Incoterms 2020 explained for small exporters

You quote a customer in Lyon "FOB Shanghai" because that is what everyone writes, the goods get damaged at the container yard three days before the vessel loads, and suddenly nobody can agree whose insurance pays. This is the kind of mess Incoterms exist to prevent, and the kind they cause when used on autopilot.

This guide covers what the 11 Incoterms 2020 rules actually allocate, the four terms a small exporter genuinely needs, and the mistakes that show up on real shipments.

What are Incoterms?

Incoterms (International Commercial Terms) are 11 standardized trade rules published by the International Chamber of Commerce (ICC). The current edition is Incoterms 2020. Each three-letter term answers, for one shipment, three questions at every leg of the journey:

1. Who pays? Trucking at origin, export clearance, terminal handling, main freight, insurance, import duties, delivery at destination.
2. Who carries the risk? There is a single named point where risk of loss or damage flips from seller to buyer. Everything before it is your problem; everything after is theirs.
3. Who does the tasks? Booking freight, filing the export declaration, clearing import customs, arranging insurance.

Two things Incoterms deliberately do not cover: when ownership transfers, and when you get paid. Those belong in your sales contract and payment terms. An Incoterm is always written with a named place, and the place matters as much as the term: "FOB Shanghai" and "FOB Ningbo" are different deals.

The 11 terms, grouped sensibly

The official grouping is by first letter, but the split that actually matters is by transport mode.

Any mode (air, road, rail, sea, courier, multimodal):

Sea and inland waterway only:

The sea-only terms were written for bulk and breakbulk cargo loaded directly onto a ship. They survive in container trade out of habit, which causes one of the classic mistakes covered below.

Who does what: the responsibility table

For the terms you will actually encounter, here is how the work and risk split:

Two non-obvious rows worth staring at. First, insurance: only CIF and CIP obligate anyone to insure, and CIF only requires minimum cover (Institute Cargo Clauses C, which excludes a lot). Under every other term, insurance is optional, so whoever carries risk on a leg should insure that leg or consciously accept the exposure. Second, the C-terms: under CFR and CIF the seller pays for the voyage but does not carry risk during it. The buyer bears the ocean risk on a voyage the seller arranged. This surprises almost everyone the first time a container goes overboard.

The 4 terms small exporters actually use

EXW: the buyer does everything

You make the goods available at your warehouse; the buyer arranges and pays for everything from your loading dock onward.

Scenario: You sell $8,000 of machined parts from your shop in Ohio to a German distributor who buys from six US suppliers and consolidates. Their freight forwarder collects from each supplier, so EXW Columbus genuinely fits: their truck, their consolidation, their export filing through their forwarder.

The catch: under EXW the buyer is responsible for the US export declaration (the EEI filing in AES) for your goods. A foreign buyer filing US export paperwork is awkward at best and often does not happen correctly. If the buyer is not a sophisticated operator with a US forwarder, quote FCA instead; the extra work for you is one customs filing you should want control of anyway.

FOB: the workhorse for sea freight

You truck the goods to the port, clear export customs, and get them loaded on the vessel. Risk and cost transfer when the goods are on board. The buyer books and pays for the ocean voyage and everything after.

Scenario: You export 1,200 cartons of ceramic tableware from Vietnam, FOB Haiphong. You pay local trucking ($180), export clearance and handling (about $250), and origin terminal charges. The moment the container is loaded, it is the buyer's risk; their forwarder booked the vessel and their insurance covers the voyage to Oakland. Your price is clean: goods plus origin costs, no guessing at ocean rates that change weekly.

FOB is popular because each side manages its own end. Just remember it is a sea term; see the mistakes section.

CIF: you arrange the voyage, they carry the risk

You pay for ocean freight and minimum insurance to the destination port, but risk still transfers at loading in origin, exactly like FOB.

