Teacher Cristina Zumel Jiménez

INCOTERMS 2020 OVERVIEW

1. Introduction

Incoterms are the ICC (International Chamber of Commerce) rules for the use of domestic and
international trade terms.

The Incoterms rules explain a set of three-letter trade terms reflecting business-to-business practice
in contracts for the sale of goods. The Incoterms rules describe mainly the tasks, costs and risks
involved in the delivery of goods from sellers to buyers.

2. How to use the Incoterms 2020

- Incorporate the Incoterms 2020 into your contract of sale

- Choose the appropriate Incoterm rule
- Specify your place or port as precisely as possible
- Remember that Incoterms rules do not give you a complete contract of sale

3. Classification of Incoterms 2020 rules

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

RULES FOR SEA AND INLAND WATERWAY TRANSPORT

FAS FREE ALONGSIDE SHIP

FOB FREE ON BOARD

CFR COST AND FREIGHT

CIF COST INSURANCE AND FREIGHT

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The first class includes the seven Incoterms rules that can be used irrespective of the mode of
transport selected and irrespective of whether one or more than one mode of transport is employed.
EXW, CPT, CIP, DAP, DPU and DDP belong to this class.

In the second class of Incoterms rules, the point of delivery and the place to which the goods are
carried to the buyer are both ports, hence the label “sea and inland waterway” rules. FAS, FOB, CFR
and CIF belong to this class.

4. Rules for domestic and international trade

Incoterms are available for application to both international and domestic sale contracts. The
obligation to comply with export/import formalities exists only when applicable.

EXW
EX WORKS

EXW (insert named place of delivery) Incoterms 2020

This rule may be used irrespective of the mode of transport selected. The seller delivers when it
places the goods at the disposal of the buyer at the seller’s premises. The cost and risks to that point
are for the account of the seller. EXW represents the minimum obligation for the seller. The rule
should be used with care:

- The seller has no obligation to load the goods. If the seller loads the goods, it does so at the
buyer risk and expense.
- The seller will not organize the export clearance (only will supply assistance if needed).
- The seller must give the buyer notice needed to enable the buyer to take delivery of the
goods. (take delivery of goods = pick up the goods)

FCA
FREE CARRIER

FCA (insert named place of delivery) Incoterms 2020

The seller delivers the goods to the carrier or another person nominated by the buyer at the seller
premises or another named place. The risk passes to the buyer at that point. When the named place is
another place, the goods are delivered when they reach the named other place and are ready for
unloading from the seller’s means of transport.

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FCA requires the seller to clear the goods for export, when applicable. However, the seller has no
obligation to clear the goods for import, pay any import duty or carry our any import customs
formalities.

Bills of lading with on-board notation in FCA sales

If the parties have so agreed in the contract, the buyer must instruct the carrier to issue a Bill of
Lading with an on-board notation to the seller. The carrier may or may not accede. However, when
the B/L is issued to the seller by the carrier at the buyer’s cost and risk, the seller must provide that
same document to the buyer, who will need the B/L to discharge the goods. Even where this optional
mechanism is adopted, the seller is under no obligation to the buyer as to the terms of the contract of
carriage. Finally, when this optional mechanism is adopted, the dates of delivery inland and loading
on board will necessarily be different, which may well create difficulties for the seller under a letter
of credit.

CPT
CARRIAGE PAID TO

CPT (insert named place of destination) Incoterms 2020

The seller delivers the goods to the carrier or another person nominated by the buyer at an agreed
place and the seller must contract for and pay the costs of carriage necessary to bring the goods to the
named place of destination. When CPT, CIP, CFR or CIF are used, the seller fulfils its obligation to
deliver when it hands the goods over to the carrier and not when the goods reach the place of
destination.

This rule has two critical points, because risk passes and cost are transferred at different places.
If several carriers are used and the parties do not agree on specific point of delivery, then risk passes
when the goods have been delivered to the first carrier.

CPT requires the seller to clear the goods for export, where applicable. However, the seller has no
obligation to clear goods for import.

CIP
CARIAGE AND INSURANCE PAID TO

CIP (insert named place of destination) Incoterms 2020

The seller delivers the goods to the carrier or another person nominated by the buyer at an agreed
place and the seller must contract for and pay the costs of carriage necessary to bring the goods to the
named place of destination.

