Rules for International trade as defined by Incoterms® 2020
Duties of buyer/seller according to Incoterms® 2020

Introduction

Understanding Incoterms 2020 is critical for businesses engaged in international trade. These globally recognized trade terms published by the International Chamber of Commerce (ICC) define the responsibilities of buyers and sellers for the delivery of goods under sales contracts. Whether you’re shipping by air, sea, or multimodal transport, choosing the right Incoterm ensures clarity, minimizes risk, and streamlines your freight operations.

This guide provides a practical breakdown of the latest Incoterms and their implications across different modes of transport.

What Are Incoterms?

Incoterms (short for International Commercial Terms) are a set of rules used in international and domestic trade contracts. They outline:

Which party is responsible for transportation costs
Who handles insurance, duties, and customs clearance
Where the risk transfers from seller to buyer

There are 11 Incoterms in the 2020 update, categorized by mode of transport.

Incoterms for Any Mode of Transport

These terms are suitable for air, sea, rail, road, or multimodal transport:

EXW (Ex Works): Buyer takes full responsibility once goods leave the seller’s premises.
FCA (Free Carrier): Seller delivers goods to a nominated place; risk transfers once handed to the carrier.
CPT (Carriage Paid To): Seller pays for carriage to destination; risk transfers at origin.
CIP (Carriage and Insurance Paid To): Like CPT, but includes insurance.
DAP (Delivered at Place): Seller bears all costs until goods are ready for unloading.
DPU (Delivered at Place Unloaded): Seller bears cost and risk until goods are unloaded.
DDP (Delivered Duty Paid): Seller handles everything—including import duties and taxes.

Incoterms for Sea and Inland Waterway Transport Only

Applicable when goods are shipped via ocean freight:

FAS (Free Alongside Ship): Seller delivers goods next to the vessel at the port.
FOB (Free On Board): Risk transfers when goods are loaded onto the ship.
CFR (Cost and Freight): Seller pays for transport, but risk transfers at origin.
CIF (Cost, Insurance and Freight): Same as CFR, but seller must also insure the cargo.

Key Changes in Incoterms 2020

DAT changed to DPU: Previously known as Delivered at Terminal, it now emphasizes the unloading location.
Security Requirements: New emphasis on transport-related security and cost responsibilities.
Insurance Levels Differentiated in CIP vs. CIF: CIP now requires higher coverage (Clause A) compared to CIF (Clause C).

Choosing the Right Incoterm for Your Shipment

Air Freight:

Commonly used terms: FCA, CPT, CIP, DAP
Air shipments often benefit from FCA, as risk is transferred when the airline or courier takes possession.

Sea Freight:

Popular terms: FOB, CIF, CFR, DPU
Use FOB or CIF for traditional port-to-port sea shipments. CIF includes insurance, ideal for bulk shipments.

Multimodal Freight:

Suitable terms: CPT, CIP, DAP, DDP
CPT and CIP offer flexibility in combined air-sea or sea-land logistics chains.

Practical Tips for Using Incoterms Effectively

Clearly Specify the Version: Always mention “Incoterms 2020” in your contract.
Define the Named Place Accurately: This determines where obligations start and end.
Match Terms to Your Logistics Capabilities: Choose terms that align with your control over shipping and customs.
Understand Cost Implications: Know who pays for what and how that affects your pricing.
Seek Expert Advice: Consult your freight forwarder or logistics provider for the best-suited term.

Mastering Incoterms 2020 empowers businesses to manage freight operations efficiently, reduce disputes, and improve supply chain performance. Whether you’re shipping by air, sea, or multimodal routes, the right Incoterm supports transparency, reduces liability, and protects your business interests.

Need help navigating Incoterms for your next international shipment? Contact us for expert logistics support and tailored freight solutions.