Incoterms 2020 Made Simple: Who Pays What, and Where Risk Transfers

2026-09-30 · 8 min read

One wrong Incoterm can leave you paying freight twice, or carrying the risk of damage to goods you have never touched.

Key points

Incoterms settle three things: who pays which cost, where risk passes, and who clears customs
Seven rules work for any transport mode; FAS, FOB, CFR and CIF are sea freight only
Under FOB risk passes once the goods are on board — not when they reach the port
CIF requires only ICC(C) cover, which is minimal; CIP was upgraded to ICC(A) in 2020
DDP looks convenient but an overseas seller usually cannot reclaim Thai import VAT

Incoterms are the standard trade terms published by the International Chamber of Commerce. The current edition is Incoterms 2020, and its job is to answer three questions clearly so nobody argues about them later.

Who pays what — freight, terminal handling, clearance, insurance
Where risk passes — if the cargo is damaged in transit, who carries the loss
Who clears customs — on the export side and on the import side

Incoterms do not cover title to the goods, payment terms, or governing law. Those belong in the sales contract.

Two families of rules

Any mode of transport (seven rules)

Rule	Name	Risk passes when
EXW	Ex Works	Goods are made available at the seller works
FCA	Free Carrier	Handed to the carrier the buyer nominated
CPT	Carriage Paid To	Handed to the first carrier
CIP	Carriage and Insurance Paid To	Handed to the first carrier, seller insures
DAP	Delivered at Place	Arrived at destination, not unloaded
DPU	Delivered at Place Unloaded	Arrived and unloaded
DDP	Delivered Duty Paid	Arrived, cleared and duty paid

DPU is the 2020 replacement for DAT, and it is the only rule requiring the seller to unload at destination.

Sea and inland waterway only (four rules)

Rule	Name	Risk passes when
FAS	Free Alongside Ship	Placed alongside the vessel
FOB	Free On Board	Goods are on board
CFR	Cost and Freight	Goods are on board; seller pays freight
CIF	Cost, Insurance and Freight	Goods are on board; seller insures

These four should not be used for containers. In practice the shipper hands the box over at the container yard, not alongside the ship, which leaves a gap where nobody clearly carries the risk. The ICC recommends FCA instead.

Three mistakes we see most

1. Assuming CIF means full insurance cover

CIF requires only Institute Cargo Clauses (C), which covers major casualties such as sinking, collision and fire. It does not cover theft, breakage or rain damage. For all-risks cover you must specify ICC(A) in the contract or arrange your own policy. CIP was upgraded in 2020 and now requires ICC(A).

2. Buying EXW without realising you must handle export clearance

Under EXW the seller only makes the goods available at their premises. Everything else is the buyer responsibility, including export clearance in the origin country — which a foreign buyer usually has no legal standing to file. FCA is almost always the better choice.

3. Agreeing DDP with an overseas seller

DDP sounds convenient, but an overseas seller is rarely VAT-registered in Thailand, so the import VAT cannot be reclaimed and becomes a sunk cost. If you want delivery to your door, DAP is usually better, with the buyer handling import clearance and tax.

How to write it correctly

Always state all three parts: rule + named place + edition.

✅ FCA Shanghai Port, Incoterms 2020
✅ DAP 3656/30 Rama IV Road, Bangkok, Incoterms 2020
❌ CIF alone — no named port, no edition

What this means for Thai importers

If you want control over freight cost, buy FCA (or FOB for bulk) and appoint your own forwarder: you see the real cost structure and choose your own insurance. If you would rather not deal with it and accept that freight is priced into the goods, CIF or CPT work — just check whether the insurance is actually adequate.

#Incoterms #ศุลกากร #นำเข้าส่งออก #โลจิสติกส์ #FOB #CIF

Knowledge

Prohibited Goods, Restricted Goods and Import Permits: What to Check Before You Order