INCOTERMS 2020

This is the language of international trade which is accepted rule and interpretation for most
common commercial terms. Thus International commercial terms are in fact key elements of
international contracts of sale since they tell all parties what to do with respect to:-

• The carriage of goods from the seller to the buyer

• Export and import clearance

• They also explain the division of costs and the risks between parties.

Publications of INCOTERMS

INCOTERMS was devised and published by the International Chamber of Commerce (ICC),
they are at the heart of world trade. ICC first published terms in 1936 a set of international
rules for interpretation of trade terms. These rules were known as “INCOTERMS 1936”

• Amendments and additions were later made in 1953, 1967, 1976, 1980, 1990,2000,2010
and the recently one is 2020 in order to bring the rules in line with current International
trade practices

• Contrary the law of international convention. INCOTERMS are not compulsory and not
automatic. If the parties want to apply them to their transaction they must mention it
specifically in the contract

What problems do the incoterms deal with?

Frequently, parties to the contract are unaware of the different trading practices in their
respective countries. This can give rise to misunderstandings, disputes and litigation with all
the waste of time and money that this entails. In order to remedy these problems,
INCOTERMS provide four categories of solutions like:-

1. Delivery merchandises;

Delivery is the most important obligation of the seller. The seller delivers when the goods are
placed alongside the vessel at the named port of shipment.
In accordance to the term chosen, the delivery can occur before or after the operation to
transport. If the delivery occur before it is called “vent au depart” and if it occur after it is called
“vent a 1 arrive”

2. Transfer of risks

The transfer of risks occurs during the execution by the seller of his obligation to deliver. The
buyer has to bear all risks of loss of or damage to the goods from that moment

3. Repartition of the expenses/costs;

The seller has to bear all the expenses related to the goods until the delivery. If the seller is in
charge of the transportation, in accordance with the term chosen, he has to bear the costs related
to that transportation. Otherwise the seller only bears the cost of the delivery

4. Documentary formalities;

The INCOTERMS specify which one of the buyer and seller has to bear the expenses of he
formalities documents of export and import.

ISSUES NOT TAKEN INTO ACCOUNT BY THE INCOTERMS

INCOTERMS by themselves do not deal with:-

a) The methods of payment

b) The transfer of the property

c) Insurance that is only obligation for the seller in CIF, CIP

d) Arbitration

e) The law applicable/governing the contract

LATEST VERSION OF INCOTERMS EFFECTIVE JANUARY 1, 2020

 • The latest version of INCOTERMS is term 2020, which went into the effect on January
1, 2020

• The International Chamber of Commerce have published new Incoterms 2020 that have
come into effect from the 1st of January 2020. The ICC originally published Incoterms
in 1936 and have continually made updates to reflect the changes to the Global Trade
environment.

• It’s important that all parties involved in trade clearly understand the changes and how
they apply to global supply chains.

• Incoterms play such a vital role in the world of global trade. Incoterms 2020 may seem
complicated, but it’s imperative that buyers and sellers clearly understand how they work
and their own obligations along the supply chain.

Incoterms 2020 Rules

The most current revision of the terms, Incoterms 2020, went into effect Jan. 1, 2020, and
consists of 11 Incoterms.

The latest revision’s changes include the following:

 The most obvious change from Incoterms 2010 is renaming the term Delivered at
Terminal (DAT) to Delivered at Place Unloaded (DPU).
 The most significant change from the 2010 rules relates to the term Free Carrier (FCA).
Under this term, the buyer can now instruct its carrier to issue a bill of lading with an on-
board notation to the seller so that they may satisfy the terms of a letter of credit.
 Under the revised term CIP, the seller is now responsible for purchasing a higher level of
insurance coverage—at least 110% of the value of the goods as detailed in Clause A of
the Institute Cargo Clauses. The insurance requirement hasn't changed for CIF.
  Incoterms 2020 rules recognize sellers who may use their own transport to deliver the
goods. The terms now expressly state that sellers can make a contract for carriage or
simply arrange for the necessary transportation.
 Incoterms 2020 rules now specifically call out the import and export security
requirements and identify whether the buyer or seller is responsible for meeting those
requirements.

