In January 2020, the International Chamber of Commerce published the updated version of the INCOTERMS 2020.
Here is the full list:
In blue are the maritime Incoterms, that should be used only for waterway transport. In yellow is the new Incoterm, DPU Delivered At Place Unloaded.
The third column defines where delivery takes place: as we explained in our article on how to use Incoterms, just writing in the contract FCA Free Carrier is meaningless. You have to say where. Each Incoterm has its own place/port of delivery/destination, as we wrote in the table.
Transfer Of Risk And Transportation
In their essence, Incoterms are rules of interpretation of the standard trade terms that underpin the import export trade.
In case of dispute between seller and buyer, Incoterms define two things:
- Who is responsible for the risk that the goods are lost, damaged or stolen during transportation. In Incoterms jargon, the moment where the risk is transferred from the seller to the buyer is called delivery.
- Who must pay for transportation and related charged (export/import clearance, insurance, etc).
You might think that delivery and transportation occur at the same place. For as counterintuitive as it can be, under Incoterms delivery and transport can happen at two different places.
The following table defines where delivery takes place and which party is responsible for transport costs.
We divide transport costs between the ones at origin (seller’s country) and at destination (buyer’s country).
Transport at origin is usually the truck that collects the goods at the seller’s warehouse or factory, and brings them to the port/airport/station of shipment.
Transport at destination is the journey from the exporting country to the importing country, and then from the port/airport/station of arrival to the buyer’s premises (although maritime Incoterms will never place this onus on the seller).
If you are confused by the fact that under CFR, CIF, CPT and CIP delivery occurs at origin but the seller must pay for transportation up to destination, do not worry; everybody body is confused about them. That is why we have written an extensive guide on how to deal with the so called Group-C Incoterms.
Now let’s have a look at each Incoterm.
EXW Ex Works
EXW is the most convenient Incoterm for the seller. In fact, the seller has only to make the goods available at his premises for collection by the buyer.
Delivery occurs at origin and the buyer is responsible for all transportation.
More on EXW here.
FCA Free Carrier
Under FCA, the parties decide a place at origin where the seller has to make the goods available to the buyer. The place can be the seller’s premises, a warehouse, an airport, a port.
Delivery occurs at origin. The seller must pay for transportation up to the named place of delivery. After that, all transport costs are on the buyer.
More on FCA here.
FAS Free Alongside Ship
FAS is one of the original Incoterms and as such should be used only for waterway transport.
In fact, delivery takes place at origin when the seller places the goods alongside the ship that the buyer has sent for transport.
Therefore, the seller pays for transportation up to that point, whereas all the rest is on the buyer.
More on FAS here.
FOB Free On Board
FOB was also among the original Incoterms and works in a similar way to FAS. The only difference is that, under FOB, the seller must place the goods on board the ship sent by the buyer.
Essentially, the seller is also responsible for onloading.
More on FOB here.
CFR Cost & Freight
CFR is another maritime Incoterm.
Delivery is deemed to take place at the port of shipment. From that moment, the risk of loss or damage to the goods is on the buyer.
Yet, the seller must still pay for transportation on behalf of the buyer up to the port of destination.
This confusing distinction between delivery and transportation is common of all the C-Group Incoterms.
More on CFR here.
CIF Cost, Insurance & Freight
CIF is the same as CFR, with the difference that it requires that the seller pays for a minimum level of insurance.
Insurance is defined according to Institute Cargo Clauses (C), which is the most limited form of insurance and covers no more than general average.
More on CIF here.
CPT Carriage Paid To
CPT can be used with any mode of transport; in fact, the parties name a place at destination (a port, an airport, the buyer’s premises) where the goods must be placed at the buyer’s disposal.
The seller is one responsible to pay for transportation up to the named place.
However, delivery takes place at origin, generally when the goods are collected by the first carrier at the seller’s facility.
More on CPT here.
CIP Carriage & Insurance Paid To
CIP works in the same way as CPT with the difference that the seller must also provide for insurance.
The minimum requirement is the one provided in Institute Cargo Clauses (A). That is the highest insurance coverage provided by those standard rules.
More in CIP here.
DAP Delivered At Place
Under DAP, the parties name a place at destination where the seller must make the goods available for the buyer, not offloaded. Also, import clearance and duties are on the buyer.
Delivery occurs at the named place of destination and the seller is responsible to pay for transportation up to that place.
More on DAP here.
DPU Delivered At Place Unloaded
DPU works the same way as DAP with the difference that the seller is also responsible for offloading the goods from the carrier at the named place of destination.
DPU substitutes DAT Delivered At Terminal which cannot be used under the new Incoterms 2020 version.
More on DPU here.
DDP Delivered Duty Paid
DDP is the most burdensome Incoterm for the seller. It works in the same way as DAP, but the seller is also responsible to import the goods in the buyer’s country and pay any duties and taxes. Yet, the seller is not responsible for offloading the goods.
More on DDP here.
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