Incoterms 2020 ®
Incoterms are a standard set of terminology, created by the International Chamber of Commerce (ICC), used universally, defining the key parts of freight forwarding. The following explanations of international standard trade definitions are useful in outlining risks and responsibilities between buyers and sellers.
The ICC has released the table of contents to the Incoterms 2020. Incoterms 2020 consists of 11 Incoterms, with a few changes to the 2010 Incoterms.
The Incoterms 2020 are organized into two categories:
Incoterms for any Mode or Modes of Transport:
EXW – Ex Works
FCA – Free Carrier
CPT – Carriage Paid To
CIP – Carriage and Insurance Paid To
DPU – Delivered At Place Unloaded
DAP – Delivered At Place
DDP – Delivered Duty Paid
Incoterms for Sea and Inland Waterway Transport Only:
FAS – Free Alongside Ship
FOB – Free On Board
CFR – Cost and Freight
CIF – Cost, Insurance and Freight
The main change referred to DAT (Delivered at Terminal) now replaced by DUP (Delivered at Place Unloaded), due to some confusion created by the word terminal.
Incoterms 2020 also addresses, insurance clarifications in CIF, duties to provide information regarding security-related clearances, such as Importer Security Filings and other chain-of-custody information.
Costs were a big issue in the 2010 Incoterms. Carriers often changed their pricing structure to deal with add-ons and sellers were often surprised by being back charged terminal handling charges. The A9 sections in the Incoterms rules guide now collects together the costs, with the principle aim of clearly stating the costs to each party.
Incoterms 2020: Detailed summary Note: an Incoterm must be accompanied by a “named place” ex: “FOB Boston, USA”, “EXW Oporto, Portugal”, etc.
EXW (Ex Works)
The buyer bears all costs and risks involved in taking the goods from the seller’s premises to the desired destination. The seller’s obligation is to make the goods available at his premises (works, factory, warehouse). This term represents minimum obligation for the seller. This term can be used across all modes of transport.
FCA (Free Carrier)
The seller’s obligation is to hand over the goods, cleared for export, into the charge of the carrier named by the buyer at the named place or point. If no precise point is indicated by the buyer, the seller may choose within the place or range stipulated where the carrier shall take the goods into his charge. When the seller’s assistance is required in making the contract with the carrier the seller may act at the buyers risk and expense. This term can be used across all modes of transport.
CPT (Carriage Paid To)
The seller pays the freight for the carriage of goods to the named destination. The risk of loss or damage to the goods occurring after the delivery has been made to the carrier is transferred from the seller to the buyer. This term requires the seller to clear the goods for export and can be used across all modes of transport.
CIP (Carriage & insurance Paid To)
The seller has the same obligations as under CPT but has the responsibility of obtaining insurance against the buyer’s risk of loss or damage of goods during the carriage. The seller is required to clear the goods for export however is only required to obtain insurance on minimum coverage. This term requires the seller to clear the goods for export and can be used across all modes of transport.
DPU (Delivered At Place Unloaded) May be used for all transport modes
Seller delivers when the goods, once unloaded from the arriving means of transport, are placed at the disposal of the buyer at a named place of destination. Place of destination, includes quay, warehouse, container yard or road, rail or air terminal. Both parties should agree the place of destination, at which point the risks will transfer from the seller to the buyer of the goods. If it is intended that the seller is to bear all the costs and responsibilities thereafter.
Seller is responsible for the costs and risks to bring the goods to the point specified in the contract. Seller should ensure that their forwarding contract mirrors the contract of sale. Seller is responsible for the export clearance procedures. Buyer, if applicable, is responsible to clear the goods for import, arrange import customs formalities, and pay import duty. If the parties intend the seller to bear the risks and costs of taking the goods from the terminal to another place then the DAP term may apply
DAP (Delivered At Place) May be used for all transport modes
Seller delivers the goods when they are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. Parties are advised to specify as clearly as possible the point within the agreed place of destination, because risks transfer at this point from seller to buyer. If the seller is responsible for clearing the goods, paying duties etc., consideration should be given to using the DDP term.
Seller bears the responsibility and risks to deliver the goods to the named place.
Seller is advised to obtain contracts of carriage that match the contract of sale.
Seller is required to clear the goods for export.
If the seller incurs unloading costs at place of destination, unless previously agreed they are not entitled to recover any such costs.
Importer is responsible for effecting customs clearance, and paying any customs duties.
DDP (Delivered Duty Paid)
The seller is responsible for delivering the goods to the named place in the country of importation, including all costs and risks in bringing the goods to import destination. This includes duties, taxes and customs formalities. This term may be used irrespective of the mode of transport.
FAS (Free Alongside Ship)
The seller has fulfilled his obligation when goods have been placed alongside the vessel at the port of shipment. The buyer is responsible for all costs and risks of loss or damage to the goods from that moment. The buyer is also required to clear the goods for export. This term should only be used for sea or inland waterway transport.
FOB (Free On Board)
Once the goods have passed over the ship’s rail at the port of export the buyer is responsible for all costs and risks of loss or damage to the goods from that point. The seller is required to clear the goods for export. This term should only be used for sea or inland waterway transport.
CFR (Cost & Freight)
The seller must pay the costs and freight required in bringing the goods to the named port of destination. The risk of loss or damage is transferred from seller to buyer when the goods pass over the ship’s rail in the port of shipment. The seller is required to clear the goods for export. This term should only be used for sea or inland waterway transport.
CIF (Cost, Insurance & Freight)
The seller has the same obligations as under CFR however he is also required to provide insurance against the buyer’s risk of loss or damage to the goods during transit. The seller is required to clear the goods for export. This term should only be used for sea or inland waterway transport.