The Incoterms® rules are a worldwide set of essential terms for the sale of goods that is published by the International Chamber of Commerce (ICC). The International Chamber of Commerce first published the terms in 1936 and have continually made updates to reflect the changes to the Global Trade environment. The most recent update came into effect from January 1st 2020. It’s important that all parties involved in trade clearly understand the changes and how they apply to global supply chains.

WHAT ARE INCOTERMS®

Incoterms® are the contractual terms that the seller and buyer of goods both agree to during international and domestic transactions. These rules are accepted by governments and legal authorities around the world. Incoterms® rules are regularly incorporated into contracts for the sale of goods worldwide and have become part of the daily language of trade. Incoterms® is a registered trademark of the International Chamber of Commerce and you can read more about Incoterms® on the ICC website and in the Incoterms group in LinkedIn.

RULES FOR ANY MODE OR MODES OF TRANSPORT

EXW (Ex Works) means that the seller delivers when they place the goods at the buyer’s disposal at the agreed point, usually in the seller’s premises and that the buyer pays for everything including collection at origin, export formalities, freight, delivery, duties and GST. The transfer of risk to the buyer occurs immediately upon the seller giving notice to the buyer that the goods are set aside.

FCA (Free Carrier) means that the seller carries out all export formalities and delivers by either loading the goods onto the buyer’s carrier’s vehicle, or delivering on their own vehicle to the buyer’s carrier’s premises ready for that carrier to unload. Risk and costs transfer to the buyer at this point.

CPT (Carriage Paid To) means that the seller delivers to its own carrier, similar to delivery in FCA, carries out all export formalities and pays for carriage to the destination place. Risk transfers to the buyer at delivery in the origin country. All costs after delivery, except carriage, are for the buyer.

CIP (Carriage & Insurance Paid To) means that the seller has the same costs and obligations as for CPT, but additionally must take out insurance under Institute Cargo Clauses (A) or (Air) to cover the buyer’s risk.

DAP (Delivered at Place) means that the seller delivers the goods, not unloaded, at the named place of destination. It is vital to clarify whether that named destination is a named terminal (CY, CFS, airport) or the buyer’s premises. The latter adds considerable complexity not foreseen in the rule itself. Risks transfers to the buyer at delivery. . The buyer is responsible for unloading these goods and all import formalities.

DPU (delivered at Place Unloaded) this rule replaces the Incoterms® 2010 rule of DAT (Delivered at Terminal). DPU requires the seller to deliver the goods by placing them at the disposal of the buyer unloaded from the arriving means of transport. It is the only rule that requires the seller to unload goods at the place of destination. The latter adds considerable complexity not foreseen in the rule itself. Risk transfers to the buyer at delivery.

DDP (Delivered Duty Paid) means that the seller delivers the goods, not unloaded, at the named place of destination. It is vital to clarify whether that named destination is a named terminal (CY, CFS, airport) or the buyer’s premises. The latter adds considerable complexity not foreseen in the rule itself. The seller must be able to carry out import formalities and pay VAT/GST in their own name, something not permitted in most countries. The seller bears the risk up until delivery.

RULES FOR SEA AND INLAND WATERWAY TRANSPORT

FAS (Free Alongside Ship) means that the seller places the goods alongside the vessel at the named port of shipment and carries out all export formalities. Risk transfers to the buyer at this point. The buyer pays for loading onto the vessel and all charges thereafter.

FOB (Free on Board) means that the seller delivers the goods loaded onto the buyer’s named vessel, and carries out all export formalities. Risk and all costs transfer to the buyer at delivery on board.

CFR (Cost & Freight) means that the seller delivers the goods loaded onto the vessel, carries out all export formalities, and contracts for carriage to the destination port. Risk transfers to the buyer at delivery on board. The buyer carries out all import formalities.

CIF (Cost, Insurance & Freight) is the same as the above CFR rule with the only difference being that the seller must take out insurance under Institute Cargo Clauses (C) covering the buyer’s risk.

To download our Incoterms® 2020 pdf, please click here