Incoterms 2020 Explained: Who Pays Freight, Duty, and GST in SME Shipping
- Iman Yusoff
- Jun 2
- 6 min read
Most cross-border shipping disputes start with one question: who pays? Incoterms 2020 answer it. They define who covers freight, insurance, duty, and risk on every shipment. Therefore, choosing the wrong term can quietly hand you costs you never agreed to. This guide explains all 11 rules and shows which to use.
We base every rule on the International Chamber of Commerce (ICC), which publishes Incoterms. Additionally, we tie each term to import duty and 9% GST in the Singapore-Indonesia-Malaysia corridor. Consequently, you can quote prices with confidence.
Unsure which Incoterm to use? Talk to IFG before you sign your next contract.
What are Incoterms 2020?
Incoterms 2020 are the standard trade rules that split costs, risks, and duties between buyer and seller. The ICC publishes them, and the 2020 edition took effect on 1 January 2020. Despite the name, they remain fully current in 2026. Therefore, they govern most international sales contracts today (ICC).
The ICC revises Incoterms roughly every ten years. As a result, the next update is not expected until around 2030.
What do Incoterms decide — and what do they not?
Incoterms decide three things: who arranges and pays for transport, where risk passes, and who handles export and import clearance. However, they do not decide ownership transfer, payment terms, or what happens if a contract breaks. Therefore, you must cover those points separately in your sales contract (ICC).
This distinction matters. Many SMEs assume an Incoterm settles payment. In fact, it does not.
The 11 Incoterms 2020 rules
Incoterms 2020 contain 11 rules in two groups. Seven rules work for any transport mode. The other four apply only to sea and inland waterway transport. Therefore, matching the term to your transport mode is the first decision you make.
Let us define each group.
Seven rules for any transport mode
EXW (Ex Works). The seller makes goods available at their premises. The buyer bears almost every cost and risk after that.
FCA (Free Carrier). The seller delivers goods to a carrier named by the buyer. Risk passes at that point.
CPT (Carriage Paid To). The seller pays carriage to the destination. However, risk passes to the buyer at the first carrier.
CIP (Carriage and Insurance Paid To). Like CPT, but the seller also buys insurance. Under 2020, this is higher-level cover (Institute Cargo Clauses A).
DAP (Delivered at Place). The seller delivers, ready for unloading, at a named place. The buyer handles import clearance and duties.
DPU (Delivered at Place Unloaded). The seller delivers and unloads at a named place. The buyer still handles import clearance.
DDP (Delivered Duty Paid). The seller delivers cleared for import, with all duties and taxes paid. This places maximum responsibility on the seller.
Four rules for sea and inland waterway only
FAS (Free Alongside Ship). The seller delivers goods alongside the vessel at the port of loading.
FOB (Free on Board). The seller delivers goods on board the vessel. Risk passes once they are loaded.
CFR (Cost and Freight). The seller pays cost and freight to the destination port. However, risk still passes on board at loading.
CIF (Cost, Insurance and Freight). Like CFR, but the seller buys insurance. The default is minimum cover (Institute Cargo Clauses C).
The table below summarises responsibility under each rule.
Incoterm | Transport mode | Main carriage paid by | Import duty & GST paid by | Risk transfers at |
EXW | Any | Buyer | Buyer | Seller's premises |
FCA | Any | Buyer | Buyer | Named carrier |
CPT | Any | Seller | Buyer | First carrier |
CIP | Any | Seller | Buyer | First carrier |
DAP | Any | Seller | Buyer | Named place (not unloaded) |
DPU | Any | Seller | Buyer | Named place (unloaded) |
DDP | Any | Seller | Seller | Named place (import cleared) |
FAS | Sea | Buyer | Buyer | Alongside ship |
FOB | Sea | Buyer | Buyer | On board vessel |
CFR | Sea | Seller | Buyer | On board vessel |
CIF | Sea | Seller | Buyer | On board vessel |
Need help mapping costs to a term? Message IFG on WhatsApp and we will model it with you.
Who pays import duty and GST under each Incoterm?
The buyer pays import duty and GST under every Incoterm except DDP. Under DDP, the seller takes on import clearance, duty, and tax. Therefore, the term you choose decides who carries the 9% GST that Singapore charges on the CIF value of imports (Singapore Customs, IRAS).
This point catches many sellers out. For example, agreeing to DDP into Indonesia means you, the seller, pay Indonesian import duty and VAT. Consequently, you must price that in. To see other costs that erode margins, read our guide on hidden shipping costs SMEs overlook.
FOB vs CIF — which should SMEs use?
