Search
  • Home
  • News
  • About us
  • Global network
  • Careers
  • Contact us

Your Guide to Incoterms 2020

Incoterms, short for "International Commercial Terms" are international import and export shipping terms created by the International Chamber of Commerce (ICC) for use in international trade. Incoterms are typically updated by the ICC every 10 years and are invaluable to importers and exporters alike. Incoterms 2020 will become effective January 1, 2020 and there are eleven (11) terms related to the shipment and delivery of goods. In this article we discuss the notable changes to Incoterms 2020 and provide a guide to understanding the most commonly used incoterms.Incoterms 2020

What are Incoterms and why should I use them? 

Incoterms (1) define who is responsible for paying transportation charges at any point in the transaction. (2) Provide important information to all parties involved in the shipment of goods regarding the definition of where and when ownership of cargo is transferred. (3) Outline the timing and division of cost and risk between buyers and sellers.

Are there any changes found in Incoterms 2020?

There are two changes of note found in Incoterms 2020

  1. DAT (Delivered at Terminal) has been changed to DPU (Delivered at Place Unloaded) an explanation of DPU can be found below.
  2. There have also been changes to the rules for Carriage and Insurance Paid (CIP). 

For your reference, we have grouped Incoterms 2020 below into four categories based on first letter. 

The 'E' Terms:

EXW – Ex Works (named place)

This incoterm is usually followed by a place name; for example, EXW Atlanta. EXW means that the goods will be available to the buyer directly from the sellers’ facility or premises. This could be a warehouse or manufacturing facility, hence the works in ex works. What is the key thing to know about EXW? All charges incurred for transportation of the goods are the responsibility of the buyer and transfer of ownership happens as soon as the goods leave the floor of the seller's facility. Incidentally, this is the most common term encountered when importing goods from the EU and applies exclusively to containerized or multi-modal transport as well as air, rail or road. EXW terms represent the minimum amount of risk for the seller of the goods and the maximum risk for the buyer because it is the buyer’s responsibility to arrange and pay for transport, clearance and insurance.

The 'F' Terms:

FAS - Free Alongside Ship (insert named port of shipment)

"Free Alongside Ship" means that the seller delivers the goods to the buyer

  • when the goods are placed alongside the ship (e.g. on a quay or a barge)
  • nominated by the buyer
  • at the named port of shipment
  • or when the seller procures goods already so delivered. 

The risk of loss or damage to the goods transfers when the goods are alongside the ship and the buyer bears all costs from that moment onward.

FCA - Free Carrier (insert named place of delivery)

This incoterm is defined by ICC as the seller delivers the goods to the buyer in one or other of two ways.

  1. when the named place is the seller's premises, the goods are delivered
    • when they are loaded on the means of transport arranged by the buyer.
  2. when the named place is another place, the goods are delivered
    • when, having been loaded on the seller's means of transport.
    • they reach the named other place and
    • are ready for unloading from that seller's means of transport and
    • at the disposal of the carrier or of another person nominated by the buyer.

FOB – Free On Board (insert named port of shipment)

One of the most common incoterms when importing goods into the US from Asia. FOB means that the seller retains ownership and is responsible for all costs up to and until the shipment is loaded onto the vessel at the named port. Transfer of ownership and liability for all charges becomes the buyers’ responsibility once the shipment has been loaded on the vessel. 

  • Loading at the sellers’ facility whether onto truck, train or barge = Sellers’ responsibility
  • Pre-carriage – those freight charges that arise from moving goods from the sellers’ origin to the port or airport = Sellers’ cost and responsibility
  • Loading to vessel = Sellers’ responsibility
  • Principle carriage (ocean carrier) = Buyer is responsible for cost and any loss or damage while in transit on the

 

The 'C' Terms:

CFR – Cost and Freight (named port of destination)

This term applies to ocean shipments. Under CFR the seller is responsible for the costs and freight needed to bring the goods to the named port of destination and for the ocean carrier freight cost. However, the buyer bears the burden of liability for loss or damage incurred in transit on the ocean carrier.  A sample breakdown of CFR looks like the following:

  • Loading at the sellers’ facility whether onto truck, train or barge = Sellers’ responsibility
  • Pre-carriage – those freight charges that arise from moving goods from the sellers’ origin to the port or airport = Sellers’ cost and responsibility
  • Loading to vessel = Sellers’ responsibility
  • Principle carriage (ocean carrier) = Seller is responsible for cost but the Buyer is responsible for any loss or damage while in transit on the ocean carrier.

