Which is used more often, FOB or CIF?

In Korean export practice, FOB is the most commonly used. Buyers prefer FOB when they want to negotiate freight directly. CIF is used when sellers offer a single all-in price including freight and insurance, or in L/C transactions.

Is EXW always favorable for the seller?

It looks like the lightest burden, but export clearance responsibility also falls on the buyer, which frequently leads to disputes. If you want to reduce seller burden, FCA is a more practical alternative.

What is the most important change in Incoterms 2020?

Three things: ① DAT was renamed DPU, ② In FCA, a clause for B/L receipt in L/C transactions was added, and ③ CIP insurance was upgraded to the highest grade (Institute A).

What's the difference between CFR and CIF?

Under CFR, the seller bears only the freight, not insurance. Under CIF, the seller bears both freight and insurance. CIF offers stronger protection against damage or loss in transit.

Are Incoterms legally binding?

Incoterms themselves are not international law. However, when specified in a contract, they carry legal effect between the parties. Ownership transfer and payment conditions must be stipulated separately in the contract.

Logistics Terms International Rules for Terms of Trade, Incoterms

Registration dateMAY 29, 2026

International Trade Rules: The Complete Guide to Incoterms 2020

What Are Incoterms and Why Do They Matter?

Key Takeaways

Incoterms are the international standard rules for trade terms, established by the International Chamber of Commerce (ICC).
They clearly classify transport costs, insurance, risk transfer points, and customs responsibilities between sellers and buyers.
The current version is Incoterms 2020, consisting of 11 rules.
Incorrect application can lead to unexpected costs, insurance gaps, and liability disputes.

What Are Incoterms?

Incoterms (International Commercial Terms) are the international standard trade rules established by the International Chamber of Commerce (ICC). They provide clear criteria for dividing transport costs, insurance, risk transfer points, and customs responsibilities between sellers and buyers in a contract.

Incoterms were first established in 1936 and are revised every ten years. The current version is Incoterms 2020, which took effect in 2020. When specifying Incoterms conditions in a contract, always include the version. (Example: FOB Busan, Incoterms 2020)

Incoterms 2020 — All 11 Rules Compared

Incoterms 2020 consists of 11 rules, divided into 7 rules applicable to any mode of transport and 4 rules for sea freight only.

Rule	Group	Transport cost	Risk transfer point	Customs	Key feature
EXW	E	Buyer pays all	At seller's factory gate	Buyer	Minimum seller burden
FCA	F	Buyer after main carriage	At named place on delivery	Seller	2020 update: B/L receipt clause added
FAS	F·Sea	Buyer after main carriage	Alongside vessel (at the port)	Seller	Sea only. Seller covers up to ship side
FOB	F·Sea	Buyer after main carriage	On board vessel	Seller	Sea only. Most used in Korean export practice
CFR	C·Sea	Seller (freight)	On board vessel	Seller	Risk transfers at loading
CIF	C·Sea	Seller (freight + insurance)	On board vessel	Seller	Common in L/C transactions
CPT	C	Seller (freight)	On delivery to carrier	Seller	Multimodal available
CIP	C	Seller (freight + insurance)	On delivery to carrier	Seller	2020 update: top-grade insurance required
DAP	D	Seller pays all	At named destination	Buyer	Growing use in e-commerce and D2C
DPU	D	Seller pays all	At destination, unloaded	Buyer	New in 2020 (replaces DAT)
DDP	D	Seller + import duties	At named destination	Seller covers all	Maximum seller burden

Classification by Mode of Transport — Getting This Wrong Causes Contract Disputes

The 11 rules in Incoterms 2020 have strict usage limits by mode of transport. The most common real-world error is applying FOB to containerized sea freight or sea-only rules to air cargo. The ICC explicitly recommends FCA for container shipments, and FCA, CPT, CIP, DAP, DPU, or DDP for air and multimodal transport.

①

Seven Rules Applicable to Any Mode of Transport
These general-purpose rules work for sea, air, road, rail, or multimodal transport. Containerized freight and air cargo must be chosen from this group.

Rule	Full Name	Transport modes	Recommended cargo
EXW	Ex Works	All modes	Small volume; buyer-driven transactions
FCA	Free Carrier	All modes	Standard for containerized sea, air, multimodal
CPT	Carriage Paid To	All modes	Air and multimodal with freight included
CIP	Carriage and Insurance Paid To	All modes	Air and multimodal with freight + insurance
DAP	Delivered at Place	All modes	E-commerce and D2C exports
DPU	Delivered at Place Unloaded	All modes	Seller covers through unloading
DDP	Delivered Duty Paid	All modes	Seller covers through import duties

②

Four Rules for Sea and Inland Waterway Transport Only
These rules apply only to sea transport (bulk carriers, conventional vessels) and inland waterway transport. For containerized cargo, FCA is recommended — since "vessel loading" can't be treated as risk transfer point — but in Korean practice FOB and CIF remain dominant by convention

