Incoterms provide an exact division of obligations of seller and buyer in (international) transport contracts in terms of transportation, import and export documents, risk and insurance. Incoterms do not govern the transfer of ownership of goods; it is governed by issuance of the transport document (=property certificate), or by contractual arrangements (e.g., retention of title.) The exact place or time at which an obligation passes from the seller to the buyer is called a critical point (c.p.).
Every 10 years, Incoterms are renewed or updated. The difference between Incoterm 2000 and 2010 was that the number of Incoterms rules was reduced from thirteen to eleven by replacing about four rules (DAF, DES, DEQ and DDU) with two new rules: DAT and DAP.
The International Chamber of Commerce (ICC) has launched the Incoterms 2020 which is effective from Jan. 1, 2020. The 2020 Incoterms are not much different from the 2010 Incoterms. The main difference is that the Incoterm DAT has been replaced by the Incoterm DPU. The destination can be any place and does not have to be just a terminal.
Below you can see all Incoterms 2020 version with explanations.
EXW – Ex Works (….named place of delivery)
Similar to ex-factory delivery. Seller produces, and in a timely manner makes the goods available to Buyer in its shipping area. Buyer exports and imports, and runs the risk. Suitable for all modes of transport.
FCA – Free Carrier (…named place of delivery)
Seller shall manufacture, and deliver to a carrier or forwarder designated and contracted by Buyer. He runs the risk until the goods are loaded aboard the means of transport. Copper imports and exports. Risk allocation runs parallel to transportation obligation. Suitable for all modalities.
CPT – Carriage Paid To (…named place of destination)
Seller arranges export license, contracts transportation to the port of destination (including unloading), and runs the risk until he hands over the goods “in the custody of the (first) carrier.”
CIP – Carriage And Insurance Paid To (…named place of destination)
Same as CPT, but including insurance requirement, which is at least equivalent to ICC A,for seller to port of destination. This Incoterm is appropriate for all modalities.
DPU – Delivered At Named Place, Unloaded (named address/place of destination)
Seller delivers until discharge of arriving carrier, runs risk until agreed destination and exports. This Incoterm is appropriate for all modalities.
DAP – Delivered At Place (…named address/place of destination)
Under the DAP (Delivered At Place) rule, delivery also takes place by placing goods at the disposal of the buyer, ready for unloading at agreed point or destination. The seller shall bear all costs and risks associated with transporting the goods to the agreed destination. The buyer has the obligation to present the goods to customs with the necessary import documents and pay any related import duties and formalities.
DDP – Delivered Duty Paid (…named address/place of destination)
Seller delivers and runs risk to final destination, ready to be unloaded, exports and imports. This Incoterm is the counterpart of EXW. This Incoterm is appropriate for all modalities.
Incoterms for transportation by ship
FAS – Free Alongside Ship (…named wharf/seaport)
Seller will deliver to the dock along a vessel designated by the buyer. Buyer contracts transportation, and arranges import and export license. This incoterm is used only for transportation by ship.
FOB – Free On Board (…named wharf/seaport of shipment)
Identical to FAS, only the delivery obligation and risk ends on board the vessel. The seller arranges the export license. This Incoterm is used only for transportation by ship.
CFR – Cost And Freight (…named port of destination)
Seller contracts transportation to port of destination (excluding unloading), and arranges export license. Runs the risk until the ship’s rail in the port of departure. This Incoterm is used only for transportation by ship.
CIF – Cost Insurance And Freight (…named port of destination)
Same as CFR, only including insurance obligation, which is at least equivalent to the conditions of ICC C, for seller to port of destination. This Incoterm is used only for transportation by ship.