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The seller also contracts for insurance cover against the buyer’s risk of loss or damage to the
goods during the carriage. The seller is required to obtain extensive insurance cover complying
with Institute Cargo Clauses (A) unless otherwise stated in the contract. Note that under Incoterms
2010 the insurance coverage was limited to the minimum cover, Institute Cargo Clauses (C).

The seller delivers when it hands the goods over to the carrier.

This rule has to critical points, because risk passes and costs are transferred at different places.
Risk passes when the goods have been delivered to the first carrier.

CIP requires the seller to clear the goods for export, where applicable. However, the seller has no
obligation to clear goods for import.

DAP
DELIVERED AT PLACE

DAP (insert named place of destination) Incoterms 2020

The seller delivers when the goods are placed at the disposal of the buyer on the arriving means of
transport ready for unloading. The seller bears all the risks involved in bringing the goods to the
named place. The seller is not required to unload the goods from the arriving means of
transportation.

The seller has no obligation to the buyer to make a contract of insurance. Neither has the buyer.

DAP requires the seller to clear the goods for export, where applicable. However, the seller has no
obligation to clear goods for import.

DPU
DELIVERED AT PLACE
UNLOADED

DPU (insert named place of destination) Incoterms 2020

The seller bears all risks involved in bringing the goods to and unloading them at the named place of
destination. DPU is the only Incoterm rule that requires the seller to unload goods at destionation.
The seller should therefore ensure that it is in a position to organise unloading at the named place.
Should the parties intend the seller not to bear the risk and cost of unloading, the DPU rule should be
avoided and DAP should be used instead.

DPU requires the seller to clear the goods for export, where applicable. However, the seller has no
obligation to clear goods for import.

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DDP
DELIVERED DUTY PAID

DDP (insert named place of destination) Incoterms 2010

Seller delivers the goods when the goods are placed at the disposal of the buyer, cleared for import
on the arriving means of transport ready for unloading at the named place of destination. The seller
bears all the costs and risks involved in bringing the goods to the place of destination and has an
obligation to clear the goods not only for export but also for import, to pay any duty for both export
and import and to carry out all customs formalities.

DDP represents the maximum obligation for the seller.

FAS
FREE ALONGSIDE SHIP

FAS (insert named port of shipment) Incoterms 2010

This rule is to be used only for sea or inland waterway transport.

The seller delivers when the goods are placed alongside the vessel. The risk of loss of or damage to
the goods passes when the goods are alongside the ship, and the buyer bears all cost from that
moment onwards.

FAS requires the seller to clear the goods for export, where applicable. However, the seller has no
obligation to clear goods for import.

FOB
FREE ON BOARD

FOB (insert named port of shipment) Incoterms 2010

This rule is to be used only for sea or inland waterway transport.

The seller delivers the goods on board the vessel at the named port. The risk of loss of or damage to
the goods passes when the goods are on board the ship, and the buyer bears all cost from that
moment onwards.

FOB requires the seller to clear the goods for export, where applicable. However, the seller has no
obligation to clear goods for import.

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CFR
COST AND FREIGHT

CFR (insert named port of shipment) Incoterms 2010

This rule is to be used only for sea or inland waterway transport.

The seller delivers the goods on board the vessel. The risk of loss of or damage to the goods passes
when the goods are on board the vessel. The seller must contract for and pay the costs and freight
necessary to bring the goods to the named port of destination.

This rule has two critical points, because risk passes and cost are transferred at different
places.

The seller is advised to procure contracts of carriage.

CFR requires the seller to clear the goods for export, where applicable. However, the seller has no
obligation to clear goods for import.

CIF
COST INSURANCE AND FREIGHT

CIF (insert named port of shipment) Incoterms 2010

This rule is to be used only for sea or inland waterway transport.

The seller delivers the goods on board the vessel. The risk of loss of or damage to the goods passes
when the goods are on board the vessel. The seller must contract for and pay the costs and freight
necessary to bring the goods to the named port of destination.

The seller also contracts for insurance cover against buyer’s risk of loss and damage. Insurance only
on minimum cover.

This rule has two critical points, because risk passes and cost are transferred at different
places.

The seller is advised to procure contracts of carriage.

CIF requires the seller to clear the goods for export, where applicable. However, the seller has no
obligation to clear goods for import.