incoterm 2020

Incoterms 2020 are a set of rules published by the International Chamber of Commerce (ICC) that define the responsibilities of sellers and buyers in international trade transactions. These terms are widely used in international contracts to clarify which party is responsible for the costs and risks associated with shipping goods. The 2020 version is the latest update, reflecting changes in global trade practices and logistics.

Key Points of Incoterms 2020

Main Changes from Incoterms 2010:

DAT (Delivered at Terminal) has been replaced with DPU (Delivered at Place Unloaded) to clarify that the goods can be delivered at any place, not just a terminal.

FCA (Free Carrier) now allows for an on-board bill of lading to be issued after the goods have been loaded on board the vessel, which is beneficial for sellers under letters of credit.

Insurance Coverage: The terms CIF (Cost, Insurance, and Freight) and CIP (Carriage and Insurance Paid To) now have different minimum insurance coverage requirements. Under CIP, the insurance coverage has been increased to Institute Cargo Clauses (A) (All Risks), while CIF remains at Institute Cargo Clauses (C) (basic coverage).

Classification of Incoterms:

Rules for any mode of transport:

EXW (Ex Works): The seller delivers when it places the goods at the disposal of the buyer at the seller's premises or another named place. The buyer bears all costs and risks involved in taking the goods from the seller's premises to the desired 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.

CPT (Carriage Paid To): The seller pays for the carriage of the goods to the named place of destination. Risk transfers when the goods are handed over to the first carrier.

CIP (Carriage and Insurance Paid To): Similar to CPT, but the seller also contracts for insurance cover against the buyer’s risk of loss or damage during the carriage.

DAP (Delivered at Place): The seller delivers 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.

DPU (Delivered at Place Unloaded): The seller delivers the goods and transfers risk to the buyer once the goods are unloaded at the named place of destination.

DDP (Delivered Duty Paid): The seller is responsible for delivering the goods to the buyer, cleared for import, and all applicable duties and taxes paid.

Rules for sea and inland waterway transport:

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. The risk transfers to the buyer when the goods are alongside the ship.

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 when the goods are on board the vessel.

CFR (Cost and Freight): The seller pays for the carriage of the goods to the named port of destination. Risk transfers when the goods are on board the vessel at the port of shipment.

CIF (Cost, Insurance and Freight): Similar to CFR, but the seller also contracts for insurance cover against the buyer’s risk of loss or damage during the carriage.

Considerations:

Insurance: Not all Incoterms require the seller to provide insurance (e.g., FOB, CFR), so it’s crucial to understand who bears the risk and whether insurance is needed.

Risk Transfer: Incoterms clearly define the point at which the risk transfers from the seller to the buyer, which can vary depending on the chosen term.

Costs: Incoterms determine who is responsible for various costs, including transport, insurance, and duties, which should be considered when negotiating a contract.

These terms are essential for international trade, helping to reduce misunderstandings and disputes by clearly defining the obligations of each party in a transaction.