Incoterms 2020 – complete guide for importers
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Incoterms (International Commercial Terms) are international rules that define the responsibilities of sellers and buyers in commercial transactions. These rules are widely used in international transportation of goods, helping to determine who bears the cost, risk, and responsibility for delivering the goods. Incoterms are established by the International Chamber of Commerce (ICC) and are regularly updated to reflect changes in global trade practices.
In this article, we will discuss the 11 main Incoterms 2020 currently in use and their relevance in e-commerce and international trade.
EXW (Ex Works)
EXW means that the seller fulfills their obligation when the goods are made available to the buyer at their premises (e.g., factory or warehouse). The buyer is responsible for all costs and risks related to transporting the goods from the point of delivery to the final destination.
Responsibilities:
Seller:makes the goods available at the designated location (e.g., warehouse).
Buyer: bears all costs of transport, insurance, customs clearance, and risk associated with the shipment.
FCA (Free Carrier)
Under FCA, the seller delivers the goods to the carrier designated by the buyer. This can be at a location specified by the buyer or a previously agreed place. The seller is responsible for loading the goods onto the transport vehicle, but the buyer takes over responsibility for the rest of the journey.
Responsibilities:
Seller: responsible for transporting the goods to the agreed location and loading them onto the vehicle.
Buyer: bears the cost and risk from the moment the goods are handed over to the carrier.
CPT (Carriage Paid To)
The seller pays for the transport of goods to a named destination, but the risk of loss or damage passes to the buyer when the goods are handed over to the carrier.
Responsibilities:
Seller: pays for transportation to the agreed location.
Buyer: assumes risk once the goods are handed to the carrier, even though the seller covers the cost.
CIP (Carriage and Insurance Paid To)
This is similar to CPT, except the seller also covers the insurance costs during transport. Risk passes to the buyer once the goods are handed to the carrier.
Responsibilities:
Seller: pays for both transportation and insurance to the agreed location.
Buyer: bears the risk after the goods are handed over to the carrier.
DAP (Delivered At Place)
The seller delivers the goods to a specified place in the destination country, while the buyer is responsible for import customs clearance and duties. Risk transfers to the buyer when the goods arrive at the named place.
Responsibilities:
Seller: delivers the goods to the named location.
Buyer: handles customs clearance and import costs and bears associated risks.
DPU (Delivered at Place Unloaded)
DPU is a newer term where the seller delivers and unloads the goods at the agreed destination. Risk and responsibility transfer to the buyer only after unloading.
Responsibilities:
Seller: delivers and unloads the goods at the specified location.
Buyer: responsible for further transport and import procedures.
FOB (Free On Board)
The seller delivers the goods on board the vessel at the port of shipment. From this point on, the buyer assumes all costs and risks.
Responsibilities:
Seller: loads the goods onto the ship.
Buyer: bears transport costs and risk from that point forward.
CFR (Cost and Freight)
The seller pays for transportation to the destination port, but the risk passes to the buyer once the goods are loaded onto the vessel.
Responsibilities:
Seller: pays for freight to the destination port.
Buyer: bears the risk from the moment the goods are loaded onto the ship.
CIF (Cost, Insurance and Freight)
The seller pays for transportation, freight, and insurance up to the destination port. The buyer takes on the risk once the goods are loaded onto the ship.
Responsibilities:
Seller: covers transport, insurance, and freight.
Buyer: assumes risk after loading at the port of shipment.
Summary
Choosing the right Incoterm depends on several factors such as the type of goods, the location of both parties, and the level of logistical capability. It's crucial for both parties to clearly understand their obligations and responsibilities to avoid disputes and issues during the execution of international transactions.
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