Incoterms 2020

Incoterms 2020

Incoterms is an abbre­vi­a­tion of the expres­sion “Inter­na­tion­al Com­mer­cial Terms” and rep­re­sents spe­cif­ic com­mer­cial terms orig­i­nal­ly pub­lished by the Inter­na­tion­al Cham­ber of Com­merce (ICC). These terms are pri­mar­i­ly intend­ed to com­mu­ni­cate a clear set of rules to par­ties engaged in inter­na­tion­al trade.

Though the incoterms them­selves do not con­clude a con­tract, the under­stand­ing of these terms is intend­ed to inform inter­na­tion­al sales con­tracts by clear­ly com­mu­ni­cat­ing the costs, risks and respon­si­bil­i­ties of each par­ty asso­ci­at­ed with the inter­na­tion­al sales and trans­porta­tion of goods.

The Inter­na­tion­al Cham­ber of Com­merce (ICC) pub­lished the first Incoterms rules in 1936, and has been main­tain­ing and devel­op­ing them ever since. As of this writ­ing, the most cur­rent ver­sion is the Incoterms® 2020. The Incoterms 2020 Eng­lish ebook is avail­able for pur­chase from the ICC by using the link pro­vid­ed, and the Incoterms prac­ti­cal free wallchart poster below is includ­ed in this arti­cle for visu­al reference.

Incoterms® 2020 prac­ti­cal free wallchart poster avail­able from the ICC website

Offi­cial­ly in the Incoterms® 2020 are the fol­low­ing eleven (11) incoterms divid­ed into two sec­tions. By click­ing on the rel­e­vant link, each of the incoterms is described in more detail. Each incoterm is defined by the respon­si­bil­i­ty that each par­ty has with respect to cost, risk, and insurance. 

Rules for any mode of transport

1. EXW – Ex Works (named place of deliv­ery)
2. FCA – Free Car­ri­er (named place of deliv­ery)
3. CPT – Car­riage Paid To (named place of des­ti­na­tion)
4. CIP – Car­riage and Insur­ance Paid to (named place of des­ti­na­tion)
5. DPU – Deliv­ered At Place Unloaded (named place of des­ti­na­tion)
6. DAP – Deliv­ered At Place (named place of des­ti­na­tion)
7. DDP – Deliv­ered Duty Paid (named place of destination)

Rules for sea and inland waterway transport

8. FAS – Free Along­side Ship (named port of ship­ment)
9. FOB – Free on Board (named port of ship­ment)
10. CFR – Cost and Freight (named port of des­ti­na­tion)
11. CIF – Cost, Insur­ance & Freight (named port of destination)

1. EXW – Ex Works (named place of delivery)

With EXW incoterms, the buy­er has the max­i­mum oblig­a­tions and the sell­er has min­i­mum oblig­a­tions. The term Ex Works is often used when mak­ing an ini­tial quote for the sale of goods with­out any charges includ­ed. This way the buy­er can under­stand the cost of the goods before any trans­port, duty, levy, insur­ance or oth­er charges are applied.

EXW implies that the sell­er has the goods ready for col­lec­tion at its loca­tion (office, ware­house, fac­to­ry) on the agreed date. EXW is suit­able for all forms of trans­port but is not rec­om­mend­ed for inter­na­tion­al trans­port due to cus­toms formalities.

Features of CPT incoterms 

Deliv­ery
The sell­er must make the goods avail­able to the buy­er at the agreed place of deliv­ery. He does not have to load the goods on the vehi­cle with which the goods are col­lect­ed. If he does this any­way, the sell­er may charge at the buy­er’s expense and risk. Anoth­er pos­si­bil­i­ty is that a judge decides after­ward that, for exam­ple, FCA has been agreed.

Trans­port risk
The risk of dam­age to or loss of the goods dur­ing trans­port is borne by the buy­er from delivery.

Trans­porta­tion costs
The costs are borne by the buy­er from delivery.

Cus­toms for­mal­i­ties
The buy­er arranges all cus­toms for­mal­i­ties and bears the costs there­of. Please note, that this is prob­lem­at­ic for export out­side the EU.

