Incoterms 2020 Part 2: DAP, DDP, FAS, FOB, CFR & CIF Made Simple for CAIIB BFM 2026

If you are preparing for the CAIIB BFM exam. The Incoterms 2020 Part 2 rules are some of the highest-scoring topics you can master. Examiners love them.

They are factual. Logical, and almost always appear in International Banking (Module A). Yet most candidates lose easy marks here simply.

They confuse FOB with CIF. Or DAP with DDP.

This guide fixes that. We break down the remaining Incoterms 2020 rules in plain English. You will learn exactly who pays.

Who bears the risk, and who arranges insurance at every step. By the end. You will be able to answer any trade-terms question with confidence.

What Are Incoterms 2020? A Quick Recap

The Incoterms (International Commercial Terms) are a set of pre-defined trade rules published by the International Chamber of Commerce (ICC). They define the responsibilities of exporters (sellers). Importers (buyers) in a cross-border sale.

In short, Incoterms answer three big questions for any shipment:

1. Who pays for transport, insurance, duties and clearance?
2. Who bears the risk of loss or damage, and from which point?
3. Who handles export and import customs formalities?

If you have not read the first instalment, go through Incoterms 2020 Part 1 first. It explains the meaning of Incoterms and covers EXW, FCA, CPT, CIP and DPU. This Part 2 guide continues from there.

Recap: The 5 Rules Covered in Part 1

Before we dive in. Here is a fast refresher of the any-mode-of-transport rules already explained in Part 1:

1. EXW — Ex Works (place of delivery)
2. FCA — Free Carrier (place of delivery)
3. CPT — Carriage Paid To (place of destination)
4. CIP — Carriage and Insurance Paid To (place of destination)
5. DPU — Delivered at Place Unloaded (place of destination)

Now let us complete the picture with the remaining delivery rules. The four sea-transport rules.

The Remaining Any-Transport Rules: DAP & DDP

These two D-group rules can be used for any mode of transport. Road. Rail, air, sea, or a combination. The seller carries the goods all the way to the destination country.

DAP — Delivered at Place

Under DAP. The seller delivers the goods to the agreed destination, ready for unloading. Unloading itself is the buyer's job.

• The buyer pays all fees, duties and taxes for unloading the goods.
• The seller handles packing. Export clearance. Main transport and any terminal charges up to the named destination.
• The seller is responsible for moving the goods into the destination country. Through customs.
• Risk transfers to the buyer at the final named place of destination (before unloading).

DDP — Delivered Duty Paid

Under DDP, the seller takes on almost everything. This is the rule with the maximum obligation on the seller.

• The seller bears all risks. Costs of clearing and delivering the goods to the named place.
• Import customs clearance in the buyer's country. Including taxes and charges — is the seller's responsibility.
• The seller must obtain the required registrations and authorisations from customs.
• Unloading is not the seller's responsibility.
• The buyer carries no risk or liability until the goods reach the final agreed location.

Incoterms 2020 Rules for Sea & Inland Waterway Transport

The next four rules apply only when goods move by sea or inland waterway. They suit non-containerised cargo such as bulk commodities. Because the goods must be verified at the point of transfer.

For three of these rules (all except FAS). Risk. Obligation generally pass to the buyer once the goods are on board the vessel.

FAS — Free Alongside Ship

• The seller delivers the goods alongside the buyer's vessel at the named port of shipment.
• From that point. The buyer bears all costs and risks of loss or damage.
• Under FAS, the seller must export-clear the goods.

FOB — Free On Board

• The seller bears all costs. Risks until the goods are placed on board the named vessel.
• The seller arranges export clearance.
• The buyer pays for ocean freight, bill of lading charges and insurance.
• The buyer also pays for local transport from the arrival port to the final destination.
• The buyer is liable for any damage to the goods once they are on board.

CFR — Cost and Freight

• The seller pays the cost of transporting goods up to the named port of destination.
• Risk passes to the buyer in the export country. Right after the cargo is loaded on board.
• The seller covers freight charges and export clearance.
• However. The seller is liable for damage to cargo on board only up to the named test of risk. Note that cost runs to the destination port. Risk passes on loading.
• The buyer arranges insurance. Pays for local delivery from the port to the final location.
• If the buyer wants the seller to arrange insurance. The parties should use CIF instead.

CIF — Cost, Insurance and Freight

• The seller delivers the goods on board the vessel at the port of shipment after export clearance.
• The seller pays the cost of shipping. Insurance up to the named port of destination.
• The seller must obtain at least the minimum level of insurance as per Clause C of the Institute Cargo Clauses.
• The seller provides the bill of lading. Insurance policy and invoice at the port of arrival — these prove cost. Insurance and freight.
• As with CFR. Risk passes to the buyer once goods are loaded. But cost (plus insurance) runs to the destination port.

