INCOTERMS 2020

INCOTERMS 2020

What are Incoterms?

“Incoterms” are clauses, an abbreviation of the International Commercial Terms, signifying the international trade terms. Incoterms determine the rights and obligations of contracting parties regarding place, time and stage of delivery, time and place of cost and risk transition, and other constituents (payment of costs, insurance and taxes).

Why are Incoterms clauses so important?

Clauses are extremely important because they are recognised and accepted all around the world. In the international trade, they are mandatory on every commercial account because they lower the risk and possible disagreements considerably.

There are 11 Incoterms 2020 clauses, which determine the obligations of the seller and the buyer.

The seller’s obligations

The seller provides the goods to the buyer at a given place and time as determined by the commercial contract for loading onto the means of transport acquired by the buyer.
The seller informs the buyer that the goods are available.
If the goods are not available to the buyer in the agreed timetable, all costs and the risk are borne by the seller.
At the buyer’s request and costs, he helps him to prepare the documents issued in the purchased goods’ country of origin.

The buyer’s obligations

The buyer claims the goods in the agreed time and place, and pays the price determined by the commercial contract.
The moment the buyer claims the goods, all costs and the risk are borne by him.
The buyer is liable to pay all duties and taxes.
The buyer also pays all the costs regarding the search for necessary documents, including the expenses for certificates of the origin of the goods and other taxes.

The main changes in Incoterms 2020 with respect to Incoterms 2010 are:

!New! The Incoterm DAT (Delivered at Terminal) is replaced by DPU (Delivered at Place Unloaded). Although this may appear to be merely a name change as the obligations and responsibilities remain the same, in fact, the new DPU covers delivery to any agreed place including, but not limited to, delivery at terminal.

!New! There are new insurance requirements under Incoterms CIF and CIP.

!New! In shipping, under the Incoterm FCA the buyer can ask the shipping company or their agent to issue a Bill of Lading to the seller with the notation “on board”.

For a House Bill of Lading to be valid it must specify that it is governed by UCP 600 rules regulating documentary credits.

If it does not specify in the contract of sale that Incoterms 2020 will apply, Incoterms from 2010 or 2000 may be applied.

The following are the Incoterms applicable from 1 January 2020. This infographic states each.

Incoterm® and explains obligations and charges that are accepted by the buyer and seller:

Incoterms 2020	Export customs declaration	Import customs declaration	Loading	Loading at origin	Responsability	Cost & Freight	Insurance	Transport
EXW (EX Works)	B	B	B	EXW, sellers warehouse	Agreed place	Agreed place		Any mode
FCA (Free Carrier)	S	B	B	Loading on carrier at place of origin	Agreed place	Agreed place		Any mode
FAS (Free Alongside Ship)	S	B	B	Loading on port of origin	Agreed place of unloading	Agreed place of unloading		ocean
FOB (Free On Board)	S	B	B	Board on port of origin	On board	On board		ocean
CFR (Cost and Freight)	S	B	S	Board on port of origin	On board	Port of destination		ocean
CIF (Cost Insurance and Freight)	S	B	S	Board on port of origin	On board	Port of destination	S	acean
CPT (Carriage Paid To)	S	B	S	Loading on carrier at place of origin	Agreed place of unloading	Delivered at place		Any mode
CIP (Carriage and Insurance Paid To)	S	B	S	Loading on carrier at place of origin	Delivery place	Delivered at place	S	Any mode
DPU (Delivered at Place Unloaded)	S	B	S	Delivery place	Delivery place	Delivered at place		Any mode
DAP (Delivered at Place)	S	B	S	Delivery place	Delivery place	Delivered at place		Any mode
DDP (Delivered Duty Paid)	S	S	S	Delivery place	Delivery place	Delivered at place		Any mode

* B = BUYER * S = SELLER

Source: https://www.ihk-berlin.de/Incoterms 2020

The key changes in Incoterms® 2020 are:

1. EXW – Ex Works

The buyer succeeds almost all costs and risks. The task of the seller is to ensure that the buyer has access to the goods.
By gaining access, the buyer assumes the responsibility and the risk (including the loading of the goods).
The risk is transferred from the seller to the buyer: in the seller’s storage, offices, or any location where the goods are claimed.

2. DAP – Delivered at Place

The seller covers the costs and risk for the transport of goods to the agreed address. The goods are considered as delivered when they are at the right address and ready to be unloaded.
Responsibilities for export and import are the same as in the DPU (Delivered at Place Unloaded) clause.
The risk is transferred from the seller to the buyer: when the goods are ready to be unloaded at the agreed address.
!New! Also FCA, DAP, DPU in DDP The seller bears the costs and risks arising at origin, packing, loading, export clearance, freight, unloading at destination and delivery at the agreed point. The buyer is responsible for import clearance procedures. This Incoterm is valid for all means of transport. Insurance is not mandatory but if taken out the seller bears the cost.

3. DDP – Delivered Duty Paid

The seller assumes almost all responsibilities in the process of shipping. The seller covers all the costs and risk for the transport of goods to the agreed address. The seller also makes sure that the goods are ready to be unloaded, fulfils his export and import responsibilities, and pays all duties.
The risk is transferred from the seller to the buyer: when the goods are ready to be unloaded at the agreed address.
!New! Also FCA, DAP, DPU in DDP The seller bears the costs and risks arising at origin, packing, loading, export clearance, freight, unloading at destination and delivery at the agreed point. The buyer is responsible for import clearance procedures. This Incoterm is valid for all means of transport. Insurance is not mandatory but if taken out the seller bears the cost.

