International Commercial Terms (Incoterms) 2020
What does Incoterms mean?
Incoterms are international commercial terms that, since 1936, determine who will be responsible (buyer or seller) in various international transactions. There are a total of 11 rules, denoted as combinations of certain letters or terms. These rules reduce misunderstandings that may arise due to differing understandings of national law, commercial practices and terms.
Why do you need to know it?
International cargo transport is not possible without knowledge of Incoterms because it is known and used all over the world, from the USA to China. International commercial terms clearly define all cargo transportation tasks, risks and costs between seller and buyer.
What is Incoterms 2020?
On 1 January 2020, new, improved rules came into force, that are widely used in international trade. International supply contract, which includes Incoterms 2020 designation, eliminates differences between national laws, commercial practices and understanding of terms. They determine precise division of responsibilities between the buyer and the seller with regard to the delivery of goods.
Incoterms 2020 terms and their explanation
Explanation of international commercial terms
1. EXW (Ex Works) - delivery from the factory
• The sole task of the seller is to provide access to the product in a place accessible to the buyer (factory, place of manufacturing, warehouse, etc.).
• The buyer is responsible for all costs and risks - he must arrange loading of the cargo himself, has to clear customs.
• EXW rules provide for the least liability of the seller.
When is the risk transferred from the seller to the buyer?
At the seller's factory, warehouse, or elsewhere where the buyer is given access to the goods.
2. FCA (Free Carrier) - Free carrier
• The seller's task is to clear customs and deliver the goods to a previously agreed place.
• If cargo is damaged or lost before the delivery of goods - the seller is responsible for it.
• If a buyer requests to present delivery note documents for the goods, the seller must present them.
When is the risk transferred from the seller to the buyer?
At the time when the goods are handed over to the carrier or another responsible person.
3. CPT (Carriage Paid To) - Transport is paid to…
• The seller's task is to clear the goods and deliver them to a previously agreed place, covering the delivery costs.
•If cargo is damaged or if additional expenses are incurred before the delivery of cargo, the seller is responsible for it, after receiving the goods - the buyer.
•If a buyer requests to present delivery note documents for the goods, the seller must present them.
When is the risk transferred from the seller to the buyer?
At the time when the goods are handed over to the carrier or another responsible person.
4. CIA (Carriage and Insurance Paid To) - Transportation and insurance are paid to…
• The seller's task is to clear the goods and deliver them to a previously agreed place, covering the delivery costs as well as additional insurance costs.
• The seller is obliged to purchase at least the minimum insurance, so for an additional sense of security, we recommend that the buyer insures his cargo with us.
•If cargo is damaged or if additional expenses are incurred before the delivery of cargo, the seller is responsible for it, after receiving the goods - the buyer.
•If a buyer requests to present delivery note documents for the goods, the seller must present them.
When is the risk transferred from the seller to the buyer?
At the time when the goods are handed over to the carrier or another responsible person.
5. DAP (Delivered at Place) - Delivered to the place
•The seller's task is to deliver the goods to a previously agreed location, taking up the risk and covering all transportation costs.
•The buyer is responsible for import customs procedures and other costs from the moment the goods are delivered to the specified place and ready for unloading.
•The buyer is responsible for unloading.
When is the risk transferred from the seller to the buyer?
When the goods are delivered to the specified place and ready for unloading.
6. DDP (Delivered Duty Paid) - Delivered with paid customs duty
• The seller's task is to deliver the goods to a place chosen and agreed by the buyer in advance.
•The seller pays both transportation costs and customs duties and additional costs.
•This rule stipulates that the seller assumes responsibility throughout the shipment, including for the readiness of cargo for loading, damage to the cargo and formalities.
When is the risk transferred from the seller to the buyer?
When the goods are delivered to the specified place and ready for unloading.
7. FAS (Free Alongside Ship) - Franco at the ship
•The seller's task is to deliver the goods to the ship berth, at the ship side.
•The seller assumes responsibility and pays all costs until the goods are delivered to the ship.
•The buyer is responsible for export and import customs procedures.
When is the risk transferred from the seller to the buyer?
At the time when the goods are delivered and unloaded at the ship.
8. FOB (Free On Board) - Franco on board the ship
•The seller's task is to deliver the goods on board the ship to the designated port of shipment.
•The seller bears risk and bears transport costs, including customs export procedures.
•Once the goods have been placed on board, the responsibility and subsequent costs pass to the buyer.
When is the risk transferred from the seller to the buyer?
At the time when the goods are delivered and unloaded at the ship.
