Incoterms 2020

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Navigating international trade can be complex, with responsibilities, costs, and risks needing clear definition between all parties involved.

To streamline the import and export process, the International Chamber of Commerce (ICC) introduced Incoterms®—a globally recognized set of trade rules that define the responsibilities of buyers and sellers. Whether you're processing a purchase order, labeling a shipment, or preparing a certificate of origin, Incoterms® provide essential guidance in global trade.

First introduced in 1936, these rules have been continuously updated by the ICC to adapt to evolving trade practices. The latest edition, Incoterms® 2020, came into effect on January 1, 2020, and serves as the current standard for international transactions.

Each Incoterms® rule consists of a three-letter abbreviation with a precise meaning, ensuring clarity and consistency in global trade agreements. Understanding and applying these terms correctly can help businesses manage risks and responsibilities more effectively.

Rules for any mode or modes of transport:

EXW – Ex Works (Named Place of Delivery)

Commonly used in initial price quotations, EXW means the seller makes the goods available at their premises (e.g., factory, warehouse) or another specified location. The seller is not responsible for loading the goods onto a transport vehicle or clearing them for export.

FCA – Free Carrier (Named Place of Delivery)

FCA has two variations:

• FCA (a): The seller delivers the goods, export-cleared, at their own premises.
• FCA (b): The seller delivers the goods, export-cleared, at a location other than their premises.
  In both cases, the goods can be handed over to a carrier or another party designated by the buyer.

CPT – Carriage Paid To (Named Place of Destination)

Under CPT, the seller covers the transportation costs to the named destination but does not assume the risk once the goods are handed over to the carrier.

CIP – Carriage and Insurance Paid To (Named Place of Destination)

Similar to CPT, but with the added requirement that the seller provides minimum insurance coverage for the goods during transit.

DAP – Delivered at Place (Named Place of Destination)

The seller is responsible for delivering the goods to the agreed destination, ready for unloading. All risks and costs involved in transportation are managed by the seller until arrival.

DPU – Delivered at Place Unloaded (Named Place of Destination)

Under DPU, the seller delivers the goods unloaded at the named destination, covering all transport costs, including export fees, carriage, unloading at the destination port, and port charges. The seller assumes all risks until the goods reach their final location.

DDP – Delivered Duty Paid (Named Place of Destination)

With DDP, the seller takes full responsibility for transporting the goods to the buyer’s country, covering all costs, including import duties and taxes. However, unloading at the destination is the buyer’s responsibility.

These Incoterms® help define clear responsibilities between buyers and sellers, ensuring smooth international trade transactions.

Rules for sea and inland waterway transport:

FAS – Free Alongside Ship (Named Port of Shipment)

The seller fulfills their obligation when the goods are placed next to the vessel (e.g., on a quay or barge) at the designated port of shipment, as chosen by the buyer. At this point, the risk and costs transfer to the buyer, who assumes all responsibilities from then on.

FOB – Free on Board (Named Port of Shipment)

The seller delivers the goods on board the vessel selected by the buyer at the agreed port of shipment. The risk of loss or damage shifts to the buyer once the goods are securely on board, and the buyer covers all costs thereafter.

CFR – Cost and Freight (Named Port of Destination)

The seller arranges for the goods to be shipped and covers the cost of transportation to the specified port of destination. However, the risk transfers to the buyer as soon as the goods are loaded onto the vessel.

CIF – Cost, Insurance, and Freight (Named Port of Destination)

CIF operates similarly to CFR, with one key difference: the seller must also arrange and pay for minimum insurance coverage to protect the buyer against loss or damage during transit.

These Incoterms® clarify the responsibilities of buyers and sellers in maritime trade, ensuring smooth and efficient international transactions.