Addi­tion of place of deliv­ery
Where the trans­fer of the goods takes place must always be added to the deliv­ery con­di­tion. At EXW this is indi­cat­ed by: «named place of delivery».

2. FCA – Free Carrier (named place of delivery)

With FCA incoterms, the sell­er pays for car­riage (trans­port) to the named point of deliv­ery and the risk pass­es when the goods are hand­ed over to the first car­ri­er. FCA is suit­able for all modes of transport.

Features of FCA incoterms

Deliv­ery
The sell­er deliv­ers the goods to the buy­er in one of two ways:
1. If the agreed place is the sell­er’s busi­ness premis­es, the goods will be deliv­ered as soon as they have been loaded onto the vehi­cle orga­nized by the buy­er.
2. If the agreed place is anoth­er place, the goods will be deliv­ered as soon as the goods are made avail­able to the car­ri­er or anoth­er par­ty des­ig­nat­ed by the buy­er, on the sell­er’s vehi­cle and ready for unloading.

It is not nec­es­sary to name either option 1 or option 2, as the named place of deliv­ery will auto­mat­i­cal­ly assume either of the two options. In both FCA 1 and FCA 2, the agreed place deter­mines where the risk and costs pass from sell­er to buyer.

Trans­port risk
The risk of dam­age dur­ing trans­port is borne by the buy­er from delivery.

Trans­porta­tion costs
The costs of trans­port from the agreed place of deliv­ery are for the account of the buy­er. Until deliv­ery, the costs are borne by the seller.

Cus­toms for­mal­i­ties
The sell­er must take care of all cus­toms for­mal­i­ties aris­ing from the export. He shall also bear the costs, duties, and levies aris­ing these cus­toms for­mal­i­ties. Cus­toms for­mal­i­ties, costs, duties and levies are borne by the buy­er in tran­sit through oth­er coun­tries and import into the des­ti­na­tion country.

Trans­port insur­ance
Nei­ther the sell­er, nor the buy­er are required to take out trans­port insur­ance for the goods for the buy­er. It is the buy­er’s respon­si­bil­i­ty to have trans­port insur­ance for the goods if they want to insure that the goods arrive in the same con­di­tion as they left CAPLIN­Q’s facilities. 

Addi­tion of place of deliv­ery
The place of deliv­ery of the goods must be stat­ed in the deliv­ery con­di­tion. At FCA this is indi­cat­ed with «named place of delivery». 

3. CPT – Carriage Paid To (named place of destination) 

With CPT incoterms, the sell­er pays for the trans­port. Risks are trans­ferred to the buy­er when hand­ing over goods to the first con­tract­ed car­ri­er. Ter­mi­nal Han­dling Charges (THC) are charges charged by the ter­mi­nal oper­a­tor. These charges may or may not be includ­ed by the car­ri­er in their freight rates — the buy­er should inquire whether the CPT price includes THC, to avoid sur­pris­es. CFR is the coun­ter­part of CPT when mar­itime trans­port is used. CPT on the oth­er hand is a non-mar­itime con­di­tion and can be applied to all modes of transport. 

Features of CPT incoterms

Deliv­ery
The sell­er must deliv­er the goods to the con­tract­ed carrier.

Trans­port risk
The risk of dam­age dur­ing trans­port is borne by the buy­er from trans­fer to the car­ri­er. Before deliv­ery, the sell­er bears the risk. This risk includes the risk that the dry ice has melt­ed and/or that the tem­per­a­ture con­di­tions are not main­tained dur­ing transport.

Trans­porta­tion costs
The costs of trans­port to the agreed place of des­ti­na­tion are for the account of the sell­er. Fur­ther trans­port is at the buy­er’s expense. IMPORTANT NOTE: The trans­fer of costs does not take place at the same time as the trans­fer of risk for trans­port dam­age. As shown in the image above and explained in the para­graph above, the trans­fer of costs remains with the sell­er until deliv­ery, but the trans­fer of risk takes place the moment the goods are with the con­tract­ed carrier.