THE HISTORICAL BACKGROUND OF INCOTERMS INTRODUCCTION

• 1921 – the Incoterms rules began development with the forming of the idea by the
International Chamber of Commerce

• 1928 – second published study with interpretation of trade terms used in more than 30
countries

• 1936 – the first set of the Incoterms rules was published

• the first set remained in use for almost 20 years

• 1953 – the second publication

• aadditional amendments and expansions followed in 1967, 1976, 1980, 1990 and 2000

Incoterms 2020 Rules are used today by practitioners and traders, anyone involved in the supply
chain of delivering goods overseas will probably come across incoterms, including:
 Traders
 Producers
 Buyers
 Sellers
 Governments
 Banks
The language that was agreed by incoterms guidance covers the following areas of international
commerce and trade by the International Chambers of Commerce:

 Tasks involved in shipping

 Which parties hold contract
  Responsibility of risk
 Delivery of goods (buyers and sellers)
 Insurance duties
 Customs and taxes

THE STRUCTURE OF THE NEW INCOTERMS 2020

On January 1, 2020, the International Chamber of Commerce (ICC) replaced INCOTERM 2010
to INCOTERM 2020 as the authoritative text for for adding to some of the responsibilities
between the buyers and sellers

Major changes of INCOTERMS

INCOTERMS 2020 includes on new rule that is

• Delivered At Place Unloaded (DPU)

• Delivery at Place (DAP).

This one rules is eliminate the delivered at Frontier (DAF), Delivery Ex-ship (DES), DAT
and Delivery Duty Paid (DDU).

• DPU replaced the current DAT

• DAP replaced DAF, DES, and DDU

• The new DPU and DAP shall help simplify issues pertaining to the time and place at
which risks are transferred.

RULE CLASSIFICATION

Under previous INCOTERMS revisions, terms were grouped in order of increasing

responsibility on the seller. The new rules in INCOTERMS 2020 are grouped according to the
mode of transport as follows:-

1. RULES FOR ANY MODE OR MODES OF TRANSPORT

 EXW | Ex Works
  FCA | Free Carrier

 CPT | Carriage Paid To

 CIP | Carriage and Insurance Paid To

 DAP | Delivered at Place

 DPU | Delivered at Place Unloaded

 DDP | Delivered Duty Paid

2. RULES FOR SEA AND INLAND WATERWAY TRANSPORT

 FAS | Free Alongside Ship

 FOB | Free On Board

 CFR | Cost and Freight

 CIF | Cost Insurance and Freight

NOTES: INCOTERMS firstly were 13 but after amendment there is at least new 11 modern of
INCOTERMS

RULES FOR ALL MODE(S) OF TRANSPORT

• EXW • DPU

• FCA • DAP

• CPT • DDP

• CIP

1. EXW: Ex Works (named place of delivery)

 The seller delivers, when it places the goods at the disposal of the buyer at the seller’s
premises or at another named place (works, factory, warehouse..)
  The seller needs to provide the buyer the information they to take delivery of the goods at
that time.
 In this terms buyer bears all risk and costs starting when the goods are made available to
the buyer at the seller’s location or other named place until the products are delivered to
its location. Seller has no obligation to load the goods or clear them for export.
 This is only Incoterm that makes export clearance the responsibility of the buyer
 In Ex Works, the seller is required to provide certain data elements about the transaction
to the buyer’s freight forwarder or some other designated party that has been authorized
to submit the electronic export information
 represents the minimum obligation for the seller

Seller’s obligations

• to provide the goods and the commercial invoice in confirmity with the contract of sale

• to deliver the goods by placing them at the disposal of the buyer at the agreed point, at
the named place of delivery

• no obligation to make a contract of carriage and a contract of insurance

• to bear the risks of loss of or damage to the goods until they have been delivered to the
agreed point of the first carriers.
 • to pay all costs relating to the goods until they have been delivered at its own expense, to
package the goods

buyer’s obligations

• to pay the price of the goods as provided in the contract of sale

• to take the delivery of the goods if it has been complied with the contract of sale

• to pay all costs relating to the goods from the time they have been delivered

• to obtain any export and import licences and other official authorization and carry out all
customs formalities for the export of the goods

