Reference
Do You Know Your Incoterms 2020?
Incoterms are a set of eleven internationally recognized rules, published by the International Chamber of Commerce, which define the responsibilities of sellers and buyers in a sale of goods. They specify who is responsible for paying for and managing the shipment, insurance, documentation, customs clearance, and other logistical activities. Critically, they also fix the point at which risk passes from seller to buyer.
The seven Incoterms 2020 rules for any mode or modes of transport
- EXW Ex Works
- The seller makes the goods available at its own premises. The buyer bears all cost and risk from that point, including loading and export clearance. EXW places the maximum obligation on the buyer.
- FCA Free Carrier
- The seller delivers the goods, cleared for export, to a carrier nominated by the buyer at a named place. Risk transfers on delivery to that carrier.
- CPT Carriage Paid To
- The seller pays carriage to the named destination, but risk transfers to the buyer when the goods are handed to the first carrier, not at destination.
- CIP Carriage and Insurance Paid To
- As CPT, with the seller additionally obliged to obtain insurance. Under Incoterms 2020, CIP requires all-risks cover at Institute Cargo Clauses (A) level.
- DAP Delivered at Place
- The seller delivers when the goods are placed at the buyer's disposal at the named destination, ready for unloading. The buyer handles import clearance and duty.
- DPU Delivered at Place Unloaded
- The seller delivers and unloads the goods at the named destination. DPU is the only Incoterm requiring the seller to unload, and it replaced DAT in the 2020 edition.
- DDP Delivered Duty Paid
- The seller delivers the goods cleared for import, duty paid, at the named destination. DDP places the maximum obligation on the seller.
The four Incoterms 2020 rules for sea and inland waterway transport
- FAS Free Alongside Ship
- The seller delivers when the goods are placed alongside the vessel at the named port of shipment. Risk transfers at that point and the buyer bears all subsequent cost.
- FOB Free on Board
- The seller delivers when the goods are on board the vessel at the named port of shipment, cleared for export. Risk transfers once the goods are on board.
- CFR Cost and Freight
- The seller pays cost and freight to the named destination port, but risk transfers to the buyer when the goods are on board at origin.
- CIF Cost, Insurance and Freight
- As CFR, with the seller additionally obliged to obtain marine insurance. Under Incoterms 2020, CIF requires only minimum cover at Institute Cargo Clauses (C) level.
Incoterms 2020: frequently asked questions
What are Incoterms?
Incoterms are eleven internationally recognized trade terms published by the International Chamber of Commerce that define the respective obligations of buyer and seller in a sale of goods: who arranges and pays for transport, who bears the risk at each stage, who insures the cargo, and who handles export and import customs formalities.
Can I still use Incoterms 2010 after January 1, 2020?
Yes. Incoterms 2020 did not repeal the earlier editions. Parties may contract on Incoterms 2010 or any prior edition, provided the contract states clearly which edition applies, for example 'FOB Miami Incoterms 2010'. Ambiguity about the edition is where disputes start, so always name it.
What changed between Incoterms 2010 and Incoterms 2020?
The most visible change is that DAT (Delivered at Terminal) was renamed DPU (Delivered at Place Unloaded), broadening it beyond terminals. CIP's insurance requirement was raised to all-risks Institute Cargo Clauses (A) cover, while CIF remained at minimum Clauses (C) cover. FCA gained an option for an on-board bill of lading, and the rules now address the buyer's or seller's own means of transport.
Which Incoterm should I use for a defense shipment?
There is no single right answer, but the term must be reconciled against the export authorization and, for Foreign Military Sales, against the Letter of Offer and Acceptance. An EXW sale to a foreign buyer creates a routed export transaction with specific Exporter of Record consequences, which is the most commonly mishandled scenario in defense trade.
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