Cus­toms for­mal­i­ties
The sell­er must take care of the cus­toms for­mal­i­ties aris­ing from the export. He is also respon­si­ble for the asso­ci­at­ed costs, duties, and levies. Cus­toms for­mal­i­ties and costs relat­ed to tran­sit are usu­al­ly borne by the buy­er. All cus­toms for­mal­i­ties and the asso­ci­at­ed costs, duties and levies aris­ing from impor­ta­tion into the coun­try of des­ti­na­tion are for the account and risk of the buyer.

Trans­port insur­ance
The sell­er does not have to take out trans­port insur­ance for the goods for the buy­er. It is the buy­er’s respon­si­bil­i­ty to have trans­port insur­ance for the goods if they want to insure that the goods arrive in the same con­di­tion as they left CAPLIN­Q’s facilities.

Addi­tion of place of deliv­ery
Where the trans­fer of the goods takes place must always be added to the deliv­ery con­di­tion. With CPT this is indi­cat­ed by: «named place of destination».

4. CIP – Carriage and Insurance Paid to (named place of destination)

Under CIP incoterms, the sell­er pays for car­riage (trans­port) and insur­ance to the named des­ti­na­tion point, but the risk pass­es when the goods are trans­ferred to the first car­ri­er. The Ter­mi­nal Han­dling Charges (THC) are charges charged by the ter­mi­nal oper­a­tor and these charges may or may not be includ­ed by the car­ri­er in their freight rates.

It is the buy­er’s respon­si­bil­i­ty to inquire whether the CIP price includes THC, to avoid sur­pris­es. The sell­er is oblig­ed to inform the cus­tomer that the goods are on their way. CIP is a con­di­tion that can be used for all modes of transport. 

Features of CIP incoterms

Deliv­ery
The sell­er must deliv­er the goods to the con­tract­ed carrier.

Trans­port risk
The risk of dam­age dur­ing trans­port is borne by the buy­er from the trans­fer of the goods to the car­ri­er. Before deliv­ery, the sell­er bears the risk.

Trans­porta­tion costs
The costs of trans­port to the agreed place of des­ti­na­tion are for the account of the sell­er. Fur­ther trans­port is at the buy­er’s expense. Please note, the trans­fer of costs does not take place at the same time as the trans­fer of risk for trans­port damage.

Cus­toms for­mal­i­ties
The sell­er must take care of the cus­toms for­mal­i­ties aris­ing from the export. He is also respon­si­ble for the asso­ci­at­ed costs, duties and levies. Cus­toms for­mal­i­ties and costs relat­ed to tran­sit are usu­al­ly borne by the sell­er. All cus­toms for­mal­i­ties and the asso­ci­at­ed costs, duties and levies aris­ing from impor­ta­tion into the coun­try of des­ti­na­tion are for the account and risk of the buyer.

Trans­port insur­ance
The sell­er con­cludes an insur­ance con­tract on behalf of the buy­er from the point of deliv­ery to at least the point of des­ti­na­tion. This insur­ance must com­ply with the exten­sive cov­er­age Insti­tute Car­go Claus­es (A).

Addi­tion of place of deliv­ery
Where the trans­fer of the goods takes place must always be added to the deliv­ery con­di­tion. With CIP this is indi­cat­ed with: «named place of destination».

5. DPU – Delivered At Place Unloaded (named place of destination)

The incoterms DPU mean that the goods are deliv­ered to the des­ti­na­tion and unloaded. The sell­er bears all risks with regard to bring­ing the goods to and unload­ing the goods at the agreed destination.

Features of DPU incoterms 

Deliv­ery
The sell­er must unload the goods from the arriv­ing means of trans­port and then make them avail­able to the buy­er at an agreed place of des­ti­na­tion or agreed point in that place.

Trans­port risk
The risk of dam­age is borne by the buy­er after deliv­ery to the agreed ter­mi­nal. The sell­er runs this risk before deliv­ery.

Trans­porta­tion costs
The costs of trans­port to the agreed place of des­ti­na­tion, includ­ing unload­ing costs, are for the account of the sell­er. Tran­sit is at the expense of the buyer.

