Incoterms®2020
COMPARATIVE SUMMARY TABLE PREPARED BY ICC ITALY
On January 1, 2020, the new INCOTERMS rules developed by the International Chamber of Commerce (ICC) came into effect.
The INCOTERMS rules set the essential global commercial terms for the sale of goods, facilitating international trade.
“In a contract for the sale of goods, an Incoterms® 2020 rule clearly defines the respective obligations of the parties regarding aspects such as risks, costs, and the organization of transport as well as customs clearance, thereby reducing the likelihood of legal complications.” (Quote from Incoterms® 2020)
It is very important that the parties explicitly specify which edition they intend to use when incorporating Incoterms into the sales contract, as the new rules do not repeal the previous ones. Omitting the year could cause problems that may be difficult to resolve.
Specifying an agreed place or port—that is, the exact place of delivery—is essential for the proper functioning of the Incoterms® 2020 rules, as it defines the precise point at which the transfer of risks and costs between the seller and buyer occurs.
The safest way is to use the wording: [chosen Incoterms rule] [agreed port, place, or point] Incoterms® 2020.
In the new edition, the number of terms remains 11, with no changes to those related to maritime transport, including transport on inland waterways (FAS, FOB, CFR, CIF).
The 2010 term DAT (Delivered at Terminal) has been replaced by the new term DPU (Delivered at Place Unloaded), specifying that the place of destination can be any location, not just a terminal. The seller is responsible for unloading the goods.
For all other modes of transport, the terms EXW, FCA, CPT, CIP, DAP, and DDP remain, with some modifications.
Under the FCA term, for example, maritime transport may include the option for the seller—if expressly authorized by the buyer—to obtain an “on board” bill of lading when the place of delivery is an inland location in the country of departure, far from the port. This allows the seller to retain control of the goods until they are loaded onto the vessel.
The CIP and CIF terms provide for different levels of insurance coverage.
Incoterms® 2020 also allow for the possibility that, under the terms FCA, DAP, DPU, and DDP, transport may be carried out not by third-party carriers but using the seller’s own means of transport (under the D terms) or the buyer’s own means (under the FCA term).
Brief Definitions of the New Incoterms® 2020
The 11 terms defined in the 2020 edition of the Incoterms® can be classified based on the increasing level of obligations assumed by the seller.
• Group E: EXW (a term that defines the seller’s minimal obligations)
• Group F: FCA – FAS – FOB (main carriage paid by the buyer)
• Group C: CPT – CIP – CFR – CIF (the seller pays for transportation, but the risk is borne by the buyer)
• Group D: DAP – DPU – DDP (the seller delivers at the destination. Transportation and risks are borne by the seller)
Below is a brief analysis of each individual term:
Brief definitions of the new Incoterms® 2020
EXW
EX WORKS
EXW (Ex Works) involves the minimum level of obligations for the seller. The seller fulfills delivery by making the goods available to the buyer at the seller’s premises or another agreed place (factory, warehouse, etc.). The seller is not obligated to load the goods onto the collecting vehicle, nor to clear them for export if such clearance is required.
FCA
FREE CARRIER
The seller delivers by handing over the goods to the carrier or another person nominated by the buyer at the seller’s premises or another agreed place. The parties are advised to specify as clearly as possible the exact point at the agreed place of delivery, as the risk transfers to the buyer at that point.
CPT
CARRIAGE PAID TO (CPT)
The seller delivers by handing over the goods to the carrier or another person nominated by the seller at an agreed place (if such a place has been agreed upon by the parties). The seller must contract for the carriage and bear the costs necessary to transport the goods to the agreed destination.
The seller fulfills their delivery obligation when the goods are handed over to the carrier, not when the goods arrive at the destination.
Unloading costs are borne by the buyer. However, they are the seller’s responsibility if included in the transport contract arranged and paid for by the seller.
CIP
CARRIAGE AND INSURANCE PAID TO
The seller delivers by handing over the goods to the carrier or another person nominated by the seller at an agreed place (if such place has been agreed upon by the parties). The seller must contract for the carriage and bear the costs necessary to transport the goods to the agreed destination, as well as obtain minimum insurance coverage.
Seller and buyer may, of course, agree on broader coverage than the minimum required and may also arrange insurance separately for the portions of risk each party is responsible for.
Unloading costs are borne by the buyer.
The seller fulfills their delivery obligation when the goods are handed over to the carrier, not when the goods arrive at the destination.
DAP
DELIVERED AT PLACE
The seller delivers by placing the goods at the buyer’s disposal on the arriving means of transport, ready for unloading at the agreed destination. The seller bears all risks related to transporting the goods to the agreed place. Import customs clearance is the buyer’s responsibility. Unloading costs are borne by the buyer, unless they are included in the transport contract arranged and paid for by the seller.
DPU
DELIVERED AT PLACE UNLOADED
With this term, the seller delivers – and transfers the risk – to the buyer when the goods are made available to the buyer, unloaded, at the agreed destination or at an agreed point within that location, if such a point is specified. Therefore, the seller assumes all risks related to the transportation and unloading of the goods at the agreed destination.
DDP
DELIVERED DUTY PAID
The seller delivers – and transfers the risk – to the buyer when the goods, ready to be unloaded from the arriving means of transport, are made available to the buyer at the agreed destination or at a point within that location, if such a point is specified. Therefore, the seller assumes all risks associated with the transportation of the goods to the agreed destination or the agreed point within that location. In addition, the seller is obligated to clear the goods, not only for export but also for import.
In this Incoterms rule, delivery and arrival at the destination coincide.
FAS
FREE ALONGSIDE SHIP (FAS)
The seller delivers by placing the goods alongside the ship (e.g., on a quay or on a barge) nominated by the buyer at the agreed port of shipment. The risk of loss or damage passes when the goods are alongside the ship, and the buyer bears all costs from that moment onward.
FOB
FREE ON BOARD
The seller delivers by placing the goods on board the ship nominated by the buyer at the agreed port of shipment or by procuring the goods already so delivered. The risk of loss or damage passes when the goods are on board the ship, and the buyer bears all costs from that moment onward.
CFR
COST AND FREIGHT
The seller delivers by placing the goods on board the ship or by procuring the goods already so delivered. The risk of loss or damage passes when the goods are on board the ship. The seller must contract for the carriage and bear the costs necessary to send the goods to the agreed port of destination.
When using CPT, CIP, CFR, or CIF, the seller fulfills their delivery obligation when the goods are handed over to the carrier as specified by the chosen rule, not when the goods arrive at the destination.
Unloading costs are borne by the buyer, unless included in the transport contract arranged and paid for by the seller.
CIF
COST, INSURANCE AND FREIGHT
The seller delivers by placing the goods on board the ship or by procuring the goods already so delivered. The risk of loss or damage passes when the goods are on board the ship. The seller must contract for the carriage and bear the costs necessary to send the goods to the agreed port of destination. The seller also provides insurance coverage against the buyer’s risk of loss or damage to the goods during transport.
Seller and buyer may, of course, agree on broader coverage than the minimum required and may also arrange insurance separately for the portions of risk each party is responsible for, regardless of the Rule used.
The reference to “procure” here relates to so-called chain sales, which are particularly common in the trade of raw materials.
