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Understand the latest Incoterms rules for seamless global trade
Experience and expertise to help you navigate through the rules for the sale of goods around the world
Buying and selling goods in the international trade system can often be complicated, with responsibilities, costs, and risks to all parties needing to be determined.
To help you import and export, the International Chamber of Commerce (ICC) introduced the International Commercial Terms (Incoterms®), which act as the world’s essential terms of trade for the sale of goods. Whether you are completing a purchase order, packaging and labelling a shipment or preparing a certificate of origin, these regulations have become part of our daily language of trade and are there to guide you.
Since the rules were first published in 1936, the ICC has maintained and developed them. To help prepare businesses for the next century of global trade, the newest edition, Incoterms® 2020, came into effect on 1 January 2020 and should be referenced going forward.
The Incoterms® rules feature a series of three-letter trade terms that have very precise meanings for the sale of goods worldwide.
Rules for any mode or modes of transport:
Often used when making an initial quotation for the sale of goods without any costs included, EXW means that the seller makes the goods available at their premises or another named place (works, factory, warehouse, etc). The seller does not need to load the goods on any collecting vehicle or clear the goods for export.
FCA can have two different meanings, each with varying levels of risk and cost for the buyer and seller. FCA (a) is used when the seller delivers the goods, cleared for export, at a named place, which is their own premises. FCA (b) is used when the seller delivers the goods, cleared for export, at a named place which is not their premises. In both instances, the goods can be delivered to a carrier nominated by the buyer, or to another party nominated by the buyer.
Under CPT, the seller pays for the carriage of goods up to the named place of destination.
Similar to CPT, the seller is required to obtain minimum insurance for the goods while in transit.
The seller is deemed to have delivered when the goods are placed at the disposal of the buyer on the arriving means of transport and ready for unloading at the named place of destination. Under DAP terms, the seller must manage all risks of bringing the goods in.
This Incoterm requires that the seller delivers the goods, unloaded, at the named place. The seller covers all the costs of transport (export fees, carriage, unloading from the main carrier at the destination port, and destination port charges) and assumes all risks until arrival at the destination place.
The seller is responsible for delivering the goods to the named place in the buyer's country, and pays all costs in bringing the goods to the destination including import duties and taxes. The seller is not responsible for unloading.
Rules for sea and inland waterway transport:
The seller delivers when the goods are placed alongside the vessel (e.g., on a quay or a barge) nominated by the buyer at the named port of shipment. The risk of loss or damage to the goods passes when the goods are alongside the ship, and the buyer takes on responsibility for all costs from that moment onwards.
The seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment or procures the goods already delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel, and the buyer takes responsibility for all costs from that moment onwards.
The seller delivers the goods on board the vessel. The risk of loss or damage to the goods passes when they are on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to the designated destination port.
The same is true of the CFR, with the addition that the seller must also obtain minimum insurance coverage against the buyer’s risk of loss of or damage to the goods during the carriage.
Differences between Incoterms® 2010 and 2020:
The Incoterms® FCA (Free Carrier) now provides the additional option to make an onboard notation on the Bill of Lading before loading goods onto a vessel.
The costs now appear centralized in A9/B9 of each Incoterms® rule.
CIP now requires at least insurance with the minimum cover of the Institute Cargo Clause (A) (All risk, subject to itemised exclusions).
CIF requires at least insurance with the minimum cover of the Institute Cargo Clause (C) (Number of listed risks, subject to itemised exclusions).
The Incoterms® rules Free Carrier (FCA), Delivered at Place (DAP), Delivered at Place Unloaded (DPU), and Delivered Duty Paid (DDP) now take into account that the goods may be carried without any third-party carrier being engaged, namely by using its own means of transportation.
The rule Delivered at Terminal (DAT) has been changed to Delivered at Place Unloaded (DPU) to clarify that the place of destination could be any place and not only a “terminal”.
The Incoterms® 2020 now explicitly shifts the responsibility of security-related requirements and ancillary costs to the seller.
Useful information
The Incoterms® do not constitute a complete contract of sale, but rather become a part of it. For its application, the following structure should be used:
“[The chosen Incoterm® rule] [Named port, place or point] Incoterms® 2020”
Example: “CIF Shanghai Incoterms® 2020” or “DAP 10 Downing Street, London, Great Britain Incoterms® 2020“
If there is no year stated in the Incoterms®, then the following applies:
until December 31st 2019 the Incoterms® 2010 apply.
from January 1st 2020 the Incoterms® 2020 apply.
If a different year is stated, e. g. Incoterms® 1980, then respective terms apply.
For more details, please refer to the ICC official website: https://iccwbo.org.