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International trade

Incoterms® 2020

The rules that set out who does what between seller and buyer. Explained rule by rule, focusing on what really matters.

Download the guide (PDF)

The essentials

  1. They’re trade rules, not laws. They apply to both domestic and international trade.
  2. They form part of the sale contract, but they aren’t the contract itself: they help allocate obligations between seller and buyer.
  3. They were created by the International Chamber of Commerce (ICC) in 1936 and are revised periodically. The current version is Incoterms® 2020, in force since 1 January 2020.

What they cover

Delivery
Where the goods are placed at the buyer’s disposal.
Risk
How far each party is liable if the goods are lost or damaged.
Costs
Who pays for transport, insurance, loading and unloading, packaging, checks and security.
Customs
Who handles customs formalities when the transaction is international.

What they don’t cover

  • Ownership of the goods
  • Penalties for breach of contract
  • Force majeure
  • Intellectual property
  • Applicable law and jurisdiction
  • Method of payment

Explore the 11 rules

Pick a rule to see who pays for each stage and where risk passes from seller to buyer.

Any mode of transport
Sea and inland waterway only
FCA

Free Carrier

The seller delivers the goods, cleared for export, to the carrier nominated by the buyer at the agreed place. Very useful for air freight and containers. New in 2020: if both parties agree, the buyer can ask the carrier to issue an ‘on board’ B/L to the seller.

SellerBuyer
  1. Loading at the seller’s premises
  2. Transport to the point of departure
  3. Export clearance
  4. Loading at origin (terminal or vessel)
  5. Main carriage
  6. Unloading at the destination terminal
  7. Import clearance and duties
  8. Transport to the final destination
  9. Unloading at the final destination
Seller Buyer Risk passes to the buyer

Simplified diagram. The exact point depends on the named place in the contract and on the contract of carriage.

How to read this chart

Each Incoterm is an international rule that the seller and the buyer write into their contract. With just three letters, it makes clear who pays for each part of the journey and at what point the goods become the buyer’s responsibility.

The nine boxes are the stages of the journey, from left to right: from the seller’s warehouse to the final destination.

  • Paid for and arranged by the seller.
  • Paid for and arranged by the buyer.
  • From here on, if the goods are damaged or lost, it’s the buyer’s problem.

Paying isn't the same as carrying the risk

They often go together, but not always. With CIF, for example, the seller pays for the ship all the way to the destination port, yet the risk passes to the buyer at the port of origin, as soon as the goods are on board. If something happens at sea, the loss is the buyer's, which is why the seller has to take out insurance for them.

Two groups

Seven rules work for any kind of transport: air, road, sea or a mix of them. The other four (FAS, FOB, CFR and CIF) are for sea only, because delivery takes place at the port, alongside the ship or on board.

The first letter sums it up

  • EXW

    The seller has the goods ready at their own warehouse. Everything else is up to the buyer, even loading them and clearing them for export.

  • FCA · FAS · FOB

    The seller clears the goods for export and hands them over to the buyer's carrier. The buyer pays for the main journey.

  • CPT · CIP · CFR · CIF

    The seller pays for the main journey, but the risk passes to the buyer at origin. Cost and risk part ways.

  • DAP · DPU · DDP

    The seller takes the goods all the way to destination and carries the risk for the whole trip. Under DDP, they also pay the import duties and taxes.

Insurance

Only two rules require the seller to insure the goods: CIF, with minimum cover (ICC C clauses), and CIP, with broad cover (ICC A clauses). Under the rest, each party decides whether to insure their own leg.

Shipping in a container?

Use FCA, CPT or CIP instead of FOB, CFR or CIF. Containers are handed over at the terminal days before they're loaded, and under the sea-only rules the seller would still be carrying a risk they no longer control.

The chart is simplified: the exact point depends on the place agreed in the contract. If you're unsure about a particular shipment, we're happy to help.

What’s new in Incoterms® 2020

  • FCA

    If the parties agree, and the seller needs a bill of lading with an ‘on board’ notation to get paid under a letter of credit, the buyer can instruct the carrier to issue one.

  • CIF and CIP

    Different levels of insurance: CIF keeps the minimum ICC (C) cover, while CIP raises it to ICC (A).

  • DAT → DPU

    DAT disappears and is renamed DPU. The destination can be any place, not just a terminal, and the goods must be unloaded.

  • FCA, DAP, DPU and DDP

    The rules now recognise that the seller or buyer may use their own means of transport for delivery or collection.

  • Security

    Every rule now explicitly sets out the security obligations in transport and who pays for them.

  • Format

    The rules are set out article by article, with cost and risk pictograms and explanatory notes to help you choose the right rule.

Recommendations

  • EXW

    Better suited to domestic transactions than to exports.

  • Place

    Always be specific: ‘[rule] [named place] Incoterms® 2020’. For example: FCA Barcelona Airport Incoterms® 2020.

  • FOB and CIF

    Not recommended for containers: they’re sea rules for goods loaded on board a vessel. For containers, FCA, CPT or CIP are a better fit.

  • Variants

    Don’t invent or alter the rules. Use them as they were intended.

Total Fresh guide · Incoterms® 2020

Not sure which Incoterm to use for your next deal? We’ll help you before you close the sale.

Download the guide (PDF) Talk to us

Source: Spanish Chamber of Commerce and International Chamber of Commerce (ICC). Incoterms® is a registered trademark of the International Chamber of Commerce.

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