Understanding Incoterms® 2020
International Trade Rules Explained
Incoterms® 2020 rules are internationally recognised trade terms published by the International Chamber of Commerce (ICC). They clarify the responsibilities of buyers and sellers regarding the delivery of goods, transportation costs, transfer of risk and certain obligations under contracts for the sale of goods.
The eleven rules are divided into two categories: seven applicable to any mode or combination of transport modes, and four specifically intended for sea and inland waterway transportation.
The selected rule should identify the agreed place or port and the applicable edition. Incoterms® rules do not, by themselves, determine ownership of goods, payment terms or every obligation under a sales contract.
Rules for Any Mode or Modes of Transport
EXW Ex Works
The seller makes the goods available to the buyer at the named place, such as a factory or warehouse. The buyer generally assumes responsibility for loading, transportation, export and import formalities, and associated costs and risks from the agreed delivery point.
FCA Free Carrier
The seller delivers the goods, cleared for export where applicable, to the buyer's nominated carrier or another designated party at the named place. Delivery and risk transfer depend on whether the agreed location is the seller's premises or another designated place.
CPT Carriage Paid To
The seller arranges and pays for transportation to the named destination. Risk transfers to the buyer when the goods are delivered to the carrier in accordance with the agreed rule, rather than upon arrival at the destination.
CIP Carriage and Insurance Paid To
The seller arranges and pays for transportation to the named destination and obtains cargo insurance as required by the rule. Risk transfers when the goods are delivered to the carrier under the agreed arrangement. Incoterms® 2020 generally requires broader minimum insurance coverage under CIP than under CIF.
DAP Delivered at Place
The seller delivers the goods to the named destination, ready for unloading. The seller bears the costs and risks up to delivery, while the buyer generally handles unloading and import customs formalities.
DPU Delivered at Place Unloaded
The seller delivers and unloads the goods at the named destination. The seller bears the costs and risks until unloading is completed. The buyer generally handles import customs clearance. DPU is the only Incoterms® 2020 rule requiring the seller to unload the goods at the destination.
DDP Delivered Duty Paid
The seller delivers the goods to the named destination, cleared for import and ready for unloading. The seller assumes extensive responsibilities, including applicable import customs formalities and duties. The buyer generally handles unloading.
Rules for Sea and Inland Waterway Transport
FAS Free Alongside Ship
The seller delivers the goods alongside the vessel nominated by the buyer at the named port of shipment. Risk transfers to the buyer once the goods have been placed alongside the vessel.
FOB Free On Board
The seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment. Risk transfers once the goods are on board the vessel. The buyer generally arranges and pays for the main ocean transportation.
CFR Cost and Freight
The seller delivers the goods on board the vessel and pays the costs and freight necessary to transport them to the named destination port. Risk transfers when the goods are on board the vessel at the port of shipment, even though the seller pays for transportation to the destination port.
CIF Cost, Insurance and Freight
The seller delivers the goods on board the vessel, pays the costs and freight to the named destination port, and obtains cargo insurance as required by the rule. Risk transfers when the goods are on board at the port of shipment. Incoterms® 2020 generally requires a lower level of minimum insurance coverage under CIF than under CIP.
Choosing the Appropriate Incoterm
Selecting an appropriate Incoterm depends on the transportation method, agreed delivery point and responsibilities that the buyer and seller intend to assume. The selected rule should be clearly identified in the sales contract, including the named place or port and applicable edition, such as FCA Dubai, UAE — Incoterms® 2020. The parties should consider whether the chosen rule is appropriate for the cargo, transportation arrangements and applicable customs requirements.
The explanations above are simplified summaries provided for general educational purposes. They do not replace the complete Incoterms® 2020 rules or the terms of an individual sales contract. For authoritative guidance, consult the International Chamber of Commerce.
Incoterms® is a trademark of the International Chamber of Commerce (ICC). The Incoterms® rules are protected by copyright owned by ICC. This independent educational summary is not an official ICC publication and is not affiliated with or endorsed by ICC.