Cus­toms for­mal­i­ties
The sell­er must take care of all cus­toms for­mal­i­ties aris­ing from the export. The asso­ci­at­ed costs, duties and levies are also for his account. All cus­toms for­mal­i­ties and the asso­ci­at­ed costs, duties and levies aris­ing from impor­ta­tion into the coun­try of des­ti­na­tion are for the account and risk of the buyer.

Trans­port insur­ance
Nei­ther par­ty is oblig­ed to take out insur­ance for the goods.

Addi­tion of place of deliv­ery
Where the trans­fer of the goods takes place must always be added to the deliv­ery con­di­tion. With DPU this is indi­cat­ed with: «named place of destination».

6. DAP – Delivered At Place (named place of destination)

Under DAP incoterms, the sell­er pays for trans­porta­tion (car­riage) to the named place, except for the costs asso­ci­at­ed with import cus­toms clear­ance. In addi­tion, the sell­er assumes all risks pri­or to the goods being ready for unload­ing by the buyer.

Features of DAP incoterms

Deliv­ery
The sell­er must make the goods, unloaded, avail­able to the buy­er on the arriv­ing means of trans­port at the agreed point or place of des­ti­na­tion.

Trans­port risk
The risk of dam­age dur­ing trans­port after reach­ing the place of deliv­ery shall be borne by the buy­er. Before deliv­ery, the sell­er bears the risk.

Trans­porta­tion costs
The costs of trans­port to the agreed point at the place of deliv­ery shall be borne by the sell­er. Fur­ther trans­port is at the expense of the buy­er.

Cus­toms for­mal­i­ties
The sell­er must take care of all cus­toms for­mal­i­ties aris­ing from the export. The asso­ci­at­ed costs, duties and levies are also for his account. All cus­toms for­mal­i­ties and the asso­ci­at­ed costs, duties and levies aris­ing from impor­ta­tion into the coun­try of des­ti­na­tion are for the account and risk of the buy­er.

Trans­port insur­ance
Nei­ther par­ty is oblig­ed to take out insur­ance for the goods.

Addi­tion of place of deliv­ery
Where the trans­fer of the goods takes place must always be added to the deliv­ery con­di­tion. At DAP this is indi­cat­ed by: «named place of destination».

7. DDP – Delivered Duty Paid (named place of destination)

Under DDP incoterms, the sell­er has the max­i­mum oblig­a­tions and the buy­er has the min­i­mum oblig­a­tions. The sell­er is respon­si­ble for deliv­er­ing the goods to the named place in the buy­er’s coun­try and pays all costs to bring the goods to the des­ti­na­tion, includ­ing import duties and taxes.

Features of DDP incoterms

Deliv­ery
The sell­er must make the goods, not unloaded, avail­able to the buy­er or anoth­er per­son des­ig­nat­ed by the buy­er on the arriv­ing means of trans­port at the agreed place of des­ti­na­tion.

Trans­port risk
The risk of dam­age dur­ing trans­port is for the account of the sell­er until deliv­ery on the means of trans­port at the agreed place of des­ti­na­tion.

Trans­porta­tion costs
The costs of trans­port to the agreed des­ti­na­tion are for the account of the sell­er.

Cus­toms for­mal­i­ties
The sell­er must take care of all cus­toms for­mal­i­ties asso­ci­at­ed with the export, tran­sit and import to the agreed place of des­ti­na­tion. He shall also bear the costs there­of as well as duties, tax­es and levies asso­ci­at­ed there­with.

Trans­port insur­ance
The sell­er is not oblig­ed to take out insur­ance for the goods.

Addi­tion of place of deliv­ery
Where the trans­fer of the goods takes place must always be added to the deliv­ery con­di­tion. With DDP this is indi­cat­ed with: «named place of destination».

8. FAS – Free Alongside Ship (named port of shipment)

Under the incoterms FAS, the sell­er must place the goods along­side the ship in the named port. If the goods are in a con­tain­er, the sell­er usu­al­ly trans­fers the goods at a ter­mi­nal and not along­side a ship. In such sit­u­a­tions, the FAS rule may not be appro­pri­ate and the FCA rule is bet­ter used. This term is usu­al­ly used for gen­er­al car­go or bulk car­go. FAS incoterms are only used with mar­itime transport.

