Incoterms 2020: Dictionary of terms

Incoterms 2020 are the fundamental rules that international trade follows, so to understand international logistics we must know what they are, what they mean and how to use them correctly.

Incoterms 2020 or “International Commercial Terms” are standard rules or definitions created by the International Chamber of Commerce (ICC) whose purpose is to make commercial relations between parties involved (seller and buyer) easier and to delimit between them the responsibilities in the purchase and sale of services.

As it is international trade, each country has specific laws to self-regulate international transport in its territory.

This made it very difficult to establish common rules in contracts for the international transportation of goods due to the different existing business forms and cultures.

Given this situation, the ICC simplifies in the Incoterms 2020 the main typologies for all international merchandise businesses and which are common for all countries.

1. It has no connection to the contract of carriage. It only links buyer and seller.
2. Provides information about who hires/pays for transportation. That is, it distributes the expenses between buyer and seller.
3. Specifies the place of collection and delivery of the goods (origin – destination).
4. Indicates the place of transmission of the risk.
5. Defines the distribution of documentary procedures (customs clearance).

To bring together the Incoterms 2020, they are usually grouped into 4 groups based on their common characteristics.

The seller makes the merchandise available to the importer in its own warehouses or factories:

·       EXW

Primary transportation not paid by the seller:

·       FOB

·       FCA

·       FAS

Main transportation paid by the seller:

·       CFR

·       CIF

·       CPT

·       CIP

The seller/exporter is responsible for all costs and risks necessary for the merchandise to reach the destination country, that is, it is a direct delivery upon arrival:

·       DPU

·       DAP

·       DDP

After having subdivided them into groups, we want each Incoterms 2020 to be as clear as possible to help you in your logistics operations.

Therefore, we are going to briefly define each of them and their importance in international trade.

Additionally, we have linked in each section a link to a specific post about them in case you require more information.

Also called Ex Works or In Factory:

• The buyer assumes virtually all costs and risks of the shipping process.
• The seller’s only task is to ensure that the buyer can access the goods.
• Once the buyer has access, everything is up to him (including loading the goods).

The risks are transferred from the seller to the buyer:

In the warehouse, offices or any property of the seller where the goods are collected.

Also called Free On Board or free on board:

• The seller bears all costs and risks until the goods are delivered on board the ship.
• It is also in charge of shipping for export.
• The buyer assumes all responsibilities once the goods are on board.

The risks are transferred from the seller to the buyer:

When the goods are delivered to the ship.

Also called Free Carrier or free carrier:

• It is the seller’s job to ensure that the goods reach the buyer’s transport company at the agreed location.
• The seller must also settle the costs of exporting the goods.

The risks are transferred from the seller to the buyer:

When the buyer’s transportation company receives the goods.

Also called Free Alongside Ship or free on board ship:

• The seller bears all costs and risks until the goods are delivered to the ship.
• The buyer then assumes the risks and is responsible for the export costs and import clearance.

The risks are transferred from the seller to the buyer:

When the goods are delivered next to the ship.

Also called Cost & Freight or cost and freight:

• The seller has the same responsibilities as with FOB, but must also pay the costs of bringing the goods to the port.
• As with FOB, the seller assumes all responsibilities once the goods are on board.

The risks are transferred from the seller to the buyer:

When the goods are on board.

Also called Cost, Insurrance and freight or cost, insurance and freight:

• The seller has the same obligations as with CFR, but must cover all insurance costs.
• The seller only has to pay the minimum coverage.
• If the buyer needs more comprehensive insurance, he must pay for it himself.

The risks are transferred from the seller to the buyer:

When the goods are on the ship.

Also called Carriage Paid To or transportation paid to:

• The seller’s responsibilities are the same as with FCA, with one difference: the seller covers the shipping costs.
• As with the FCA, it is the seller’s responsibility to settle the costs of exporting the goods.

The risks are transferred from the seller to the buyer:

When the buyer’s transportation company receives the goods.

Also called Cost Insurance Paid To or insurance and paid transportation until:

• The seller’s responsibilities are the same as with CPT, with one difference: the seller also pays to insure the goods.
• The seller is only required to pay the minimum coverage possible.
• If the buyer wants more complete insurance, he must arrange it himself.

The risks are transferred from the seller to the buyer:

When the buyer’s transportation company receives the goods.

Also called Delivery at Place Unloaded or unloaded delivery in place:

• It means that the seller delivers the merchandise and transfers the risk when he makes it available to the buyer in the means of transport of arrival, unloaded by his means, and at the agreed destination point. It is the only INCOTERM rule that forces the seller to unload at destination.
• Export customs clearance will be the responsibility of the seller.

The risks are transferred from the seller to the buyer:

In the terminal.

Also called Delivery At Place or delivery at an agreed location:

• The seller covers the costs and assumes the risks of transporting the goods to the agreed address.
• The goods are considered delivered when they are at the address, ready for unloading.
• Export and import responsibilities are the same as with DAT.

The risks are transferred from the seller to the buyer:

When the goods are ready for unloading at the agreed address.

Also called Delivery Duty Paid or delivery with duties paid:

• The seller assumes virtually all responsibility throughout the shipping process.
• You cover all costs and assume all risks of transporting the goods to the agreed address.
• The seller also guarantees that the goods are ready for unloading, assumes export and import responsibilities, and pays all taxes.

The risks are transferred from the seller to the buyer:

When the goods are ready for unloading at the agreed address.

Another way to categorize all the Incoterms 2020 previously exposed is to differentiate them by their scope of use depending on the type of transport.

There are Incoterms that affect all means of transport in general and those that affect maritime transport and inland waterways.

Incoterms 2020 General:

• EXW (Ex Works)
• FCA (Free Carrier)
• CPT (Carriage Paid To)
• CIP (Carriage and Insurance Paid To)
• DAP (Delivery At Place)
• DPU (Delivery al Place Unloaded)
• DDP (Delivery Duty Paid)

Incoterms 2020 for maritime and river transport:

• FAS (Free Alongside Ship)
• FOB (Free On Board)
• CFR (Cost and Freight)
• CIF (Cost, Insurance and Freight)