Incoterms 2020 explained for importers

What an Incoterm actually tells you (and what it doesn't)

An Incoterm is a three-letter code in your sales contract that answers two questions: at which point does the seller stop paying, and at which point does the seller stop carrying the risk of loss or damage. It does not, by itself, tell you what your import duty will be. That is the source of most landed-cost mistakes I see importers make.

Here is the mental model that fixes it. The Incoterm tells you what is already baked into the price your supplier quoted. Your customs authority separately defines the valuation base it taxes — and that base is fixed by law, not by your contract. Most countries assess duty on the CIF value (goods + insurance + freight to the border). The United States and Australia are the big exceptions: they use an FOB / transaction-value basis, where international freight and insurance to the destination are excluded (see CIF vs FOB).

So your job is a translation exercise. Take the contract price, figure out what the Incoterm has bundled into it, then add what's missing or strip out what shouldn't be there to arrive at the statutory customs value. Every section below is just an application of that one rule.

EXW — Ex Works (goods only)

The seller makes the goods available at their own premises. You, the buyer, take cost and risk from that doorstep: origin inland haulage, export clearance, loading, the lot. EXW puts the least in the price.

To reach customs value: on a CIF-basis country, add origin charges + international freight + insurance. On the US/AU FOB basis, you still add the origin inland and export-handling charges — foreign costs incurred before export belong in the customs value. Only the international leg to destination is excluded. EXW on an FOB basis does not mean "add nothing."

FCA and FAS — handed over at origin

FCA (Free Carrier) and FAS (Free Alongside Ship) move the transfer point to a named origin location or the quayside. The seller typically handles export clearance and gets the goods to that point; you take over for the main international carriage. The price is, in practice, very close to an FOB-equivalent value: origin and export costs in, international carriage out.

To reach customs value: add international freight (and insurance) for a CIF-basis country; that price is already your FOB-basis value for the US/AU.

FOB, CFR and CIF — the sea-freight family

These three are for sea and inland-waterway transport only under Incoterms 2020. They share the same risk point — goods loaded on board the vessel at origin — but bundle progressively more cost:

• FOB (Free On Board): price = goods loaded at origin. Freight and insurance are yours.
• CFR (Cost and Freight): price includes freight, but not insurance.
• CIF (Cost, Insurance and Freight): price includes both freight and insurance.

The defining oddity of the C-terms (CFR, CIF, and their any-mode cousins below) is that risk and cost transfer at different points. Risk passes to you at origin when the goods are loaded; the seller pays carriage to destination anyway. If the container is lost mid-ocean on a CIF shipment, that is your loss even though the seller paid the freight — which is exactly why marine cargo insurance matters.

To reach customs value:

Incoterm	In the price	CIF-basis country	US / AU (FOB basis)
FOB	goods + origin/export	add freight + insurance	keep as-is (already FOB value)
CFR	+ international freight	add insurance	strip out the freight
CIF	+ freight + insurance	keep as-is (already CIF value)	strip out freight + insurance

Note how the strip-out only appears in the US/AU column. For a CIF-basis country, the freight and insurance sitting inside a CIF price are the customs value — you keep them. Stripping is never a universal rule; it is tied to the destination's valuation basis.

CPT and CIP — the any-mode equivalents

CPT (Carriage Paid To) and CIP (Carriage and Insurance Paid To) are the multimodal versions of CFR and CIF — use them for air freight, courier, road, rail, or containerized cargo. CPT mirrors CFR (freight included, insurance not); CIP mirrors CIF (both included). The same split of risk-at-origin, cost-at-destination applies.

One real difference worth knowing: Incoterms 2020 raised CIP's default insurance to the broad ICC (A) "all-risks" level, while CIF stayed at the minimal ICC (C). Same customs-value treatment as their sea cousins: add insurance under CPT for a CIF-basis country; strip the international leg for the US/AU.

DAP and DPU — delivered, but duty not paid

DAP (Delivered At Place) and DPU (Delivered at Place Unloaded) mean the seller carries the goods all the way to your named destination — DPU adds unloading. Critically, under both terms the seller does not pay import duty or import taxes; that remains your responsibility as importer of record.

These prices bundle the full international carriage to destination. For a CIF-basis country that mostly matches the duty base already. For the US/AU you must strip out the international freight and insurance — and here is the practical gotcha: sellers rarely itemize those costs on a delivered term. Get the freight and insurance figures broken out on the commercial invoice before the goods ship, or you will be guessing at the deduction.

DDP — Delivered Duty Paid

DDP is the maximum-obligation term: the seller delivers to destination and pays import duty and import tax. It looks effortless for the buyer, but you lose visibility of the customs valuation and you are trusting the seller (or their broker) to classify and value correctly. If the figures are wrong, you — not the seller — can still be on the hook with the customs authority. Treat the DDP price as a black box and ask for the underlying duty/tax breakdown.

The FOB-basis catch for the US and Australia

This is where the duty base diverges from most of the world, so handle it deliberately.

United States. Duty is assessed on the FOB-equivalent transaction value — international freight and insurance are excluded. So a CIF, CFR, CIP, CPT, DAP, DPU, or DDP price needs those international charges stripped out before duty is calculated. There is no federal VAT or GST at the border. Note that Section 301, 232 and IEEPA tariffs stack on top of the base HTS rate, and the US$800 de minimis is currently suspended (EO 14324) — duty applies from the first dollar. See the US calculator.

Australia. Same FOB duty base: the customs value excludes international freight and insurance. But the GST base is different. Australian GST (10%) is charged on the VoTI = customs value + duty + international transport and insurance. So freight is out for the duty calculation but added back in for GST. That counterintuitive add-back is the whole point: stripping freight to value the duty does not let it escape the 10% GST. See the Australia calculator and GST on imports.

Putting it to work

The cleanest workflow: identify the Incoterm on your invoice, get freight and insurance itemized as separate line items (insist on it for C-terms and D-terms), then translate to your destination's customs value. Walk through the full math in how to calculate landed cost, or just run your numbers through the Australia or United States calculator — both are Incoterm-aware and apply the correct FOB-basis treatment automatically.