Features of FAS incoterms

Deliv­ery
The sell­er must deliv­er the goods along­side the ship specif­i­cal­ly named by the buy­er, at the load­ing loca­tion in the agreed port of ship­ment and in a man­ner that is cus­tom­ary for this port.

Trans­port risk
The risk of dam­age dur­ing trans­port is borne by the buy­er from deliv­ery. The sell­er runs this risk before deliv­ery.

Trans­porta­tion costs
The costs of trans­port are for the account of the buy­er from deliv­ery. Par­ties are strong­ly advised to indi­cate the point of load­ing at the agreed port of ship­ment as clear­ly as pos­si­ble, because the THC (Ter­mi­nal Han­dling Charges) for this point are for the account of the sell­er.

Cus­toms for­mal­i­ties
The sell­er takes care of all cus­toms for­mal­i­ties aris­ing from the export. He is also respon­si­ble for the result­ing costs, duties and levies. Cus­toms for­mal­i­ties, costs, duties and levies are borne by the buy­er upon impor­ta­tion into the coun­try of des­ti­na­tion.

Trans­port insur­ance
Nei­ther par­ty is oblig­ed to take out insur­ance for the goods.

Addi­tion of place of deliv­ery
Where the trans­fer of the goods takes place must always be added to the deliv­ery con­di­tion. At FAS this is indi­cat­ed with: «named place of destination».

9. FOB – Free on Board (named port of shipment)

Under FOB incoterms, the sell­er must load the goods on board the ves­sel des­ig­nat­ed by the buy­er. The costs and the risks are shared when the goods are actu­al­ly on board the ship (tech­ni­cal­ly, when the spe­cif­ic ICC Incoterms® 2020 are applied, this is when the goods pass the ship’s railing).

The FOB incoterms is only used for marine trans­port. FOB may be less appro­pri­ate if the goods are hand­ed over to the car­ri­er before they are on board the ves­sel, such as con­tainer­ized goods already deliv­ered to the ter­mi­nal. In such cas­es, it may be advis­able to use FCA.

Features of FOB incoterms

Deliv­ery
The sell­er must deliv­er the goods placed on board the ship spec­i­fied by the buy­er at the agreed port of ship­ment.

Trans­port risk
The risk of dam­age dur­ing trans­port is borne by the buy­er from deliv­ery. The sell­er bears this risk before deliv­ery.

Trans­porta­tion costs
The costs of trans­port are for the account of the buy­er from deliv­ery.

Cus­toms for­mal­i­ties
The sell­er must take care of all cus­toms for­mal­i­ties aris­ing from the export. The costs, duties and levies aris­ing from this are also at his expense. Cus­toms for­mal­i­ties, costs, duties and levies are borne by the buy­er upon impor­ta­tion into the coun­try of des­ti­na­tion.

Trans­port insur­ance
Nei­ther par­ty is oblig­ed to take out insur­ance for the goods.

Addi­tion of place of deliv­ery
Where the trans­fer of the goods takes place must always be added to the deliv­ery con­di­tion. At FOB this is indi­cat­ed with: «named place of destination». 

10. CFR – Cost and Freight (named port of destination)

Under CFR incoterms, the sell­er must pay the costs and freight to take the goods to the port of des­ti­na­tion. How­ev­er, the risk is trans­ferred to the buy­er once the goods are loaded onto the ship (tech­ni­cal­ly, when the spe­cif­ic ICC Incoterms® 2020 are applied, this is when the goods pass the ship’s railing). 

Insur­ance for the goods is NOT includ­ed. The dis­tinc­tion between the port of des­ti­na­tion and the port of ship­ment is also impor­tant under the CFR incoterms. Ter­mi­nal Han­dling Charges (THC) are charges charged by the ter­mi­nal oper­a­tor. These charges may or may not be includ­ed by the car­ri­er in their freight rates — and it is the buy­er’s respon­si­bil­i­ty to inquire whether the CFR price includes THC, to avoid surprises.

