INCOTERMS

Incoterms 2020
• Incoterms 2020 rules are the official commercial terms published by
the International Chamber of Commerce (ICC). They are a voluntary,
authoritative, globally-accepted and adhered-to text for determining
the responsibilities of buyers and sellers for the delivery of goods
under sales contracts for international trade.
What are Incoterms?
• Incoterms is an abbreviation of the phrase “International Commercial Terms.” It is
a term trademarked by the International Chamber of Commerce. Their purpose is
to aid communication and reduce confusion when dealing with international and
global trade. An Incoterm is something that describes and defines a transaction
between two parties, usually the party exporting goods and the party importing
them.

• These terms set out the various parts of trade and can assign which party is
responsible for the various costs, tasks, and processes. They also cover all parts of
the import-export and transportation process, from the goods leaving the point
of production to them being accepted at the importing port. They cover all the
ways in which the different parties share obligations and responsibilities.
What are Incoterms?

Buying a large number of goods from another country, or importing, is by

far the most complex purchasing process. There are some issues to be
clarified before a deal:
• Who should do the clearance of export or import?
• Who should pay for the loading, transporting, and unloading of the
goods?
• Who should bear the risk of loss or damage to the goods in transit?
• Who should purchase insurance as a defence against the risks?
• These questions make it necessary to have some standards of unified
terms to clarify the obligations, costs, and risks.
Main Areas of Responsibility

There are four main areas of responsibility that Incoterms cover:

Delivery stage: This is where the seller and buyer make an agreement for the details
of the cargo’s final delivery, and when the goods exchange hands and the seller’s
responsibility ends.
Transportation stage: Incoterms set out which party is responsible for transportation
costs, how these costs are shared, or whether each party takes responsibility for
different stages of transportation.
Documentation and formalities: Incoterms set out which parties take responsibility
for dealing with all customs, export, and import documentation, formalities, and duty
payments.
Insurance: Incoterms set out which party is responsible for providing insurance
coverage during transportation.
The Origin of Incoterms

• Differences in trading practices and legal interpretations between

traders of different countries necessitated a common set of rules.
These rules needed to be easy for all participants to prevent
misunderstandings, disputes and litigation.
• Incoterms were first conceived by the ICC in 1921, and the first
Incoterms rules were created in 1936. They were officially designated
as Incoterms in 1936. Since then, Incoterms have evolved into a
codified worldwide contractual standard. They are periodically updated
when international trade events require attention. Amendments and
additions were made in 1953, 1967, 1976, 1980, 2000, 2010 and 2020.
Who Decides Incoterms Rules?

• These international trade terms are decided upon by 13 ICC

commissions made up of private-sector experts from across the
world. These individuals specialize in everything from fields of
immediate concern to international business.
How Are Incoterms Rules Revised?

• The Incoterms 2020 drafting group, led by co-chairs Christoph Martin

Radtke and David Lowe, was in charge of revising the Incoterms rules.
According to the ICC, “The group is formed by experts from various
nationalities chosen for their extraordinary contribution to
international commercial law and to the International Chamber of
Commerce along the years.”
How To use Incoterms
• Incoterms® are typically used like this:
• [the chosen Incoterms® rule] [named port, place or point]
Incoterms® 2020”.
• For example: EXW Shanghai Incoterms® 2020
 Incoterms based on the point of delivery
• Group E. Contains only the EXW incoterm and puts the least amount of financial pressure
on the seller. He has just the minimum obligation, and the point of delivery is his address –
work office or warehouse. Afterward, the responsibility and further transport transfers to
the buyer.
• Group F. Three incoterms appear in this group: FOB, FAS, and FCA. This time, there is more
burden on the seller. He has to pay for the insurance of the goods until Free on Board or
until the carrier takes over the shipment. In addition to that, he has to hand over the bill of
lading to the buyer, along with other necessary documents.
• Group C. It consists of four incoterms: CFR, CIF, CPT & CIP. Similar to the previous one, the
seller now has to pay additional expenses that happen after the buyer takes over the risk.
Those include freight or carriage charges, as well as Cargo Insurance premium (CIF and CIP).
• Group D. It includes three incoterms: DAP, DAT & DDP. This category assigns even more
responsibility to the seller. Furthermore, the point of the delivery is the final destination –
for example, the buyer’s warehouse. However, if the contract maintains that the delivery
should be at a different place, then the seller completes the delivery once he transfers the
goods to the buyer’s collecting vehicle.
Classification Based on Modes
The first group splits the incoterms even further into two categories:

• The first group splits the incoterms even further into two categories:
• Multimodal transport. It includes seven incoterms and business can
use them for any means of transportation. They are EXW, FCA, CPT,
CIP, DAT, DAP and DDP.
• Sea and waterways transport. Businesses cannot use them same
incoterms for ships, barges, and boats. These cover both inland
waterways and seas. The main reason behind them is the fact that
ports are both the place of delivery and the end point of the process.
They are FAS, FOB, CFR, and CIF.
EXW (Ex Works)
• The seller fulfills its obligations by having the goods available for the
buyer to pick up at its premises or another named place (i.e. factory,
warehouse, etc.) on a date agreed upon by both parties or within an
agreed-upon timeframe. The seller needs to provide the buyer the
information they to take delivery of the goods at that time.

