Incoterms (International Commercial Terms) is a set of globally recognized standard rules defined by the International Chamber of Commerce (ICC) for international trade. These rules help buyers and sellers clearly determine the responsibilities, costs and risks associated with the transport of goods.
Incoterms does not replace a formal sales contract; rather, it is a general set of guidelines for assigning the parties' duties in the international shipping process, and it is not limited to any particular type of goods or mode of transport - from bulk cargo such as iron ore to sensitive or perishable shipments, all of these rules can be applied.
Which version is currently in force?
Incoterms 2020 is the latest official version published by the ICC. It has been in effect since January 1, 2020, and no newer version has replaced it to date. This version comprises 11 rules, grouped into two categories: seven rules that can be used for any mode of transport, and four rules specific to sea and inland waterway transport.
Rules for any mode of transport
EXW - Ex Works: The minimum obligation for the seller. The goods are made available to the buyer at the seller's premises (factory, warehouse, etc.), without being loaded onto any collecting vehicle and without export clearance. From that moment, all costs and risks - including loading and export clearance - are borne by the buyer.
FCA - Free Carrier: The seller delivers the goods, cleared for export, to the carrier or another person nominated by the buyer at a named place. From that point, responsibility for costs and risk transfers to the buyer.
CPT - Carriage Paid To: The seller pays the cost of carriage to the named destination, but risk transfers to the buyer earlier - at the moment the goods are handed over to the first carrier.
CIP - Carriage and Insurance Paid To: Similar to CPT, except the seller is also required to arrange insurance for the carriage of the goods. Under Incoterms 2020, the mandatory insurance coverage level under CIP (extensive cover) is higher than under CIF (minimum cover).
DAP - Delivered at Place: The seller makes the goods available to the buyer, ready for unloading, at the named place of destination. Unloading the goods and import clearance are the buyer's responsibility.
DPU - Delivered at Place Unloaded: Introduced in the 2020 version to replace the former DAT (Delivered at Terminal) rule. This is the only rule in all of Incoterms where the seller, in addition to carriage, is also responsible for unloading the goods at the place of destination.
DDP - Delivered Duty Paid: The maximum obligation for the seller. The seller delivers the goods cleared for import and ready for unloading at the named place, and also pays import duties and customs clearance costs. As with DAP, unloading the goods remains the buyer's responsibility.
Rules for sea and inland waterway transport
FAS - Free Alongside Ship: Export clearance is the seller's responsibility; the seller delivers the goods alongside the vessel (not on board) at the port of origin. Responsibility for costs and risk transfers to the buyer from that point.
FOB - Free on Board: Export clearance is the seller's responsibility; the seller delivers the goods on board the vessel at the port of origin. Risk transfers to the buyer from that moment.
CFR - Cost and Freight: As with FOB, risk transfers to the buyer once the goods are placed on board; however, the seller additionally pays the cost of carriage to the named port of destination.
CIF - Cost, Insurance and Freight: Same as CFR, plus the seller is required to arrange carriage insurance (minimum cover) in favor of the buyer.
Applications of Incoterms
Incoterms 2020 is widely used in international trade, helping buyers and sellers clearly define responsibilities and costs, appropriately allocate risk, manage shipping operations effectively, and enter new markets with confidence.
Conclusion
Incoterms 2020 is a vital tool in international trade. These rules help buyers and sellers precisely and transparently define responsibilities, costs and risks, so that the parties to a transaction can carry out their trade operations without ambiguity.