Incoterms®
2020
INTERNATIONAL COMMERCIAL
TERMS
Incoterms® 2020
are a set of standard rules used in international and domestic
contracts for the delivery of goods.
ICC rules for the use of domestic and international trade terms.
recognized by UNCITRAL as the global standard for the
interpretation of the most common terms in foreign trade
helping to avoid costly misunderstandings by clarifying the
tasks, costs and risks involved in the delivery of goods from
sellers to buyers.
Importance of Incoterms
Incoterms are important because they provide a
standardized set of rules that all buyers and
sellers must follow when engaging in
international trade. This sets clear guidelines of
cost, insurance and ownership for each party.
Because Incoterms are accepted internationally,
this helps facilitate trade between countries.
Incoterms focus on 3 things
Obligations
Risk
Cost
Obligations
Who does what as between seller and
buyer, for example who organizes carriage
or insurance of the goods or who obtains
shipping documents and export or import
licenses.
Risk
Where and when the seller “delivers” the
goods, in other words where risk transfers
from seller to buyer.
Cost
Which party is responsible for which costs,
for example transport, packaging, loading
or unloading costs, and checking or
security-related costs.
11 Types of Incoterms
2 Main Distinction
Rules for any mode of transportation
→ so-called “Multi-Modal”
Rules for sea and inland waterway
transport
→ so-called “Maritime”
Rules for any mode of transportation
1.) EXW - Ex Works
2.) FCA - Free Carrier
3.) CPT - Carriage Paid To
4.) CIP - Carriage and Insurance Paid To
5.) DAP - Delivered at Place
6.) DPU - Delivered at Place Unloaded
7.) DDP - Delivered Duty Paid
Rules for sea and inland waterway transport
8.) FAS - Free Alongside Ship
9.) FOB - Free on Board
10.) CFR / CNF / C&F - Cost and Freight
11.) CIF - Cost, Insurance & Freight
EXW | Ex Works
rule used to describe the delivery of goods by the
seller at their place of business, normally in their
factory, offices or warehouse. The seller does not need
to then load items onto a truck or ship, and the
remainder of the shipment is the responsibility of the
buyer (e.g. overseas shipment and customs duty).
FCA | Free Carrier
requires the seller to deliver the goods to the buyer or its
carrier either at the seller’s premises loaded onto the
collecting vehicle or delivered to another premises not
unloaded from the seller’s vehicle. The seller must carry out
any export formalities and the buyer carries out any import
formalities. From this it can be seen as a step up from the
largely unworkable EXW in that the seller is now responsible
for physically handing the goods over with risk transferring to
the buyer only when delivery has been made.
CPT | Carriage Paid To
requires the seller to deliver the goods to its carrier but
does not indicate whether that is either at the seller’s
premises loaded onto the collecting vehicle or delivered
to another premises not unloaded from the seller’s
vehicle. The seller must carry out any export formalities
and the buyer carries out any import formalities. It is the
seller’s responsibility to contract for carriage and of
course the cost of that will be built into the selling price.
CIP | Carriage and Insurance Paid To
is similar to CPT with one very important difference.
This rule requires the seller to take out maximum
insurance cover under Institute Cargo Clauses (A) or
(Air) or similar, for the buyer’s risk. The seller must
give the buyer any insurance document the buyer will
need in case it must claim under that insurance.
DAP | Delivered at Place
requires the seller to deliver to a place named by a
buyer, typically the buyer’s premises. The buyer is
responsible for unloading the means of transport. The
seller has to carry out any export formalities and the
buyer has to carry out any import formalities. The
seller contracts for carriage and risk transfers only
upon delivery which is at the buyer’s premises.
DPU | Delivered at Place Unloaded
the seller is responsible for moving the goods from
origin until their delivery at the disposal place agreed
unloaded at destination. The seller bears the risk until
delivery of goods to the named place and should get a
contract of carriage that matches the contract of sale
until the agreed delivery point. This term can be used for
any mode of transportation. The seller must be confident
to arrange the unloading of goods at the named place.
DDP | Delivered Duty Paid
the seller is responsible for all costs associated until the
seller delivers the goods to the buyer, cleared for import
at the named place of destination. In DDP the seller does
not pay for unloading the goods. It is important to mention
the exact name of the place of destination. This term can
be used for any mode of transportation including
multimodal. The term is used under the assumption that
the seller is capable of clear customs at the destination.
FAS | Free Alongside Ship
the seller clears the goods for export and delivers
them alongside side the vessel nominated by the buyer
at port of origin. This means that the seller is
responsible for all costs and risks to the goods up to
point of delivery.
FOB | Free On Board
the seller must clear the goods for export and delivers
when the goods pass the ship’s rail at the agreed port.
This term is only used for water transportation either
sea or inland water. If both parties do not agree to have
goods delivered on board, then FCA is the term to be
used.
CFR | Cost and Freight
the seller delivers when the goods are on board and cleared
for export. The seller pays for freight to transport the goods
until the final port of destination. However, the risk transfer
occurs when goods are on board. The contract must specify
the exact port of discharge, whereas the port of loading is
optional. The risk and delivery happen at the port of loading.
The seller covers the cost of freight until port of discharge.
The buyer covers discharge and import clearance cost.
CIF | Cost Insurance and Freight
the seller clears the goods at origin places the cargo
on board and pays for insurance until the port of
discharge at the minimum coverage. Even though the
seller pays for insurance during the main carriage, the
risk is transferred to the buyer at the time the goods
are on board.
FOT – Free on Truck
- is a term used for goods being carried by truck. The
seller is responsible for packing, loading, transportation
and insurance of the goods until they are loaded onto
the truck at the delivery point.
- the risk of loss or damage is transferred to the buyer
when the goods are loaded onto the truck.
Bottom Line
Incoterms are helpful terms used to facilitate international
trade. They are separated by modes of transport between any
mode, and those specifically involving water transport. The
terms categorize responsibility between the buyer and seller,
but there are some aspects of trade that the terms do not
cover, such as the goods being sold or future liability
responsibilities. For this reason, Incoterms should be used to
help clarify agreements, but should not be the entirety of the
agreement.
