Incoterms® 2020: A Reality Check, INN.LAW

Peter Poleacov24 June 20269 min

Between 90 and 95 percent of sales contracts contain an unsuitable Incoterms clause. The estimate comes from the ICC itself, the organisation that issues the rules. The real problem is not the unsuitable clause. It is that almost no one notices it is unsuitable.

Clause selection fails in practice, not in theory

The Incoterms 2020 rules are clearly written. Companies still reach for the unsuitable clause with great reliability, mostly out of habit. FOB is by far the most popular clause, and FOB is usually the unsuitable choice.

This becomes solid in the Ibero-American Report 2023, the largest survey on the subject so far. Regional and exploratory, but built on real trade documents: in 54 percent of the reviewed transactions under FOB, CFR, or CIF, the goods moved in containers — clauses the ICC expressly does not recommend for containers. 45 percent of those surveyed ignore that recommendation.

First, the sentence that matters most: Incoterms govern who bears which costs, when risk passes, and who arranges transport, insurance, and customs. They do not govern the transfer of title, payment, the consequences of a breach, or whether the clause is valid at all under the applicable law. Confuse that, and you have a clause but no contract.

Containers = FCA (not FOB or CIF)

The most common and most expensive mistake. FOB, CFR, and CIF deliver on board the vessel. A container, though, the seller gives up days earlier at the terminal. In the time between, it legally bears the risk for something it no longer controls, and often does not even know where the container currently is. On top come double-charged terminal fees and disputes over the interface.

Through its own Drafting Group, the ICC has said it unmistakably since 2024: for containers, FCA, CPT, and CIP belong in the contract, not the old sea-freight clauses. FCA moves the handover point to exactly where the seller actually gives up control — the terminal. What each clause means is set out in the article “Incoterms® 2020: Overview, Clauses, and Changes”. Specifically for containers through ports, the article “Incoterms® 2020 FCA and CPT – Best practice” shows why FCA and CPT fit better.

Risk and cost are two different points

With CPT, CIP, CFR, and CIF, what almost everyone thinks of as one thing falls apart. The seller pays the freight to the destination. Risk, however, passes much earlier, at departure. “CIF means the seller is liable to the destination” is the most widespread misconception in international trade, and it is wrong. The seller pays to the destination. The buyer must carry the risk from the moment of loading on board.

CIF on the route: the seller bears the costs to the port of destination but the risk only until the goods are on board. The distance between the two marks is carried by the buyer.

Behind this lies an incentive problem, not a knowledge problem. The clause is chosen by habit, not by risk. The rules reward the reflex — everyone knows FOB and CIF — and punish the fit that hardly anyone thinks about.

Demurrage: when the gap between cost and risk costs money

The split between cost and risk is not a theoretical problem; it has a price. Often it is called demurrage: the charge that accrues when goods are not collected from the port in time after discharge. Under CFR and CIF, the seller pays the freight to the port of destination, while the buyer carries the risk from loading. If discharge is delayed, the bill lands with the buyer, not the seller.

But the Incoterms do not answer this. They are silent on demurrage. Who bears it follows from the sales contract and its interplay with the charterparty, not from the three-letter code. The Singapore High Court worked this through in 2013 in Profindo v. Abani: under a CFR sale, demurrage ran against the buyer only from the moment the vessel berthed, even though it had hit the seller as charterer earlier. The outcome turned on the wording of the contract, not on “CFR”.

Under German law it can get more uncomfortable: where delivery is obstructed, the shipper and the consignee may be jointly and severally liable for the carrier’s expenses (Sections 492 and 494 HGB). A seller who agreed only “CFR” may then share liability for a delay it did not cause.

The way out is the familiar one: for containers, FCA or CPT instead of FOB or CFR, and spell out in the sales contract who bears demurrage, detention, and storage. Leave it open, and you rely on the code. The code does not know.

Insured does not mean protected

With insurance too, the Incoterms 2020 rules govern less than most assume. Only two clauses require cargo insurance at all: CIF and CIP. All others, including the popular FOB, require it from no one. The buyer assumes the seller insured; the seller assumes the buyer did. In the gap at the terminal — once the container is handed over but not yet on board — the goods often fall through both policies.

