A Summary of the Incoterms 2020

Incoterms are International Commercial Terms, which have been defined and updated on a regular basis by the International Chamber of Commerce (ICC). Incoterms are the selling terms that a buyer and seller of goods both agree to during international transactions. The current version is Incoterms 2020. The previous version is Incoterms 2010, and you may still see some references to terms from this version in trading documentation.

Incoterms are generally accepted by governments and legal authorities around the world. Specific Incoterms state which tasks, costs and risks are associated with both the buyer and seller. The Incoterm is mutually agreed and states when the seller’s costs and risks are then transferred onto the buyer.

Many international purchases are processed on an agreed Incoterm to define which party legally incurs costs and risks. The relevant Incoterm must also be clearly stated on the relevant shipping documents and export invoices.

The 11 Incoterms are outlined below.

EXW – Ex-Works or Ex-Warehouse

The seller makes the goods available at their premises or another named place and the buyer is responsible for all transportation and delivery costs and also bears the risks of bringing the goods to their final destination.

FCA – Free Carrier

The seller delivers the goods to the carrier or another person, nominated by the buyer, at the seller’s premises or another named place. The buyer is responsible for all transportation and delivery costs and the risk passes when the goods are handed over to the first carrier.

FAS – Free Alongside Ship

The seller delivers the goods alongside the vessel (e.g. on a quay or a barge) at the agreed port of shipment. The risk of loss or damage to the goods passes when the products are alongside the ship and the buyer bears all the costs from that moment on.

FOB – Free On Board

The seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment. The risk of loss or damage to the goods is divided when they are on board the vessel.

CFR – Cost and Freight

The seller delivers the goods on board the vessel at the agreed port of shipment and pays for the cost of transportation to the agreed port of destination. The risk of loss or damage passes when the products are on board the vessel. Once the goods are at the destination port, the buyer is responsible for all other costs.

CIF – Cost, Insurance, Freight

It’s exactly like CFR except that the seller must in addition procure and pay for the insurance.

CPT – Carriage Paid To

The seller pays for the cost of transportation to the agreed place of destination. The buyer is responsible for all other costs, including customs clearance and delivery to their final destination.

CIP – Carriage And Insurance Paid To

The seller pays for the cost of transportation and insurance cover against the buyers’ risk of loss or damage of the goods during the carriage to the agreed place of destination. The buyer is responsible for all other costs, including customs clearance and delivery to their final destination. As with CIF, the seller is only required to obtain insurance only on minimum cover.

DAP – Delivered At Place

The 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. The seller bears all risks involved in bringing the goods to the named place.

DPU – Delivered at Place Unloaded

The seller delivers when the goods, once unloaded are placed at the disposal of the buyer at a named place of destination. The seller bears all risks involved in bringing the goods to, and unloading them at the named place of destination.

DDP – Delivered Duty Paid

The seller delivers the goods when the goods are placed at the disposal of the buyer and cleared for import, on the arriving means of transport ready for unloading at the named place of destination. The seller bears all the costs and risks involved in bringing the goods to the place of destination. They must clear the products not only for export but also for import, to pay any duty for both export and import and to carry out all customs formalities.

EXW, FCA, CPT, CIP, DAP, DPU, and DDP are the 7 terms that can be used for any mode of transport whereas FAS, FOB, CFR and CIF are for sea and inland waterway transport only.

Should you wish to discuss any Incoterms or require advice in drafting appropriate terms for your supply and purchase contracts, please get in touch with a member of our Commercial team.