Transcript
Incoterms 2020, published by the International Chamber of Commerce, state where the seller's costs and risk end. The route runs from the seller's premises on the left to the buyer on the right: a teal line is what the seller pays, a dashed line what the buyer pays, and a diamond marks where risk passes. Group E: EXW. The buyer takes the goods at the seller's premises and also handles export clearance. Group F: FCA, FAS and FOB. The seller clears export. Under FCA risk passes at handover to the carrier. Under FAS the goods are alongside the vessel, and under FOB on board; FAS and FOB are for sea and inland waterway only. Group C: CPT, CIP, CFR and CIF. The seller pays the main carriage, but risk passes earlier. Under CPT and CIP the seller pays carriage to the named destination while risk passes at handover to the first carrier; CIP also requires insurance at the higher ICC (A) level. Under CFR and CIF, for sea and inland waterway, the seller pays freight to the destination port while risk passes on board at loading; CIF requires insurance at the minimum ICC (C) level. Group D: DAP, DPU and DDP. The seller delivers at the destination. Under DAP the goods are ready for unloading; under DPU the seller also unloads them. Under DDP the seller also clears import and pays duties, the only rule that places import clearance on the seller.
What are Incoterms?
- Incoterms
- Standard trade terms from the International Chamber of Commerce (ICC) that allocate tasks, costs and risk between seller and buyer in a contract for the sale of goods.
Incoterms cover delivery, carriage, insurance, export and import clearance, and the point where risk passes. They do not cover price, payment terms, the transfer of title or the consequences of breach. Those belong in the sales contract.
Always write the rule, the named place and the version: for example FCA Houston, Texas, Incoterms 2020. The named place is part of the term. Without it, the term is incomplete.
Transcript
Incoterms 2020, published by the International Chamber of Commerce, state where the seller's costs and risk end. The route runs from the seller's premises on the left to the buyer on the right: a teal line is what the seller pays, a dashed line what the buyer pays, and a diamond marks where risk passes. Group E: EXW. The buyer takes the goods at the seller's premises and also handles export clearance. Group F: FCA, FAS and FOB. The seller clears export. Under FCA risk passes at handover to the carrier. Under FAS the goods are alongside the vessel, and under FOB on board; FAS and FOB are for sea and inland waterway only. Group C: CPT, CIP, CFR and CIF. The seller pays the main carriage, but risk passes earlier. Under CPT and CIP the seller pays carriage to the named destination while risk passes at handover to the first carrier; CIP also requires insurance at the higher ICC (A) level. Under CFR and CIF, for sea and inland waterway, the seller pays freight to the destination port while risk passes on board at loading; CIF requires insurance at the minimum ICC (C) level. Group D: DAP, DPU and DDP. The seller delivers at the destination. Under DAP the goods are ready for unloading; under DPU the seller also unloads them. Under DDP the seller also clears import and pays duties, the only rule that places import clearance on the seller.
What are the 11 Incoterms 2020 rules?
| Rule | Mode | Seller delivers and risk passes | Main carriage paid by | Export clearance | Import clearance |
|---|---|---|---|---|---|
| EXW Ex Works | Any | Goods placed at buyer's disposal at seller's premises or another named place, not loaded | Buyer | Buyer | Buyer |
| FCA Free Carrier | Any | Goods handed to the carrier nominated by the buyer at the named place | Buyer | Seller | Buyer |
| CPT Carriage Paid To | Any | Goods handed to the first carrier; seller pays carriage to the named destination | Seller | Seller | Buyer |
| CIP Carriage and Insurance Paid To | Any | As CPT; seller also insures the goods | Seller | Seller | Buyer |
| DAP Delivered at Place | Any | Goods ready for unloading on the arriving vehicle at the named destination | Seller | Seller | Buyer |
| DPU Delivered at Place Unloaded | Any | Goods unloaded at the named destination | Seller | Seller | Buyer |
| DDP Delivered Duty Paid | Any | As DAP; seller also clears import and pays duties and taxes | Seller | Seller | Seller |
| FAS Free Alongside Ship | Sea | Goods placed alongside the vessel at the named port of shipment | Buyer | Seller | Buyer |
| FOB Free On Board | Sea | Goods loaded on board the vessel at the named port of shipment | Buyer | Seller | Buyer |
| CFR Cost and Freight | Sea | Goods on board at the port of shipment; seller pays freight to the named port of destination | Seller | Seller | Buyer |
| CIF Cost, Insurance and Freight | Sea | As CFR; seller also insures the goods | Seller | Seller | Buyer |
Risk passes at the delivery point in the third column, even when the seller pays for carriage beyond it. This is the point buyers most often misread in CPT, CIP, CFR and CIF.