• With Ex Works, the buyer bears all risk and costs starting when the
goods are made available to the buyer at the seller’s location or other
named place until the products are delivered to its location. Seller has
no obligation to load the goods or clear them for export.
FCA (Free Carrier)
• The seller is responsible for either making the goods available at its own
premises or at a named place. In either case, the seller is responsible for loading
the goods on the buyer's transport and is responsible for delivery to the port and
export clearance including security requirements. Risk transfers once the goods
are loaded on the buyer’s transport.

• This term has changed the most in the Incoterms 2020 rules. Previously,
problems occurred with this term when the seller was responsible for loading
the goods on a truck or some other transport hired by the buyer and not directly
on the international carrier. If the seller and buyer had agreed on using a letter of
credit as the payment method for this transaction, banks often require the seller
to present a bill of lading with an on-board notation before they can get paid.
CPT (Carriage Paid To)
• Seller clears the goods for export and delivers them to the carrier or
another person stipulated by the seller at a named place of shipment.
Seller is responsible for the international transportation costs
associated with delivering goods to the named foreign place of
destination.

• The transfer of risk, on the other hand, transfers from the seller to the
buyer as soon as the goods are delivered to the international carrier.
That means the buyer assumes the risk of loading the goods on the
carrier and during the international transport of the goods.
CIP (Carriage and Insurance Paid To)
• Seller clears the goods for export and delivers them to the carrier or
another person stipulated by the seller at a named place of shipment,
at which point risk transfers to the buyer. Seller is responsible for the
transportation costs associated with delivering goods and procuring
insurance coverage to the named place.
• The amount of insurance that the seller must purchase has increased
under Incoterms 2020 rules for CIP. The seller must purchase a
broader level of insurance coverage than under the old Incoterms
2010 CIP rule.
DAP (Delivered at Place)
• Seller clears the goods for export and bears all risks and costs
associated with delivering the goods to the named foreign destination
not unloaded. DAP means the buyer is responsible for all costs and
risks associated with unloading the goods and clearing customs to
import the goods into the named country of destination.

• The named place under this term can be a port, the buyer's location
or any named place that is agreed upon. In that regards, DAP provides
a lot of flexibility to both parties.
DPU (Delivered at Place Unloaded)
• Previously named Delivered at Terminal (DAT), this Incoterm has been
renamed Delivered at Place Unloaded (DPU) because the buyer and/or seller
may want the delivery of goods to occur somewhere other than a terminal.
This term is often used for consolidated containers with multiple consignees.

• DPU is very similar to DAP except that the seller must pay for unlading the
goods. Like DAP, the seller clears the goods for export and bears all risks and
costs associated with delivering the goods to the named place, which can be
a port or other named location in the foreign destination. Buyer is
responsible for all costs and risks from this point forward including clearing
the goods for import at the named country of destination.
DDP (Delivered Duty Paid)
• DDP Incoterms 2020 means the seller bears all risks and costs
associated with delivering the goods to the named place of
destination ready for unloading and cleared for import.
Incoterms for Sea and Inland Waterway
Transport
FAS (Free Alongside Ship)
• Seller clears the goods for export and delivers them when they are
placed alongside the vessel at the named port of shipment. Buyer
assumes all risks/costs for goods from this point forward. This is not a
commonly used term except for goods that may be difficult to load.
FOB (Freight on Board)
• Seller clears the goods for export and delivers them when they are on
board the vessel at the named port of shipment. Buyer assumes all
risks and costs for goods from this moment forward. This term is also
not commonly used except, perhaps, by U.S. companies that misuse
the term because they confuse it with the domestic term FOB.
CFR (Cost and Freight)
• Seller clears the goods for export and delivers them when they are on
board the vessel at the port of shipment. Seller bears the cost of
freight to the named port of destination. Buyer assumes all risks for
the goods from the time the goods have been delivered on board the
vessel at the port of shipment.
CIF (Cost, Insurance and Freight)
• Seller clears the goods for export and delivers them when they are on
board the vessel at the port of shipment. Seller bears the cost of
freight and insurance to the named port of destination. The seller is
required to purchase the minimum level of insurance under Clause C
of the Institute Cargo Clauses. This requirement is unchanged from
Incoterms 2010.
A question that has come up in terms of Incoterms® is
whether “a shipment can have multiple Incoterms
rules”..