• to pay all duties, taxes and other charges, costs of carrying out customs formalities
payable upon export

• to bear all risks of loss of or damage to the goods from the time they have been delivered
from the first carriers

2. FCA: Free Carrier (named place of delivery)

 The seller is responsible for either making the goods available at its own premises or at a
named place.
 Risk passes when the goods are handed over to the first carrier
 The seller is responsible for loading the goods on the buyer's transport and is responsible
for delivery to the port and export clearance including security requirements.
 Risk transfers once the goods are loaded on the buyer’s transport or first carriers

NOTES:

 This term has changed the most in the Incoterms 2020 rules. Previously, problems
occurred with this term when the seller was responsible for loading the goods on a truck
or some other transport hired by the buyer and not directly on the international carrier.
 If the seller and buyer had agreed on using a letter of credit as the payment method for
this transaction, banks often require the seller to present a bill of lading with an on-board
notation before they can get paid.
 An international carrier won't typically provide a seller who did not present the goods
directly to them with such a bill of lading. Under the new Incoterms 2020 rules, FCA
 allows the parties to agree in the sales contract that the buyer should instruct its carrier to
issue a bill of lading with the on-board notation to the seller.

The seller’s obligations

• to delivere the goods to the carrier or another person nominated by the buyer at the
agreed point and at the agreed date

• to obtain, at its own risk and costs, any export licence and other official authorization and
carry out all customs formalities necessary for the export of goods

• no obligation to make contract of carriage

• no obligation to make a contract of insurance

• to bear all risks of loss of or damage to the goods until they have been delivered to the
first carrier nominated by the buyer

• to pay all costs relating to the goods until they have been delivered

Buyer’s obligations

• to pay the price of the goods

 • to obtain, at its own risk and costs, any import licence and other official authorization and
carry out all customs formalities necessary for the import of goods and for their transport
through any country

• to contract at its own expense for the carriage of the goods from the named place of
delivery

• to bear all risks of loss of or damage to the goods from the time they have been delivered

• to pay all costs relating to the goods from the time they have been delivered

3. CPT: Carriage Paid To(named place of destination)

 Seller clears the goods for export and delivers them to the carrier or another person
stipulated by the seller at a named place of shipment.
 Seller is responsible for the international transportation costs associated with delivering
goods to the named foreign place of destination.
 The transfer of risk, on the other hand, transfers from the seller to the buyer as soon as the
goods are delivered to the international carrier. That means the buyer assumes the risk of
loading the goods on the carrier and during the international transport of the goods.

Seller’s obligations

• to contract, on its expense, for the carriage of the goods from the agreed point of delivery
to the named place of destination
 • no obligation to make a contract of insurance

• to deliver the goods by handing them over to the contracted carrier.

• to bear all risks of loss of or damage to the goods until they have been delivered to the
first carrier

• to pay all costs relating to the goods until they have been delivered

• to pay the freight, including costs of loading the goods and any charges for unloading at
the place of destination, costs of customs formalities necessary for export

Buyer’s obligations

• to pay the price of the goods

• to bear all risks of loss of or damage to the goods from the time they have been delivered
to the first carrier

4. CIP: carriage and Insurance Paid To (named the place of destination)

 Seller clears the goods for export and delivers them to the carrier or another person
stipulated by the seller at a named place of shipment, at which point risk transfers to the
buyer.
 Seller is responsible for the transportation costs associated with delivering goods and
procuring insurance coverage to the named place.
 The amount of insurance that the seller must purchase has increased under Incoterms
2020 rules for CIP. The seller must purchase a broader level of insurance coverage than
under the old Incoterms 2010 CIP rule. It must be at least 110% of the value of the goods
and transportation expenses as detailed in Clause A of the Institute Cargo Clauses.
 seller contracts for insurance cover against the buyer’s risk of loss of or damage to the
goods during the carriage
Seller’s obligations

• to deliver the goods by handing them over to the first carrier

• to contract for the carriage of the goods to the named place of destination

• seller contracts for insurance cover against the buyer’s risk of loss of or damage to the
goods during the carriage

