Incoterms 2020: which one to use, and the two that cause most disputes

What an Incoterm actually decides

Three things: where cost transfers, where risk transfers, and who handles export and import clearance. It does not decide title, payment terms or governing law, those live in your contract. Confusing risk transfer with delivery is the most common and most expensive misunderstanding in the whole set.

Why EXW causes trouble

Under EXW the seller has no obligation to load the goods or to handle export clearance. As a foreign buyer you often cannot legally file an export declaration in the seller’s country, so you end up depending on the seller’s goodwill for something they have not been paid to do. FCA achieves nearly the same commercial split while putting export clearance where it belongs.

Why DDP causes trouble

DDP makes the seller responsible for import duty and clearance in your country. In many markets a non-resident seller cannot practically act as importer of record, so the term either fails at the border or is quietly delivered as DAP with a surprise invoice attached. DAP plus an agreed clearance arrangement is usually the honest version of what both parties actually wanted.

Sensible defaults

For containerised cargo, FCA, CPT and CIP are technically the correct family; FOB, CFR and CIF are drafted for bulk and breakbulk loaded over a ship’s rail, even though the market uses them for containers constantly. For a first-time buyer, CIF or DAP puts the freight complexity with the party best placed to manage it. For an experienced importer with their own freight rates, FOB or FCA usually lands cheaper.

Always name the place precisely

An Incoterm without a named place is incomplete. "CIF" is not a term; "CIF Jebel Ali" is. Write the term, the named port or place, and the Incoterms 2020 reference into the purchase order and the letter of credit, and make sure all three documents say the same thing.