Incoterms® 2020 (& 2010)
The Incoterms® rules or International Commercial Terms are a series of pre-defined commercial terms published by the International Chamber of Commerce (ICC) that are widely used in International commercial transactions or procurement processes.
What are Incoterms®?
Incoterms® describes who is responsible for the transport, who is to pay the costs and what obligations the buyer and seller have. Incoterms® 2020, formerly Incoterms 2010, is recognized by authorities and courts around the world. By following these delivery terms, sellers and buyers can avoid unnecessary dispute in cases where loss or damage has incurred along the transport chain.
When making an agreement based on Incoterms, we recommend to state the terms of delivery agreed in the contract of sale and commercial invoices e.g. "FOB Gothenburg, Incoterms 2020". This prevents problems with interpretation which may arise in countries that have their own definitions of delivery terms. If recommends the use of Incoterms for international shipments and strongly advises against forming own delivery terms.
- FCA
- FAS
- FOB
- CFR
- CIF
- CPT
- CIP
- DAP
- DPU
- DDP
EXW - Ex Works
(named place; ex factory ex mill, ex warehouse etc)
The buyer is at risk when the goods have been placed at his disposal at agreed time and place.
Recommendation on insurance: The buyer insures the transportation if the buyer so desires. The Buyer bears the risk during the whole transportation.
The seller delivers the goods: when it places the goods at the disposal of the buyer at the seller’s premises or at another named place (i.e.,works, factory, warehouse, etc.).
FCA - Free Carrier
(named place)
The buyer is at risk when the goods have been delivered to the first carrier or terminal at agreed time and place.
Recommendation on insurance: Both the buyer and the seller insure their respective legs of the transportation, if they so desire.
The seller delivers the goods: to the carrier or another person nominated by the buyer at the seller’s premises or another named place. The parties are well advised to specify as clearly as possible the point within the named place of delivery, as the risk passes to the buyer at that point.
Transport: The parties are free to carry out the transport themselves, i.e. without appointing a third party carrier.
FAS - Free alongside ship
(named port of shipment - sea and waterway transports only)
The buyer is at risk when the goods have been delivered alongside the ship at the port of shipment.
Recommendation on insurance: Both the buyer and the seller insure their respective legs of the transportation, if they so desire.
The seller delivers the goods: when the goods are placed alongside the vessel (e.g., on a quay or a barge) nominated by the buyer at the named port of shipment. The risk of loss of or damage to the goods passes when the goods are alongside the ship, and the buyer bears all costs from that moment onwards.
FOB - Free on board
(named port of shipment - sea and waterway transports only)
The buyer is at risk when the goods have been delivered onboard the ship at the port of shipment.
Recommendation on insurance: Both the buyer and the seller insure their respective legs of the transportation, if they so desire.
The seller delivers the goods: on board the vessel nominated by the buyer at the named port of shipment or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel, and the buyer bears all costs from that moment onwards.
CFR - Cost and freight
(named port of destination - sea and waterway transports only)
The buyer is at risk when the goods have been delivered onboard the ship at the port of shipment.
Recommendation on insurance: Both the buyer and the seller insure their respective legs of the transportation, if they so desire.
The seller delivers the goods: on board the vessel or procures the goods already so delivered. 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.
CIF - Cost, insurance and freight
(named port of destination - sea and waterway transports only)
The buyer is at risk when the goods have been delivered onboard the ship at the port of shipment.
Recommendation on insurance: Insurance must be covered by the seller (in favour of the buyer) to the port of destination complying with at least Institute Cargo Clauses (C) or similar clauses (further transports by the buyer if the buyer so desires)
The seller delivers the goods: on board the vessel or procures the goods already so delivered. 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 the buyer’s risk of loss of or damage to the goods during the carriage. The buyer should note that under CIF the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.
CPT - Carriage paid to
(named place of destination)
The buyer is at risk when the goods have been delivered to the first carrier or terminal.
Recommendation on insurance: The buyer insures the transportation if the buyer so desires.
