Incoterms 2020: What FOB, CIF and DAP Actually Commit You To

An Incoterm is three letters that decide who pays for what, and who carries the loss if the cargo is damaged or delayed. Most Indian exporters pick FOB or CIF out of habit, and a large share of them are using the wrong rule for the way their goods actually move. This guide sets out what the eleven Incoterms 2020 rules commit you to, where the transfer points really sit, and the specific mistakes that cost Indian SMEs money.

What an Incoterm does — and the four things it does not do

The Incoterms rules are published by the International Chamber of Commerce. The current edition, Incoterms 2020, came into force on 01-01-2020 and remains the edition in use today, 28-08-2026. ICC's Commercial Law and Practice Commission began groundwork in January 2026 towards a future Incoterms 2030 revision, but nothing has been published and nothing changes for a contract you sign this week.

An Incoterm answers three questions and only three: where delivery happens, at which point risk of loss or damage passes from seller to buyer, and how the costs of carriage, clearance and unloading are split. It does not do the following, and assuming otherwise is where disputes start:

• It does not transfer title. Ownership of the goods passes according to the sale contract and the governing law, not the Incoterm. You can deliver under FOB and still retain title until payment under a retention-of-title clause.
• It does not set payment terms. CIF does not mean the buyer pays on arrival. Advance payment, documentary collection or a letter of credit is a separate clause in your contract.
• It does not choose the governing law or the forum. If you have not written a law and jurisdiction clause, the Incoterm will not save you.
• It does not cover breach, force majeure or sanctions. It is silent on what happens if the buyer refuses the goods or a port is closed.

The eleven rules of Incoterms 2020

Seven rules work with any mode or modes of transport, including multimodal and containerised movements. Four are for sea and inland waterway transport only, and are meant for bulk or break-bulk cargo where the seller genuinely places goods on board a named vessel.

Note the split that catches people out: under CPT, CIP, CFR and CIF the seller pays freight to destination but risk has already passed at origin. You are paying for a journey you no longer bear the risk on. That is not a drafting error, it is the design of the C-family.

What changed from Incoterms 2010

• DAT became DPU. Delivered at Terminal was renamed Delivered at Place Unloaded, because the destination can be any place, not only a terminal.
• CIP insurance was raised. CIP now requires cover to at least Institute Cargo Clauses (A). CIF stays at Clauses (C). This is the single most commercially important change.
• FCA gained an on-board bill of lading option. Parties may agree that the buyer instructs the carrier to issue an on-board bill of lading to the seller once the goods are loaded — which removes the old reason exporters had for misusing FOB.
• Security obligations were made explicit in articles A4 (carriage) and A7 (export/import clearance).
• Carriage by the seller's or buyer's own means of transport is now recognised in FCA, DAP, DPU and DDP. You no longer have to pretend to contract a third-party carrier.
• All costs are consolidated at article A9/B9 of each rule, so you can read the cost split in one place.

The traps that cost Indian exporters money

FOB quoted on containerised cargo

This is the most common error in Indian export quotations. FOB, CFR and CIF pass risk only when the goods are on board the vessel. But a container leaves your factory, moves to a CFS or ICD, is handed to the shipping line's agent, and then sits in a stack for two to five days before loading. Under a literal FOB you carry the risk of fire, theft and water damage in that yard, even though the container left your control days earlier and you cannot inspect or protect it.

For any containerised or multimodal shipment, FCA is the correct rule, with CPT or CIP where you are paying freight. Risk passes when you hand the container to the carrier, which matches physical reality. Read our note on container loading and stuffing for how the handover point should be documented.

EXW and your GST refund

EXW puts the buyer in charge of export clearance from India. In practice the buyer's forwarder files the shipping bill, and the exporter may never receive proof of export in its own name. Without a shipping bill that reflects you as exporter, you cannot substantiate a zero-rated supply, your GST refund on inputs stalls, and RoDTEP and drawback benefits under the relevant DGFT schemes are not credited to you. If a buyer insists on collecting at your gate, quote FCA (your factory address), Incoterms 2020 instead — the buyer still arranges carriage, but you remain the exporter of record and retain the documentation.

