What are Incoterms?
Incoterms stands for International Commercial Terms. The terms are published by The International Chamber of Commerce. They regulate commercial transactions between parties in terms of costs, responsibilities, tasks and risks associated with the transportation and delivery of the purchased goods.
The first Incoterms were agreed upon in 1923. They have been revised and improved 9 times since. The latest revision came into effect on January 1st of this year: the Incoterms 2020.
The 2010 revision improved information sharing between buyers and sellers. With the 2020 revision, the International Chamber of Commerce focused on making it even clearer what the responsibilities are for both the buyer and the seller.
Incoterms 2020: Which are there?
There are rules that apply to any mode of transport and there are rules that apply specifically to sea and inland waterway transportation.
Rules for any mode of transport:
- EXW - Ex Works → The Seller makes a product available and the buyer is responsible for transportation
- FCA - Free Carrier → The Buyer arranges the main transportation. FCA is a very flexible rule
- CPT - Carriage Paid To → The Seller is responsible for transportation, but not for insurance
- CIP - Carriage and Insurance Paid To → The Seller is responsible for transportation and for arranging insurance
- DAP - Delivered at Place → The Seller is responsible for transportation and the Buyer is responsible for unloading
- DPU - Delivered at Place Unloaded → The Seller is responsible for transportation and for unloading
- DDP - Delivery Duty Paid → The Seller is responsible for transportation, and for making sure the goods are cleared for import with all duties paid. The Buyer is responsible for unloading
Rules for sea and inland waterway transportation:
- FAS - Free Alongside Ship → The Seller delivers the goods alongside a ship, ready for export. Buyer is responsible for loading the goods on the ship
- FOB - Free on Board → The Seller is responsible for transportation and loads the goods onto the ship.
- CFR - Cost and Freight → The Seller is responsible for transportation and loads the goods onto the ship. Risk transfers once the goods are loaded, but the Seller is responsible for delivering the goods to the port of destination.
- CIF - Cost Insurance and Freight - CIF works the same as CFR, with the addition that Seller is responsible for arranging insurance for the goods during transport.
What is the difference between the different types of Incoterms 2020?
The differences between each of the terms mentioned above have to do with who is responsible for the cost and who is responsible for the risk. The costs involved are for example related to export customs declaration, transportation to and from the port, loading and unloading of trucks and ships, and import duties and customs clearance.
As the terms are listed above the cost moves from the Buyer to the Seller for each term. When goods are delivered Ex Works, the Buyer is fully responsible for the cost. When goods are delivered Delivery Duty Paid, the seller is fully responsible for the cost.
The same goes for risk at the various stages of transportation: Carrier, Port of Origin, Ship, Port of Destination, Terminal, and Final Destination. When goods are delivered Ex Works, all risk is for the Buyer, and with Delivery Duty Paid, all risk is for the Seller.
For both cost and risk, the responsibilities move from Buyer to Seller as you move down the list of terms.
Do you have any questions about Incoterms 2020?
If you are business professional that has any questions about Incoterms related to the flow of your goods, please contact one of our experts.
