seller must be able to fulfil the relevant import obligations.
Treating Incoterms as the entire sales contract
Incoterms do not replace specifications, payment terms, quality agreements, warranties or other contractual requirements.
Incoterms are only one part of a reliable sourcing strategy
Successful international procurement also depends on supplier selection, RFQ management, factory verification, quality oversight and procurement execution.
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Incoterms 2020 FAQ
Common questions from global buyers and companies importing manufactured products.
What are Incoterms?
Incoterms are standardized international trade terms published by the International Chamber of Commerce. They define important buyer and seller responsibilities relating to delivery, costs and risk.
How many Incoterms are there in Incoterms 2020?
Incoterms 2020 contains 11 rules. Seven apply to any mode or combination of transport and four are specifically designed for sea and inland-waterway transport.
What is the difference between FOB and CIF?
FOB and CIF are sea and inland-waterway terms. Under FOB, the seller delivers the goods on board the vessel while the buyer arranges the main carriage. Under CIF, the seller arranges carriage and insurance to the named destination port, while risk transfers earlier according to the rule.
What is the difference between EXW and FCA?
EXW places significant logistics responsibility on the buyer from the seller’s premises or another named place. FCA involves the seller delivering the goods to the carrier or another party nominated by the buyer at the agreed place.
What is the difference between DAP and DDP?
Under DAP, import clearance and related import obligations generally remain with the buyer. Under DDP, the seller assumes extensive import responsibilities, including applicable import clearance and duties.
Which Incoterm is best for importing from India?
There is no universally best Incoterm. The correct choice depends on transport mode, destination, logistics capabilities, customs requirements, insurance, risk allocation and the commercial agreement between the buyer and supplier.
Do Incoterms determine payment terms?
No. Incoterms primarily address delivery-related responsibilities, costs and risk. Payment terms are separately agreed between the buyer and seller.
Can Incoterms be used when sourcing from India?
Yes. Incoterms are commonly used in international transactions involving Indian manufacturers and overseas buyers. The correct rule and named place should be selected according to the actual shipment and contractual arrangement.
Should FOB be used for air freight from India?
FOB is a sea and inland-waterway rule. Buyers arranging air, road, rail or multimodal shipments should evaluate Incoterms designed for any mode of transport.
Use the official Incoterms rules for contractual decisions
This guide is designed to make Incoterms easier for procurement teams and international buyers to understand. It should not replace the official Incoterms® 2020 rules, legal advice or transaction-specific customs and logistics advice.
For contractual interpretation and detailed application, buyers should consult the official ICC Incoterms® 2020 materials.
VIEW OFFICIAL ICC RESOURCE
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