And cover is not the same as cover. What matters are the Institute Cargo Clauses, issued by the London underwriters’ association (IUA), in three tiers: (C) covers only expressly named perils, a minimum cover; (A) covers, as all-risks cover, every peril except the express exclusions. CIF requires only the minimum (C), CIP the all-risks cover (A). Agree CIF and think “insured”, and you often have the weakest tier.

And even “all risks” is not everything: the Institute Cargo Clauses (A) exclude war (Clause 6). On routes through conflict zones this exclusion bites; war cover is a separate instrument that must be arranged on its own. The Incoterms decide who must insure and at what level, not whether the policy pays in the end.

EXW and DDP: two clauses to avoid

EXW only looks convenient at first glance. The seller owes nothing but making the goods available. That is exactly what becomes the problem: no export, no screening against sanctions and denied-party lists, and in the EU the seller still becomes the de facto exporter, because the foreign buyer cannot act as exporter there. With letters of credit, EXW does not work anyway.

DDP turns the problem around. The seller takes on import in the buyer’s country, and in many countries it is not allowed to. In Brazil, DDP is not workable for a foreign seller; in the EU the residency requirement of the Union Customs Code (Article 170) stands in the way. Both clauses push duties to where the party often cannot legally perform them.

One clause does not work the same everywhere

This article is read worldwide, so here is the point most overviews leave out: the same clause does not work the same in every country. From more than 90 national committees, the ICC compiles where national law overrides the Incoterms.

Insurance: many countries forbid foreign parties from providing the cargo insurance. That makes CIP and CIF effectively unworkable there, because both require exactly that. In Kenya, a fine and up to five years’ imprisonment loom.
Import: where foreign companies may not import, DDP runs empty.
Customs value: Thailand requires export to be declared as FOB and import as CIF, regardless of the agreed term.

The lesson is simple: a clause in the contract does not mean it works in the destination country the way you think. Incoterms are only one layer. Beneath them lies the applicable law, often the CISG; on that, see the article “The CISG: pros and cons for German exporters”.

Honest where others keep talking: the Incoterms 2020 created, for FCA, the option of getting the seller an on-board bill of lading, designed precisely for the letter-of-credit problem. In practice it rarely holds, because the carrier and the bank do not play along. I name it, but I do not rely on it.

The suitable clause: by mode of transport, not by habit

The choice comes in two steps. First, the mode of transport: containers or multimodal via a port lead to FCA, CPT, or CIP; pure sea or inland-waterway carriage with breakbulk or bulk leads to the classic sea clauses. Second, the allocation of roles: who arranges the main carriage, and who bears the risk to where.

Always write the full formula, with the addition “Incoterms 2020” and a precisely named place — otherwise it stays open which version applies. “FOB Hamburg” on its own may be read by a US court under Section 2-319 UCC differently from the ICC rule. And name the place as precisely as possible — not just “Hamburg”, but the actual delivery point such as the terminal or loading ramp, because the transfer of risk depends on it.

Contractual deviations from the Incoterms are possible and common in practice; their effect must then be set out precisely and in full in the contract, as the article “Incoterms® 2020: Overview, Clauses, and Changes” shows.

The selector below gives a first orientation.

Incoterms determine who pays and who bears the risk, not who owns the goods. Confuse the two, and you have a clause but no protection.

My recommendation

Read the ICC handbook.
Align with purchasing, sales, logistics, and legal.
Integrate the suitable clause into the contract.

References

ICC, Incoterms® Rules.
ICC, FCA and CPT: Best Practice for Shipping Containers through Ports (2024).
ICC, National Regulatory Barriers to the Incoterms® 2020 Rules (as of January 2026).
ICC national committees, Ibero-American Report on the Use of the Incoterms® 2020 Rules (2023).
International Underwriting Association of London (IUA), Institute Cargo Clauses (A) and (C).
Davis and Vogt, Incoterms 2020 and Missed Opportunities, International Journal of Logistics Research and Applications (2021).
Profindo Pte Ltd v Abani Trading Pte Ltd, [2013] SGHC 10 (Singapore High Court).

Which Incoterms rule fits?

Quick guide

In a few steps, this guide gives you a first orientation.

How will the goods be transported?

Not legal advice. For the actual contract wording, talk to an expert.

Reference: Poleacov, P. (2026). Incoterms® 2020: A Reality Check. INN.LAW. https://inn.law/en/perspectives/incoterms-reality-check/