Incoterms 2020 Comparison Table (Part 2)

This table is your one-glance revision tool. Memorise the insurance and risk transfer columns. They are where most marks are won or lost.

Note: For exact wording on insurance levels and the latest applicable edition. Always confirm on the latest official IIBF notification and ICC Incoterms 2020 text.

What Incoterms 2020 Do NOT Cover

This is a favourite trap question in the BFM exam. Incoterms are usually built into the contract of sale. But they do not:

• Identify the goods being sold or state the contract price;
• Address all the terms of the sale;
• Specify when title or ownership of the goods passes from seller to buyer;
• Decide the method or timing of payment agreed between the parties; or
• List which documents the seller must give the buyer for customs clearance.

In one line for the exam: Incoterms allocate cost. Risk and tasks — not ownership, price, or payment.

How to Study Incoterms for CAIIB BFM (Smart Method)

Do not try to mug up every clause word-for-word. Use this proven, faster approach instead:

1. Group by transport mode. Keep the “any mode” rules (E. F. C. D groups) separate from the four sea-only rules (FAS, FOB, CFR, CIF).
2. Anchor the extremes. Remember EXW = least seller duty and DDP = most seller duty. Every other rule sits between these two.
3. Master one column at a time. First learn the risk transfer point for all rules. Then learn who pays insurance. Then layer in clearance.
4. Use the FOB vs CFR vs CIF ladder. FOB (buyer pays freight + insurance) → CFR (seller pays freight. Buyer insurance) → CIF (seller pays freight + insurance). Each step adds one seller duty.
5. Practise application questions. Take regular mock tests so you can answer scenario-based MCQs under exam pressure.

For more topic-wise revision notes, explore our collection of free guides on JAIIB and CAIIB subjects.

Common Mistakes Students Make with Incoterms 2020

Avoid these errors and you will instantly score higher than most candidates:

• Mixing up CFR and CIF. The only difference is insurance — under CIF the seller insures the goods.
• Confusing “risk” with “cost” under C-terms. In CFR and CIF. Risk passes on loading. But the seller still pays cost up to the destination port.
• Using FOB for containerised cargo. FOB is meant for non-containerised sea freight. FCA is the correct choice for containers.
• Assuming DDP includes unloading. It does not — unloading at destination is the buyer's job under DDP.
• Thinking Incoterms decide ownership. They never transfer title or set the price.

Frequently Asked Questions on Incoterms 2020 Part 2

What is the difference between FOB and CIF in Incoterms 2020?

Under FOB. The buyer pays for freight. Insurance once goods are loaded on board.

Under CIF. The seller pays for both freight. Insurance up to the destination port.

Although risk still passes to the buyer on loading.

Which Incoterm places the maximum responsibility on the seller?

DDP (Delivered Duty Paid) places the maximum obligation on the seller. Including import clearance and duties in the buyer's country. EXW places the minimum obligation on the seller.

Are FAS, FOB, CFR and CIF used for air or road transport?

No. These four rules apply only to sea and inland waterway transport. And are best suited to non-containerised cargo. For other modes. Use the any-transport rules like FCA, CPT, CIP or DAP.

Do Incoterms decide who owns the goods?

No. Incoterms allocate cost, risk and responsibilities only. They do not transfer title or ownership. Set the price. Or decide payment terms — those are governed by the contract of sale.

What level of insurance must the seller arrange under CIF?

Under CIF. The seller must obtain at least the minimum cover under Clause C of the Institute Cargo Clauses. For exact requirements applicable to your exam cycle. Confirm on the latest official IIBF notification.

Final Words: Turn Incoterms into Guaranteed Marks

The Incoterms 2020 Part 2 rules look intimidating. But they follow a simple logic: as you move from EXW to DDP. The seller takes on more and more responsibility. Lock in the risk-transfer points and the insurance column. And these questions become free marks in your CAIIB BFM paper.

Revise this guide, drill the comparison table, and test yourself with mock tests. With consistent practice and the right notes, you can clear your June 2026 CAIIB exam with confidence. Keep going — every concept you master today brings you one step closer to that result.

Related Guides

For more on Incoterms 2020 Part 2. See the official IIBF circulars. Our chapter-wise free notes on iibf.store.

For more on “Incoterms 2020 Part 2”, explore our free mock tests and chapter notes on iibf.store.

Bookmark this page — we keep our “Incoterms 2020 Part 2” guidance current as IIBF revises its rules.

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