CIF – Cost, Insurance and Freight (named port of destination)

This term applies to maritime or ocean shipments and is nearly the same as CFR with the exception that the seller also agrees to purchase insurance to cover any loss or damage while the goods are in transit on the ocean carrier. A sample breakdown of CIF looks like the following:

  • Loading at the sellers’ facility whether onto truck, train or barge = Sellers’ responsibility
  • Pre-carriage – those freight charges that arise from moving goods from the sellers’ origin to the port or airport = Sellers’ cost and responsibility
  • Loading to vessel = Sellers’ responsibility
  • Principle carriage (ocean carrier) = Seller is responsible for cost but the Buyer is responsible for any loss or damage while in transit on the ocean carrier.
  • Ideal for containerized shipments.

 

CIP - Carriage & Insurance Paid to (insert named place of destination)

The seller delivers the goods and transfers the risk to the buyer

  • by handing them over to the carrier
  • contracted by the seller
  • or by procuring the goods so delivered.
  • The seller may do so by giving the carrier physical possession of the goods in the manner and at the place appropriate to the means of transport used.

 

CPT - Carriage Paid to (insert named place of destination)

The seller delivers the goods and transfers the risk to the buyer

  • by handing them over to the carrier
  • contracted by the seller
  • or by procuring the goods so delivered
  • the seller may do so by giving the carrier physical possession of the goods in the manner and at the place appropriate to the means of transport used.

 

The 'D' Terms:

DAP - Delivered at Place (insert named place of destination)

The seller delivers the goods and transfers risk to the buyer

  • when the goods are placed at the disposal of the buyer
  • on the arriving means of transport ready for unloading
  • at the named place of destination or
  • at the agreed point within that place, if any such point is agreed.

The seller bears all risks involved in bringing the goods to the named place or destination or to the agreed point within that place. 

DDP – Delivered Duty Paid (named place)

This term means the seller is responsible for all charges involved in bringing the goods from the sellers’ facility or point of loading to the final place of destination. This includes all charges associated with freight, customs clearance, duties and taxes.

DPU - Delivered at Place Unloaded (insert named place of destination)

Referred in Incoterms 2010 as DAT, this incoterm has been renamed DPU, delivered at place unloaded. According to the ICC, the seller delivers the goods and transfers risk to the buyer:

  • when the goods,
  • once unloaded from the arriving means of transport,
  • are placed at the disposal of the buyer
  • at the named place of destination or
  • at the agreed point within that place, if any such point is agreed.

The seller bears all risks involved in bringing the goods to and unloading them at the named place of destination.

The ICC provides more information regarding these incoterms along with the complete Incoterms 2020 guide. Every importer or exporter has their own unique requirements. Understanding and effectively using Incoterms is critical. Before you enter into any sales or purchase agreement we encourage you to review our comprehensive list of incoterms and consult your legal counsel. Remember your freight forwarder should do more than just offer a good price.

Latest Posts

Your Guide to Incoterms 2020

Incoterms, short for "International Commercial Terms" are international import and export shipping terms created by the International Chamber of Commerce (ICC) for use in international ...

read more

Section 232 and 301 Tariff FAQ's

The words 'Trade war' aren't something to toss around lightly, However when President Trump made the initial Proclamations citing Section 232 of the Trade Expansion Act of 1962 it was ...

read more

IMO Low-Sulfur Fuel Mandate FAQ's

The International Maritime Organization (IMO) has mandated ocean carriers begin using low-sulfur fuels by January 1, 2020 and that date is fast approaching. We have discussed the ...

read more

How can you Mitigate Disruptions in Transporting your Cargo

It is true that no supply chain is immune from disruptions; however, there are steps you can take to mitigate disruptions in transporting your cargo and minimize the impact to your ...

read more

Download our Incoterms 2020  Reference Guide HERE 

Latest Posts