Rule	Full Name	Risk transfer point	Primary use
FAS	Free Alongside Ship	Alongside vessel (at the port)	Bulk cargo (raw materials, grain, coal)
FOB	Free on Board	On board vessel at the port	Most used in Korean export practice
CFR	Cost and Freight	On board vessel at the port	Seller pays freight only
CIF	Cost, Insurance and Freight	On board vessel at the port	Most used in L/C transactions

⚠️ Why FOB Shouldn't Be Used for Container Cargo

Containers are handed over to the carrier at the CY (Container Yard) or CFS — at that moment, control leaves the seller. But FOB's risk transfer point is "vessel loading completion."
This creates an unreasonable gap: if cargo is damaged between CY handover and vessel loading, the seller is still liable.
The ICC recommends FCA (or CPT, CIP) for containerized, air, and multimodal shipments.
That said, FOB remains dominant in Korean practice by convention — clearly reach an agreement on the risk transfer point in the contract.

Understanding by Group: E / F / C / D

The 11 rules can be organized into four groups based on seller's responsibility scope.

Group	Core principle	Rules included	Seller burden
E Group	Origin delivery	EXW	Minimum — ends at seller's factory gate
F Group	Delivery without main carriage	FCA, FAS, FOB	Export transport and export clearance
C Group	Delivery with main carriage	CFR, CIF, CPT, CIP	Main carriage included (risk transfers at loading)
D Group	Destination delivery	DAP, DPU, DDP	Maximum — all the way to destination

Key Changes in Incoterms 2020

DAT renamed to DPU: Scope expanded to allow unloading at locations other than terminals
CIP insurance strengthened: Insurance grade raised from Institute Cargo Clause (C) to (A) — increasing seller burden
FCA updated: Under Letter of Credit (L/C) transactions, sellers can now receive the B/L after loading onto the vessel
Own means of transport explicitly allowed under FCA, DAP, DPU, and DDP
String sales explicitly applied to all rules including EXW

The Three Most Commonly Used Incoterms in Practice

FOB (Free on Board) — Sea Freight Only: FOB is the most commonly used condition in Korean export practice. The seller bears costs and risks until the cargo is loaded on board, after which the buyer takes over. Buyers choose FOB when they want to negotiate and manage freight directly.
CIF (Cost, Insurance and Freight) — Sea Freight Only: Under CIF, the seller is responsible for freight and insurance to the destination port. It's commonly used in Letter of Credit (L/C) transactions and gives buyers the advantage of a pre-determined total cost.
DAP (Delivered at Place) — Multimodal: Under DAP, the seller delivers cargo to the named destination — only import clearance remains with the buyer. DAP is increasingly used in e-commerce and D2C (Direct to Consumer) exports.

Which Incoterms Favor Sellers vs Buyers?

Perspective	Favorable term	Rationale
Minimum seller burden	EXW	Responsibility ends at the factory gate — buyer handles transport and clearance
Minimum buyer burden	DDP	Buyer only receives cargo — seller handles transport, duties, and clearance
Balanced (sea)	FOB / CIF	Most commonly used — serves as negotiation baseline
Balanced (multimodal)	FCA / DAP	For air and multimodal. A practical alternative to EXW

Note: EXW also places export clearance responsibility on the buyer, which often leads to disputes in practice. If you want to reduce seller burden, FCA is a more practical alternative than EXW.

How to Specify Incoterms in a Contract

Always include the Incoterms rule name, the named place, and the version together.

Correct example: FOB Busan, Incoterms 2020
Correct example: CIF Rotterdam, Incoterms 2020
Incorrect example: FOB only (without a version, disputes may arise over which edition applies)

Frequently Asked Questions

Q. Which is used more often, FOB or CIF?: A. In Korean export practice, FOB is the most commonly used. Buyers prefer FOB when they want to negotiate freight directly. CIF is used when sellers offer a single all-in price including freight and insurance, or in L/C transactions.
Q. Is EXW always favorable for the seller?: A. It looks like the lightest burden, but export clearance responsibility also falls on the buyer, which frequently leads to disputes. If you want to reduce seller burden, FCA is a more practical alternative.
Q. What is the most important change in Incoterms 2020?: A. Three things: ① DAT was renamed DPU, ② In FCA, a clause for B/L receipt in L/C transactions was added, and ③ CIP insurance was upgraded to the highest grade (Institute A).
Q. What's the difference between CFR and CIF?: A. Under CFR, the seller bears only the freight, not insurance. Under CIF, the seller bears both freight and insurance. CIF offers stronger protection against damage or loss in transit (국문에는 없는 내용-> 삭제).
Q. Are Incoterms legally binding?: A. Incoterms themselves are not international law. However, when specified in a contract, they carry legal effect between the parties. Ownership transfer and payment conditions must be stipulated separately in the contract.

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