4. CIP – Carriage and Insurance paid to

!New! CIP (Carriage and Insurance Paid To) The seller bears the costs up to delivery at an agreed place at destination, i.e., the costs at origin, export clearance, freight and also insurance which is mandatory.
If the buyer demands insurance, this is in his domain.
The risk is transferred from the seller to the buyer when the carrier receives the goods.

5. DPU – Delivered at Place Unloaded

The seller is responsible for the costs and risk of delivery to the agreed terminal. The terminal can be an airport, storage, a road or a port with a container terminal. The seller takes care of the customs clearance and unloads the goods at the terminal.
The buyer takes care of the import customs clearance and connected duties.
The risk is transferred from the seller to the buyer at the terminal.
!New! The Incoterm DAT (Delivered at Terminal) is replaced by DPU (Delivered at Place Unloaded). Although this may appear to be merely a name change as the obligations and responsibilities remain the same, in fact, the new DPU covers delivery to any agreed place including, but not limited to, delivery at terminal. This Incoterm is new and replaces DAT. In effect, it increases delivery options since DAT stated that delivery must take place at the terminal, whereas with the new DPU delivery can take place at an agreed place other than the terminal.
!New! Also FCA, DAP, DPU in DDP The seller bears the costs and risks arising at origin, packing, loading, export clearance, freight, unloading at destination and delivery at the agreed point. The buyer is responsible for import clearance procedures. This Incoterm is valid for all means of transport. Insurance is not mandatory but if taken out the seller bears the cost.

6. FCA – Free Carrier

The task of the seller is to deliver the goods to the buyer’s carrier at the agreed location. The seller is also responsible to take care of the export customs clearance.
The risk is transferred from the seller to the buyer when the carrier receives the goods.
!New! Also FCA, DAP, DPU in DDP The seller bears the costs and risks arising at origin, packing, loading, export clearance, freight, unloading at destination and delivery at the agreed point. The buyer is responsible for import clearance procedures. This Incoterm is valid for all means of transport. Insurance is not mandatory but if taken out the seller bears the cost.
!New! FCA Free Carrier) The seller delivers the goods to an agreed place and bears the costs and risks up to the point of delivery of those goods at the agreed place, including the cost of export clearance. The seller is responsible for inland transport and export customs clearance unless the designated place is the seller’s premises (FCA warehouse), in which case the goods are delivered there and loaded onto the means of transport arranged by the buyer at the buyer’s expense.The buyer bears the costs from loading on board to unloading, including insurance if taken out because they bear the risk when the goods are loaded onto the first means of transport.New for FCA, with respect to Incoterms 2010, is that in shipping the buyer can ask their carrier to issue a Bill of Lading to the seller specifying “on board” as proof of delivery of the goods, thus facilitating the use of documentary credits. The credit is afforded to the seller by bank guarantee although they are not party to the contract of carriage.

7. CPT – Carriage Paid to

The seller has the same responsibilities as in the FCA (Free Carier) clause, the difference being that the seller covers the delivery costs. In the FCA clause, the responsibility of the seller is to take care of the goods’ export customs clearance.
The risk is transferred from the seller to the buyer when the carrier receives the goods or EXW (Ex Works).

8. FAS – Free Alongside Ship

As long as the goods are not delivered to the ship, all costs and risks are borne by the seller. Then the buyer succeeds the risk and takes care of the export and import customs clearance.
The risk is transferred from the seller to the buyer: when the goods are delivered to the ship.

9. FOB – Free on Board

As long as the goods are not delivered onto the ship, all costs and risks are borne by the seller. The seller also takes care of the export customs clearance. As soon as the goods are on board, the buyer assumes all the responsibilities.
The risk is transferred from the seller to the buyer when the goods are delivered on the ship.

10. CFR – Cost and Freight

The seller has the same responsibilities as in the FOB (Free on Board) clause, but must also cover the costs for delivering the goods to the port. Same as in the FOB (Free on Board) clause, the buyer assumes all the responsibilities as soon as the goods are on board.
The risk is transferred from the seller to the buyer when the goods are on the ship.

11. CIF – Cost Insurance and Freight

!New! CIF (Cost Insurance and Freight) As with CFR the seller bears all the costs up to arrival at the destination port, including export clearance, costs at origin, freight and usually unloading. However, unlike CFR, the seller must also arrange insurance even though the risks transfer to the buyer once the goods are loaded on board.
The buyer bears the import and transport to destination costs.
New in the 2020 version of this Incoterm is that the seller must arrange insurance cover in line with what is stipulated in Institute Cargo Clauses (C). In other words, the goods must be covered until their arrival at the destination port. This Incoterm is only used in shipping. It is widely used as it determines the customs value. If the buyer demands insurance, this is in his domain.
The risk is transferred from the seller to the buyer when the goods are on the ship.

Are you up to date with the Incoterms clauses? Perfect. Let us do business.

RCM Team

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