“Sea” means sea and inland waterway transport. The “Any” rules fit all modes, including multimodal.
Where do risk and cost transfer?
Risk and cost often transfer at different points. In CIF Houston, the seller pays freight and insurance to the destination port, but risk passes to the buyer when the goods are on board at the port of shipment. The buyer bears the risk in transit and relies on the insurance the seller bought.
In the D rules (DAP, DPU, DDP), the seller carries risk and cost until the destination. In the E rule (EXW), the buyer carries almost everything from the seller's door. The F rules (FCA, FAS, FOB) and C rules (CPT, CIP, CFR, CIF) sit in between.
- CIP requires insurance at the level of Institute Cargo Clauses (A), the broad cover. CIF requires only Institute Cargo Clauses (C), the minimum cover. The parties can agree different levels.
- DPU replaced DAT in 2020. It is the only rule that obliges the seller to unload the goods at destination.
- FCA allows the buyer to instruct its carrier to issue an on-board bill of lading to the seller after loading, if both agree.
How do you choose a rule for a shipment?
Choose the rule that matches who can best do each task. A seller in Houston knows US export clearance. A buyer in Colombia, Peru or Mexico knows local import procedures. Put each task where the party can perform it.
| Situation | Rule to consider | Why |
|---|---|---|
| Buyer has its own forwarder and wants control of freight | FCA named place in the US | Seller clears export; buyer controls main carriage |
| Buyer wants the seller to arrange carriage but accepts risk in transit | CPT or CIP to a named destination | Single price to destination; risk passes at handover to the first carrier |
| Project site delivery, buyer clears import locally | DAP named site or terminal | Seller bears risk to destination; buyer handles local import |
| Bulk or break-bulk cargo by sea, buyer controls ocean freight | FOB named port | Clear sea-only handover on board the vessel |
| Containerised cargo | FCA, CPT or CIP | ICC advises these over FOB, CFR and CIF for containers, because risk should pass at the terminal where the goods are handed over, not on board |
Avoid EXW for international sales when the buyer cannot clear export in the seller's country. FCA moves that duty to the seller. Be careful with DDP: the seller must clear import in the buyer's country, which often needs local registration. Many buyers prefer DAP and clear import themselves.
Which documents and costs follow the Incoterm?
The Incoterm decides who obtains the transport document, the export declaration and the import declaration. The usual documents are the commercial invoice, packing list, bill of lading or air waybill, certificate of origin when required, and the material test reports.
- Insurance. If the rule does not oblige the seller to insure (EXW, FCA, FAS, FOB, CPT, CFR and the D rules), the party that bears the risk should insure it.
- Port and terminal charges. Check which party pays terminal handling charges at origin and destination. The rule allocates them, but the contract may refine this.
- Customs value. Import authorities may add freight and insurance to the invoice value when they assess duties. Your broker needs the invoice and the terms.
What mistakes do buyers and sellers make with Incoterms?
- Naming the rule but not the place (“FOB” alone)
- Using FOB or CIF for containerised cargo
- Assuming that the seller bears risk to destination under CPT, CIP, CFR or CIF
- Comparing offers priced on different terms
- Writing “Incoterms” without the version
- Using an Incoterm as if it settled payment or title
Normalize every supplier offer to the same Incoterm and place before you compare prices. Our guide Industrial procurement process shows where this fits.
How can JJ Projects help?
JJ Projects, in Houston, coordinates logistics and delivery as part of procurement. Tell us the Incoterm and named place you need in your Request a quote, or read about procurement services.