Incoterms – International Commercial Terms
The rules set out in Incoterms© 2020 are designed to make trade easier for business partners from different countries. Read more about the sales conditions that apply in international trade.
What is Incoterms?
Incoterms is short for International Commercial Terms. These are international trade rules created to facilitate business between partners from different countries, each subject to different legal systems.
Incoterms were developed by the International Chamber of Commerce (ICC), the world’s largest business organization, bringing together entrepreneurs from over 100 countries.
Incoterms 2020 define 11 key trade rules that set out the obligations and responsibilities of both the buyer and the seller. They cover aspects such as the transport of goods, insurance, and unloading.
Thanks to Incoterms, companies from different countries don’t need to negotiate every detail of a transaction – they simply agree on a specific rule.
Read more about Incoterms 2020 on the International Chamber of Commerce website.
Incoterms 2020 Rules
The Incoterms 2020* rules are divided into general rules, available for all modes of transport, and rules that apply only to sea and inland waterway transport.
General rules include EXW, FCA, CPT, CIP, DAP, DPU, and DDP.
Rules for sea and inland waterway transport include FAS, FOB, CFR, and CIF.
EXW – Ex Works
The seller makes the goods available to the buyer (e.g., at a factory or warehouse). The place of delivery does not have to be the seller’s premises, but it is recommended that the parties specify the exact delivery point as precisely as possible. Under EXW, the seller is not required to load the goods onto a collecting vehicle or clear them for export.
FCA – Free Carrier
The seller delivers the goods to the buyer in one of two ways:
If the named place is the seller’s premises, delivery occurs when the goods are loaded onto the transport arranged by the buyer.
If the named place is another location, delivery occurs when the goods, transported by the seller, arrive at that place, ready for unloading, and are placed at the disposal of the carrier or another party designated by the buyer.
CPT – Carriage Paid To
The seller delivers the goods by handing them over to the carrier engaged by the seller. Risk transfers to the buyer at this point. The seller must contract and pay for transport up to the agreed destination but is not responsible for the goods’ condition upon arrival.
CIP – Carriage and Insurance Paid To
Similar to CPT, but the seller is also obliged to arrange insurance against the buyer’s risk of loss or damage from the point of delivery to at least the named place of destination.
DAP – Delivered at Place
The seller delivers when the goods are placed at the buyer’s disposal on the arriving means of transport, ready for unloading, at the named place of destination. The seller bears all risks involved until that point.
DPU – Delivered at Place Unloaded
The seller delivers once the goods are unloaded from the arriving means of transport and placed at the buyer’s disposal at the named destination. The seller bears all risks until delivery and unloading are completed. DPU is the only Incoterms rule that requires the seller to unload the goods at destination.
DDP – Delivered Duty Paid
The seller delivers the goods to the buyer, cleared for import, on the arriving means of transport, ready for unloading at the named place of destination. The seller bears all costs and risks, including import clearance and payment of duties and taxes.
FAS – Free Alongside Ship
The seller delivers when the goods are placed alongside the vessel nominated by the buyer at the named port of shipment. Risk transfers to the buyer once the goods are alongside the ship.
FOB – Free On Board
The seller delivers when the goods are placed on board the vessel nominated by the buyer at the named port of shipment. Risk transfers to the buyer once the goods are on board.
CFR – Cost and Freight
The seller delivers the goods on board the vessel. Risk transfers to the buyer once the goods are on board. The seller must contract and pay for the transport to the named port of destination, but has no obligation to insure the cargo.
CIF – Cost, Insurance and Freight
Similar to CFR, but the seller must also arrange and pay for insurance against the buyer’s risk of loss or damage to the goods during carriage, at least to the port of destination.
*Description of rules based on the official handbook Incoterms® 2020 bilingual version (ICC No. 723 PL/EN).
Changes in Incoterms 2020
One of the most important changes compared to the Incoterms 2010 edition is the renaming of the DAT rule.
It is now called DPU. The change was introduced because the former name DAT (Delivered at Terminal) misleadingly suggested that delivery could only take place at a terminal, which limited its use. The new name DPU (Delivered at Place Unloaded) makes it clear that delivery refers to any agreed place, not just a terminal.
Another change concerns the FCA rule.
Previously, the seller was obliged to provide the buyer with proof of delivery of the goods (a transport document). Incoterms 2020 expands on this provision. If the buyer instructs the carrier to issue a transport document to the seller confirming that the goods have been loaded, then the seller is obliged to provide such a document to the buyer. Accordingly, the buyer must give such instructions to the carrier if this obligation results from the parties’ agreement.
All other changes are refinements and clarifications to an already well-established mechanism familiar to businesses.