• must obtain at its own expense cargo insurance

the buyer’s obligations

• to pay the price of the goods

5. DPU: delivered at Place Unloaded (replaces Incoterm 2010 DAT)

• The functions and obligations of DPU are precisely the same as they were for DAT. The
change is being made because goods are not always at a transport terminal, such as a port
or dock. Rather, DPU acknowledges that some goods are unloaded at a factory,
warehouse or other place. An important caveat: if the goods will not be delivered to a
terminal, the seller should determine the delivery site is able to unload the goods.
• This term is often used for consolidated containers with multiple consignees.
• DPU is very similar to DAP except that the seller must pay for unlading the goods. Like
DAP, the seller clears the goods for export and bears all risks and costs associated with
 delivering the goods to the named place, which can be a port or other named location in
the foreign destination. Buyer is responsible for all costs and risks from this point
forward including clearing the goods for import at the named country of destination.

6. DAP: Delivered at Place (named place of destination)

• Seller clears the goods for export and bears all risks and costs associated with delivering
the goods to the named foreign destination not unloaded. DAP means the buyer is
responsible for all costs and risks associated with unloading the goods and clearing
customs to import the goods into the named country of destination.
• The named place under this term can be a port, the buyer's location or any named place
that is agreed upon. In that regards, DAP provides a lot of flexibility to both parties.
• Seller pays for carriage to the named place, except for costs related to import clearance

the seller’s obligations

• must deliver the goods by placing them at the disposal of the buyer on the arriving means
of transport ready for unloading at the agreed point, at the named place of destination on
the agreed time

• must contract at its own expense for the carriage of the goods to the named place of
destination
 • to bear all risks of loss ofor damage to the goods until they have been delivered to the
named place

• to pay costs of customs formalities in export, all duties, taxes, charges payable upon
export and the costs for their transport through any country

the buyer’s obligations

• to pay the price of the goods

• to bear all risks of loss of or damage to the goods from the time they have been delivered
to the place

• to pay all costs of unloading necessary to take delivery of the goods from the arriving
means of transport at the named place of destination

• to pay costs of customs formalities in import, all duties, taxes, charges payable upon
import of the goods

7. DP: Delivered Duty Paid (named place of destination)

• DDP Incoterms 2020 means the seller bears all risks and costs associated with
delivering the goods to the named place of destination ready for unloading and
cleared for import.
• DDP is a risky term for the seller, because they may not be fully aware of the import
clearance procedures in the country of import or how to find a competent local
customs broker.
• The seller must also deal in a foreign currency, which means they are responsible for
the currency exchange and its associated risks.
• In addition, not all countries allow for non-resident importers, which means the seller
must determine how to establish an importer of record.
• Seller is responsible for delivering the goods to the named place in the country of the
buyer
• seller pays all costs in bringing the goods to the destination including import duties
and taxes
• DDP places maximum obligations on the seller and minimum obligations on the
buyer
the seller’s obligations

• must deliver the goods by placing them at the disposal of the buyer on the arriving means
of transport ready for unloading at the agreed point, at the named place of destination on
the agreed time
 • to pay costs of customs formalities in export and import, all duties, taxes, charges payable
upon export and import of the goods, and the costs for their transport through any
country

the buyer’s obligations

• to pay the price of the goods

• to bear all risks of loss of or damage to the goods from the time they have been delivered
to the place

• to pay all costs of unloading necessary to take delivery of the goods from the arriving
means of transport at the named place of destination

RULES FOR SEA AND INLAND WATER WAY TRANSPORT

• FAS

• FOB

• CFR

• CIF

8. FAS: Free Alongside Ship (named port of shipment)

• Seller clears and place the goods for export and delivers them when they are placed
alongside the vessel at the named port of shipment.
• Buyer assumes all risks/costs for goods from this point forward (after goods has been
placed in the vessel) . This is not a commonly used term except for goods that may be
difficult to load.
• suitable only for maritime transport but NOT for multimodal sea transport in containers
• this is typically used for heavy-lift or bulk cargo
the seller’s obligations

• to deliver the goods by placing them alongside the ship nominated by the buyer at the
loading point

• to bear all risks of loss of or damage to the goods until they have been placed alonside the
ship