This incoterm used to be called CNF (C&F) but has been changed in the Incoterms 2020 edi­tion. The CFR incoterms are strict­ly used with marine trans­port and may be less suit­able for con­tain­er shipping.

Features of CFR incoterms

Deliv­ery
The sell­er must deliv­er the goods on board the ship spec­i­fied by the buy­er at the agreed port of ship­ment.

Trans­port risk
The risk of dam­age dur­ing trans­port is borne by the buy­er from the time of pass­ing the ship’s rail at the port of ship­ment.

Trans­porta­tion costs
The costs of trans­port to the agreed des­ti­na­tion port are for the account of the sell­er. The sell­er there­fore con­cludes a con­tract of car­riage for trans­port to the port of des­ti­na­tion. When the goods are on the quay of the port of des­ti­na­tion, fur­ther trans­port is at the expense of the buy­er. Please note, the trans­fer of costs does not take place at the same time as the trans­fer of risk for trans­port dam­age.

Cus­toms for­mal­i­ties
The sell­er must take care of all cus­toms for­mal­i­ties aris­ing from the export. The asso­ci­at­ed costs, duties and levies are also for his account. All cus­toms for­mal­i­ties and the asso­ci­at­ed costs, duties and levies aris­ing from impor­ta­tion into the coun­try of des­ti­na­tion are for the account and risk of the buy­er.

Trans­port insur­ance
Nei­ther par­ty is oblig­ed to take out insur­ance for the goods.

Addi­tion of place of deliv­ery
Where the trans­fer of the goods takes place must always be added to the deliv­ery con­di­tion. At CFR this is indi­cat­ed with: «named place of destination». 

11. CIF – Cost, Insurance & Freight (named port of destination) 

The CIF incoterms are exact­ly the same as CFR incoterms, except that the sell­er is required to take out and pay for the insur­ance. Ter­mi­nal Han­dling Charges (THC) are charges charged by the ter­mi­nal oper­a­tor. These charges may or may not be includ­ed by the car­ri­er in their freight rates — and it is the buy­er’s respon­si­bil­i­ty to inquire whether the CIF price includes THC, to avoid surprises.

The CIF incoterm is used only with mar­itime trans­port and may be less suit­able for con­tain­er transport.

Features of CIF incoterms

Deliv­ery
The sell­er must deliv­er the goods on board the ship spec­i­fied by the buy­er at the agreed port of shipment.

Trans­port risk
The risk of dam­age dur­ing trans­port is in prin­ci­ple borne by the buy­er from the moment the goods are placed on board at the port of ship­ment. Before deliv­ery, the sell­er bears the risk.

Trans­porta­tion costs
The costs of trans­port to the agreed des­ti­na­tion port are for the account of the sell­er. Fur­ther trans­port is at the expense of the buyer.

Cus­toms for­mal­i­ties
The sell­er must take care of the cus­toms for­mal­i­ties aris­ing from the export. The asso­ci­at­ed costs, duties and levies are also for his account. All cus­toms for­mal­i­ties and the asso­ci­at­ed costs, duties and levies aris­ing from impor­ta­tion into the coun­try of des­ti­na­tion are for the account and risk of the buyer.

Trans­port insur­ance
The sell­er con­cludes an insur­ance con­tract on behalf of the buy­er from the port of ship­ment to at least the port of des­ti­na­tion. The insur­ance must meet the require­ments of the Insti­tute Car­go Clauses ©.

Addi­tion of place of deliv­ery
Where the trans­fer of the goods takes place must always be added to the deliv­ery con­di­tion. With CIF this is indi­cat­ed by: «named place of destination». 

About Chris Perabo

Chris is an energetic and enthusiastic engineer and entrepreneur. He is always interested in taking highly technical subjects and distilling these to their essence so that even the layman can understand. He loves to get into the technical details of an issue and then understand how it can be useful for specific customers and applications. Chris is currently the Director of Business Development at CAPLINQ.

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