The seller delivers the goods: to the carrier or another person nominated by the seller at an agreed place (if any such place is agreed between parties) and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination.
CIP - Carriage and insurance paid to
(named place of destination)
The buyer is at risk when the goods have been delivered to the first carrier.
Recommendation on insurance: Insurance must be covered by the seller (in favour of the buyer) to the place of destination complying with at least Institute Cargo Clauses (A) or similar clauses.
The seller delivers the goods: to the carrier or another person nominated by the seller at an agreed place (if any such place is agreed between parties) and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination.
DAP - Delivered at place
(named place of destination)
The buyer is at risk when the goods have been placed at his disposal at agreed place of destination ready for unloading.
Recommendation on insurance: Both the buyer and the seller insure their respective legs of the transportation, if they so desire.
The seller delivers the goods: when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. The seller bears all risks involved in bringing the goods to the named place.
Transport: The parties are free to carry out the transport themselves, i.e. without appointing a third party carrier.
DPU - Delivered at place unloaded
(named terminal at port or place of destination)
The seller bears the risk of the goods until they are unloaded at the specified destination. The risk transfers to the buyer at the moment the goods are available at the named place after unloading. The agreement must specify which place at the destination where the goods are available after unloading.
Recommendation on insurance: The seller insures the transport to the specified place at destination where the goods are unloaded.
The seller delivers the goods: when the goods are unloaded at the agreed place at the destination.
Transport: The parties are free to carry out the transport themselves, i.e. without appointing a third party carrier.
DDP - Delivered duty paid
(named place of destination)
The buyer is at risk when the goods have been placed at his disposal at agreed place of destination cleared for import and with duties paid ready for unloading.
Recommendation on insurance: The seller insures the transportation if the seller so desires. The seller bears the risk during the whole transportation.
The 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.
Transport: The parties are free to carry out the transport themselves, i.e. without appointing a third party carrier.
This is why you should use Incoterms® 2020
In international trade, Incoterms® reduce the risk of dispute that can lead to legal problems. We therefore recommend that you always agree on the terms of all international shipments and strongly advise against designing your own delivery clauses. Incoterms contains rules on:
- When the risk passes from the seller to the buyer.
- Who is responsible for costs and documentation
The carrier has a limited responsibility for the goods and goods being transported. It is therefore important that you know the delivery terms and that you insure the goods when you are at risk - whether you sell or buy.
The difference between Incoterms® 2010 and Incoterms® 2020?
Here we have picked out the biggest differences that affect insurance in transport.
- The delivery clause DAT has changed its name to DPU. It does not mean a change in delivery clause, it is just a change of name from "Delivered at terminal" to "Delivered at place unloaded".
- In the delivery clause CIP, a higher requirement is now placed on the seller who must arrange insurance. According to Incoterms ®2020, the insurance must meet the condition Institute Cargo Clauses (A). Previously, according to Incoterms ®2010, you were only required to fulfill the condition Institute Cargo Clauses (C).
Incoterms® 2010
Here you can read more about Incoterms® 2010.
Be careful about delivery terms when signing a contract
It is very important that the parties (buyers and sellers) sign contracts for what will apply during transport. The terms of delivery describe who is at risk and who needs to insure the goods.
When you sign a contract with delivery clauses, you should enter it into purchase agreements and trade invoices, such as "FOB Gothenburg, Incoterms® 2020". This avoids the difficulties of interpretation that may arise in countries with their own delivery terms and interpretations.
We give advice and help you with insurance
Not sure what EXW, FCA, FOB or DDP mean for your transport? We at If are a professional partner who helps you with transport insurance and gives advice on Incoterms 2020. We definitely advise against designing your own delivery clauses for international transport.
Incoterms® is a trademark of ICC
ICC (International Chamber of Commerce) is the world’s largest business organization, representing more than 45 million companies in over 100 countries.
Read more about the usage of Incoterms and International Chamber of Commerce on www.icc.se.