Scenario: A first-time buyer in Santos, Brazil asks for "a delivered-ish price" because they have no forwarder relationship. You quote CIF Santos: goods $20,000, ocean freight $1,400, insurance about $60 (insurance under CIF typically costs around 0.3-0.5% of cargo value at 110%). The buyer compares your single number against domestic suppliers easily, and you have only committed to costs you can fix at booking time. If the container is lost mid-Pacific, the claim is the buyer's to make, on the policy you bought for them. Make sure they know that.

DDP: door-to-door, duties included

You deliver to the buyer's premises with everything done: freight, import clearance, duties, often local taxes. The buyer receives goods like a domestic purchase.

Scenario: You sell $15,000 of specialty food ingredients to a small bakery chain in Toronto that has never imported anything. DDP their warehouse is the only quote they will accept. To price it you need the HS code confirmed, the Canadian duty rate (maybe 0-6% depending on the product and origin), GST handling, brokerage (about $150-300), and a customs broker willing to clear with you as a non-resident importer. Quote DDP only after you have priced all of that. DDP is a genuine competitive weapon for selling to small buyers, and a genuine money pit when quoted blind.

The classic mistakes

Using FOB for containers and air freight. FOB transfers risk when goods are loaded on board a vessel. But your container was handed to the carrier at a terminal yard days earlier, and an air shipment never sees a vessel at all. If the goods are damaged in the yard before loading under FOB, they are still legally at your risk, in a facility you have no control over, possibly uninsured because you assumed your responsibility ended at the gate. FCA (named terminal) is the correct term: risk transfers at handover to the carrier, which matches reality. The ICC has been telling everyone this since at least 2010. The habit persists anyway.

Quoting DDP without knowing destination import costs. A US exporter quotes DDP Birmingham on a £12,000 order, then discovers 20% UK import VAT, duty on top, and the need for a UK customs intermediary because a non-established business cannot simply act as importer. The "profitable" order is now break-even. Price the destination side before the quote, not after the goods ship.

Selling EXW and orphaning the export declaration. Under EXW the buyer handles export formalities for goods leaving your country, under your company name as the seller. If their forwarder files it wrong, or never files it, the compliance exposure can still splash back on you, and you have no record of your own export. For any buyer without a strong forwarder in your country, FCA is one step up and keeps the export filing in your hands. Our export documents checklist shows which filings exist on a typical shipment and who normally owns each one.

Treating the insurance row as someone else's problem. FOB buyers who never arranged marine insurance, and CIF buyers who did not realize minimum cover excludes water damage to deck cargo, both find out during the claim. Check the risk-transfer point, then check that whoever holds risk on each leg has cover for it.

Where the Incoterm appears on your documents

The Incoterm is not just a negotiating shorthand; it is a field on your paperwork, and the documents need to agree with each other.

On the commercial invoice, the term appears with its named place, usually near the payment terms: "Incoterms 2020: FOB Haiphong". It also shapes the price itself. A CIF invoice includes freight and insurance in the total (often itemized, since some countries assess duty on CIF value while the US assesses on FOB-ish transaction value), while a FOB invoice shows goods and origin charges only. If your invoice says CIF but the value clearly excludes freight, expect questions at destination customs. The same logic applies on a proforma invoice, since your buyer uses it to open payment and sometimes import permits against the exact term quoted.

On the bill of lading, the term itself does not appear as a field, but it determines the freight notation: "Freight Collect" for EXW, FCA, and FOB (buyer pays the carrier), "Freight Prepaid" for the C and D terms (you paid). A FOB invoice paired with a Freight Prepaid bill of lading is the kind of mismatch that gets letters of credit rejected and entries queried.

Keeping the term, the price basis, and the freight notation consistent across documents is exactly the kind of cross-checking that goes wrong when each document is typed separately. ExportDocsHub generates the commercial invoice, packing list, certificate of origin, and bill of lading from one shipment record, so you set the Incoterm and named place once and every document inherits it, with the built-in HS code lookup handling the other high-stakes field at the same time. Try it on your next quote.

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Further reading

• What is an HS code? How to find yours
• Commercial invoice vs proforma invoice