FOB gives the buyer control of main freight, while CIF lets the seller arrange it. Under FOB, risk passes once goods load on board, and the buyer books carriage. Under CIF, the seller pays freight and minimum insurance to the destination port. Therefore, buyers who want cost control often prefer FOB.
However, both apply to sea transport only. For containerised or multimodal cargo, the ICC recommends FCA instead. Importantly, FOB and CIF also connect to payment security. For how that interacts with bank-backed payment, read our guide on letters of credit versus open account.
Which Incoterm should a corridor SME choose?
The best Incoterm depends on control, risk appetite, and who handles customs. For most Indonesia-Singapore-Malaysia SMEs, a few terms dominate. Therefore, we rank them by typical fit below.
FCA or FOB — best when you want the other party to control main freight and you keep your side simple.
CIF or CIP — useful when the seller can secure better freight and insurance rates.
DAP or DPU — good when the seller manages delivery but the buyer clears customs.
DDP — only when the seller fully understands the destination's duty and tax. Otherwise, it is risky.
EXW — simplest for the seller, but it loads almost all cost and risk onto the buyer.
For corridor-specific clearance, see our guide on shipping from Indonesia to Malaysia.
Common Incoterms mistakes SMEs make
SMEs lose money through a handful of repeated errors. Most come from choosing the wrong term or misreading what it covers. Consequently, costs land on the wrong party.
Avoid these mistakes:
Using FOB or CIF for containers or air. These are sea-only terms. For containers and multimodal cargo, use FCA, CPT, or CIP instead.
Assuming an Incoterm sets payment. It does not. Settle payment terms separately in your contract.
Ignoring the insurance level. CIF gives minimum cover; CIP now gives higher cover. Choose deliberately.
Agreeing to DDP blindly. As the seller, you then pay all import duty and tax abroad. Price it in first.
Mismatching the risk transfer point. Know exactly where your risk ends and the other party's begins.
How IFG helps you ship on the right Incoterm
IFG advises corridor SMEs on the Incoterm that fits each deal. In practice, we model who pays freight, duty, and GST under each option. Additionally, we arrange carriage, insurance, and clearance across the Indonesia-Singapore-Malaysia corridor. Therefore, you avoid surprise costs and disputes.
Our Batam base and Singapore office let us run the whole movement as one system. As a result, your goods ship on terms that protect your margin.
Quote with confidence. Email IFG to choose the right Incoterm for your next shipment.
Frequently asked questions
What are Incoterms 2020?
Incoterms 2020 are the standard trade rules that split costs, risks, and duties between buyer and seller. The International Chamber of Commerce publishes them, and the 2020 edition took effect on 1 January 2020. They remain the current edition in 2026.
How many Incoterms are there?
There are 11 Incoterms in the 2020 edition. Seven apply to any transport mode: EXW, FCA, CPT, CIP, DAP, DPU, and DDP. Four apply to sea and inland waterway transport only: FAS, FOB, CFR, and CIF.
Who pays GST under Incoterms?
The buyer pays import GST under every Incoterm except DDP. Under DDP, the seller handles import clearance, duty, and tax. Singapore charges 9% GST on the CIF value of imports, so the chosen term decides who carries that cost.
What is the difference between FOB and CIF?
Under FOB, the buyer arranges and pays main freight, and risk passes once goods load on board. Under CIF, the seller pays freight and minimum insurance to the destination port. Both apply to sea transport only.
What changed in Incoterms 2020?
The ICC renamed DAT to DPU (Delivered at Place Unloaded) and expanded it to any place. CIP now requires higher insurance cover (Institute Cargo Clauses A), while CIF keeps minimum cover (Clauses C). FCA also gained an on-board bill of lading option.
Can a freight forwarder help me choose an Incoterm?
Yes. A forwarder models who pays freight, duty, and GST under each term and arranges carriage and clearance. IFG advises SMEs across the Indonesia-Singapore-Malaysia corridor. Contact IFG to start.
About the author: Iman Yusoff is the founder of IFG Shipping, with 25+ years of experience across the Singapore-Malaysia-Indonesia freight corridor. IFG operates a Batam base alongside its Singapore office, helping SMEs ship on the right terms and protect their margins. Read more about Iman Yusoff's freight experience.
Sources
International Chamber of Commerce (ICC) — Incoterms 2020 rules: https://iccwbo.org/business-solutions/incoterms-rules/incoterms-2020/
Singapore Customs — import procedures and GST on imports: https://www.customs.gov.sg
IRAS (Inland Revenue Authority of Singapore) — GST on imported goods: https://www.iras.gov.sg
Published 2 June 2026. Trade rules and tax rates change. Verify current terms with the ICC, Singapore Customs, and IRAS before you act.
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