INCOTERMS® 2020: Your Guide to International Trade Regulations
Navigating the complex world of international trade can often feel overwhelming. That's why ACS has simplified the process by presenting the essential responsibilities, costs, and risks defined by Incoterms® (International Commercial Terms), a set of trade regulations published by the International Chamber of Commerce (ICC). These rules, which apply to every stage of international trade—from the sale and purchase of goods to their packaging, shipping, and warehousing—have been the global standard since their inception in 1936.
The Incoterms® 2020 Edition
The most recent version of these trade terms, Incoterms® 2020, remains in use today, continuously updated by the ICC to reflect the evolving trade environment. The regulations are designed to clarify the obligations of buyers and sellers and to prevent misunderstandings in the global marketplace.
Incoterms® also simplify trade communication by utilizing a set of three-letter abbreviations, each corresponding to specific terms related to transport, delivery, and risk. Here's a breakdown of these terms:
Rules for Any Mode of Transport:
EXW (Ex Works): The seller makes the goods available at their premises, and the buyer bears all costs and risks from that point onward.
FCA (Free Carrier): The seller delivers the goods to a carrier or a named location, with the buyer assuming responsibility for unloading and further transport.
CPT (Carriage Paid To): The seller arranges and pays for the transport of goods to a specified destination, but the risk transfers to the buyer when the goods are handed to the carrier.
CIP (Carriage and Insurance Paid To): Similar to CPT, but the seller must also procure minimum insurance to cover the buyer’s risk during transit.
DAP (Delivered at Place): The seller delivers goods to a named destination, with the buyer responsible for unloading. The seller bears all risks and costs until the goods arrive.
DPU (Delivered at Place Unloaded): The seller is responsible for all transport and unloading costs until the goods reach their destination.
DDP (Delivered Duty Paid): The seller delivers goods to the buyer's country and pays for all associated transportation and import duties. Unloading is the buyer’s responsibility.
Rules for Sea and Inland Waterway Transport:
FAS (Free Alongside Ship): The seller places goods alongside the vessel at the port, with the buyer assuming risk from that point.
FOB (Free on Board): The seller loads the goods onto the vessel, and the buyer takes responsibility once the goods are on board.
CFR (Cost and Freight): The seller pays for transportation to the destination port, but the buyer takes on risk once the goods are loaded onto the vessel.
CIF (Cost, Insurance, and Freight): Similar to CFR, but the seller also pays for insurance until the goods reach their destination.
Key Updates in Incoterms® 2020
- FCA now allows for an on-board notation on the bill of lading before loading.
- Centralized cost allocation under A9/B9 in all Incoterms® rules.
- CIP requires insurance with a minimum coverage under Institute Cargo Clause (A).
- CIF requires insurance under Institute Cargo Clause (C).
- DPU replaces DAT (Delivered at Terminal) to clarify that delivery can be made anywhere, not just at terminals.
- Security and ancillary costs now fall under the seller's responsibility.
Application of Incoterms®
Incoterms® form part of the sales contract. To ensure proper usage, reference the specific term followed by the port or place, and mention "Incoterms® 2020" (e.g., CIF Shanghai Incoterms® 2020).
For more information, visit the official ICC website at: iccwbo.org.