9. CFR (Cost and Freight) - Cost and transport
•The seller's task is to deliver the goods to the consignee's port, covering transportation costs.
•The seller is responsible for the customs export procedures and the buyer for the insurance.
•As long as the goods are on board, the buyer is responsible for damage to the goods.
When is the risk transferred from the seller to the buyer?
At the time when the goods are delivered and unloaded at the ship.
10. CIF (Cost, Insurance and Freight) - Price, insurance and freight
• The seller's task is to deliver the goods to the recipient's port, paying for transportation and freight.
•The seller also performs export customs procedures and pays for cargo insurance.
•If additional cargo insurance is required, the buyer is responsible for it.
When is the risk transferred from the seller to the buyer?
At the time when the goods are delivered and unloaded at the ship.
11. DPU (Delivered at Place Unloaded) - Delivery without unloading
• The seller's task is to deliver the goods to a previously agreed place or destination.
•The seller assumes responsibility and covers costs associated with transportation, customs procedures, etc.
•This is the only rule that requires the seller to also unload the goods at the destination address.
When is the risk transferred from the seller to the buyer?
At the time the goods are delivered and unloaded at the place of destination.
Explanation of the group of terms:
C
The terms oblige the seller to conclude the contract of carriage on normal terms and to pay for it. Therefore, the point at which the transport fee must be paid should be indicated after the corresponding term C. According to the CIF and CIP terms, the seller must insure goods and pay for insurance.
Terms corresponding to this group: CFR, CIF, CPT, CIP.
D
According to D terms, the seller is responsible for the delivery of goods to the agreed place or point in the country of importation. The seller must bear all risks and expenses when delivering the goods to this place.
Terms corresponding to this group: DAP, DPU, DDP.
E
The term implies a minimum obligation on the part of the seller: the seller must make the goods available to the buyer at a pre-arranged place, usually at the seller's premises. In practice, the seller often helps to load the goods into the buyer's vehicle. If the buyer wants the seller to take further action, this point must be stipulated in the contract for sale of goods.
Terms that apply to this group: EXW
F
The terms require the seller to deliver the goods for transportation in accordance with the buyer's instructions. In case when the place of delivery is the seller's premises, delivery shall be deemed to have been completed when the goods are loaded on to the buyer's means of transport; in other cases, delivery is completed when the goods are at the buyer's disposal without unloading from the seller's vehicle.
Terms corresponding to this group: FCA, FAS, FOB
Changes in Incoterms 2020 compared to Incoterms 2010
The new Incoterms 2020 rules came into force on 1 January 2020 and were developed by the International Chamber of Commerce. The need for change was largely due to the US international trade practices, as well as the fact that the significance of borders in international trade, such as in intra-EU trade, has diminished.
The new version of the terms consists of 11 terms, of which 7 apply to all modes of transport and 4 apply only to maritime transport. There are 2 main changes to the Incoterms 2020 rules compared to the 2010 version:
- DAT (Delivered at Terminal) is renamed to DPU (Delivered at Place Unloaded), or "Delivery without unloading".
- Under the FCA (Free Carrier) Bills of Lading are now permitted to be issued after loading
In addition to these, there are some other changes:
CIF (Cost, Insurance and Freight) and CIP (Carriage and Insurance Paid To)
These terms set new standards for insurance, but the level of insurance will still depend on the agreement between the seller and the buyer. In the rules, which also mention costs, the breakdown of costs between the buyer and the seller is defined more precisely.
The FCA (Free Carrier), DAP (Delivered at Place), DPU (Delivered at Place Unloaded) and DDP (Delivered Duty Paid) rules now also take into account cases where the buyer and seller organize their own transport instead of using third party services. Security commitments are now laid out more clearly.
Traditionally, the only valid document that a seller can submit under CFR and CIF terms is a bill of lading. The bill of lading has 3 important functions:
Proof of delivery of the goods on board
Confirm the contract of carriage
There is a goods management document
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usually are issued several originals of the bill of lading, and it is very important that the buyer or the bank, when making payment to the seller acts in accordance with its instructions, ensures that all the originals are handed over to the buyer (so-called "complete set"). It is also a requirement of the International Chamber of Commerce ICC Rules for Documentary Credits, the ICC Uniform Customs and Practice ("UCP"). Any entry in the transport documents indicating that the goods have been received in an inappropriate condition makes the document "dirty" and inadmissible under the UCP.
Source: https://www.vid.gov.lv/
The authors of the web page do not assume any legal responsibility for any obligations that may arise from interpretation or application of provisions of this document.