• to pay costs of customs formalities in export, all duties, taxes, charges payable upon
export

the buyer’s obligations

• to pay the price of the goods

• must contract at its own expense for the carriage of the goods from the named port of
shipment

• to pay costs of customs formalities in import, all duties, taxes, charges payable upon
import of the goods

• to bear all risks of loss of or damage to the goods from the time they have been placed
alongside the ship nominated by the buyer at the loading point

9. FOB: Free on Board (named port of shipment)

• Seller clears the goods for export and delivers them when they are on board the vessel at
the named port of shipment.
 • Buyer assumes all risks and costs for goods from this moment forward (after the goods
are on board of vessels). This means that cost and risk are passes when the goods are
actually on board of the vessel (this rule is new) and the buyer bears all costs from that
moment.
• In the case of FOB, the seller can expect the ocean carrier to deliver an on-board bill of
lading, which banks often require to provide the letter of credit that sellers need to secure
payment. (New changes)

the seller’s obligations

• to deliver the goods by placing them on board the vessel nominated by the buyer at the
loading point, at the named port of shipment

• to bear all risks of loss of or damage to the goods until they have been placed on board

• to pay costs of customs formalities in export, all duties, taxes, charges payable upon
export

the buyer’s obligations

• to pay the price of the goods

• must contract at its own expense for the carriage of the goods from the named port of
shipment
 • to bear all risks of loss of or damage to the goods from the time they have been placed on
the board

• to pay costs of customs formalities in import, all duties, taxes, charges payable upon
import of the goods

10. CFR: Coast and Freight (named port of destination)

• Seller clears the goods for export and delivers them when they are on board the vessel at
the port of shipment.

• Seller must pay the costs and freight/transport to bring the goods to the port of destination

• Buyer assumes all risks for the goods from the time the goods have been delivered on
board the vessel at the port of shipment.

• This term sounds a lot like the Incoterm CPT, but it can only be used for sea and inland
waterway transport, and the buyer only assumes risk once the goods are loaded on the
vessel.

• Insurance for the goods is NOT included.

the seller’s obligations

• must deliver the goods by placing them on board the vessel

 • must contract for the carriage of the goods to the named port of destination

• to bear all risks of loss of or damage to the goods until they have been placed on board

• to pay costs of customs formalities in export, all duties, taxes, charges payable upon
export

the buyer’s obligations

• to pay the price of the goods

• to bear all risks of loss of or damage to the goods from the time they have been placed on
the board

• to pay costs of customs formalities in import, all duties, taxes, charges payable upon
import of the goods

11. CIF: Cost Insurance and Freight (named port of destination)

• Seller clears the goods for export and delivers them when they are on board the vessel at
the port of shipment.

• Seller bears the cost of freight and insurance to the named port of destination. The seller
is required to purchase the minimum level of insurance under Clause C of the Institute
Cargo Clauses. This requirement is unchanged from Incoterms 2010.

• Buyer is responsible for all costs associated with unloading the goods at the named port
of destination and clearing goods for import. Risk passes from seller to buyer once the
goods are on board the vessel at the port of shipment.

• maritime transport only

Benefits to importers buying on CIFF or FOB terms

a) Control of premium costs

b) Policy conditions i.e by offering the marine insurance which meet the requirements

c) Prompt and efficient claims handling. i.e claims form lost or damaged goods will have to
do so under an overseas issued insurance policy

d) Control of the cost of marine insurance and commercial flexibility in the passing on of
this cost to the overseas buyer in the CIF invoice price

e) Tailoring of conditions of marine insurance to meet the precise needs of both the exporter
and your overseas buyer.

f) Avoidance of the need for and the cost of separate marine insurance in the name and at
the cost of the exporter to cover his risk in the goods until the time this risk passes to the
overseas buyer under the terms of the sales contract

g) Saving of the need for and the cost of Sellers’s contingency insurance

h) Information is available to you, the exporter from the insurance broker in respect of the
claims paid to the overseas buyer form loss of or damage to the goods

i) Insurance is necessary precaution for protection against a wide variety of unpredictable

risks and considering the current state of affairs

j) It is an unfortunate fact of life that the unexpected in inevitable