DDP into unfamiliar jurisdictions

DDP makes you responsible for import clearance, duties and import taxes in the buyer's country. In the EU and UK that generally means you need a local VAT registration or an indirect representative; without one, customs may refuse the entry or the VAT becomes an unrecoverable cost to you. A shipment worth USD 20,000 into the EU can carry VAT of USD 4,000 or more that you cannot reclaim. Unless you already have a registered presence or a contracted importer of record, quote DAP and let the buyer clear.

Insurance cover that is thinner than the buyer expects

Under CIF you are only obliged to provide Institute Cargo Clauses (C), which is a named-perils cover. It does not respond to ordinary handling damage, theft or water ingress in many circumstances. Buyers routinely assume "insurance" means all risks. Either state in the contract that cover is Clauses (C) and let the buyer top up, or agree Clauses (A) and price it in — typically 0.1 to 0.3 per cent of CIF value.

How the Incoterm interacts with your letter of credit

The Incoterm in your sale contract must match the Incoterm in the LC, and the LC's document list must be achievable under that Incoterm. Three failure points recur:

• LC calls for an on-board bill of lading but the term is FCA or CPT. Under those rules you deliver to the carrier, not on board, so an on-board bill is not automatically yours to produce. Use the FCA on-board bill of lading option introduced in Incoterms 2020, and have the buyer instruct the carrier accordingly — record the arrangement in the sale contract, not just verbally.
• LC calls for an insurance certificate but the term is FOB or CFR. Neither rule obliges the seller to insure. If you accept the LC as issued, you must buy cover you did not price for. Get the field amended before shipment.
• Insurance amount and clauses mismatch. LCs commonly require 110 per cent of CIF value under Institute Cargo Clauses (A). Under CIF the rule only requires 110 per cent under Clauses (C). The LC governs your payment, so the LC wins in practice — check the clause reference, not just the percentage.

Our guide to letters of credit for Indian exporters covers the document-checking sequence in more detail.

How to write the term in the contract

A rule on its own is incomplete. Write it as three components: rule + named place, as precisely as possible + "Incoterms 2020".

• Correct: FCA, Plot 42, MIDC Bhosari, Pune 411026, India, Incoterms 2020
• Correct: CIP, Buyer's warehouse, Rotterdam, Netherlands, Incoterms 2020
• Wrong: CIF Europe — no named port, no edition.
• Wrong: FOB Nhava Sheva in a contract for containerised goods — wrong family, and no edition named.

For a delivered term, name the exact street address, not just the city. Under DAP and DPU your risk continues until that point, so "DAP Hamburg" leaves you exposed for an undefined last leg.

Which term to quote, by market and buyer type

• First-time buyer, small trial order, any market: FCA or CPT to a named port or airport. Keeps your risk short and your documentation clean.
• Established EU, UK or US buyer with their own forwarder: FCA at your factory or the ICD. These buyers usually have better freight rates than you do and prefer control.
• Middle East, Africa, South-East Asia distributors: CFR or CIF is expected commercially, and buyers often want a landed price. Price the freight with a buffer and state the insurance clauses.
• Bulk commodities on a chartered or break-bulk vessel: FOB, CFR, CIF or FAS are genuinely appropriate here — this is what the sea-only family was designed for.
• Buyers demanding a door-delivered price: DAP, with import clearance on the buyer. Reserve DDP for markets where you hold a tax registration.
• Avoid EXW entirely for exports. There is no commercial gain over FCA and a real documentation loss.

One practical check before you quote: confirm your HS classification first, because duty and VAT exposure under DDP, and the buyer's clearance burden under DAP, both depend on it.

Where OZIANT and ZJELL fit

OZIANT is a B2B cross-border marketplace that connects overseas buyers with Indian suppliers, so the Incoterm you quote is visible to the buyer at enquiry stage rather than argued over later. ZJELL Limited, the group's export consulting arm, handles registrations and compliance filings and can review your sale contract and LC wording before you commit to a term. Contact the team if you want an existing contract checked.