11 Incoterms® 2020 Explained: Key Terms for Global Shipping

Incoterms valid for any mode of transport

✔ EXW Ex Works

• • The obligations of the seller/exporter are to make the goods available to the buyer at their premises or warehouses, releasing themselves from all responsibility from that moment on.
  • The buyer/importer is then responsible for the costs and responsibilities related to the handling of the goods and customs procedures or documents such as insurance, as they assume the risk.

✔ FCA Free Carrier 

FCA can be used as FCA Factory or FCA Terminal (referring to ports, airports, etc.) 

FCA Factory or Warehouse (seller's location):

• • • The seller must deliver and load the goods onto the means of transport provided by the buyer, who assumes the costs and risks of transportation. This would replace the EXW term.

FCA Terminal (designated location by the buyer):

• • • The seller, who assumes the costs and risks during domestic transportation and customs procedures, can only deliver the goods at the agreed location so that the responsibility for unloading and handling to another transport is on the buyer.

✔ CPT Carriage Paid To 

• • The seller must cover all expenses, such as the main transport costs, incurred until the delivery of the goods at the agreed location.
  • The buyer assumes the hiring of insurance (optional) and the import procedures. Once the goods are loaded onto the transport arranged by the seller, it must be noted that the risk during transit is on the buyer.

✔ CIP Carriage and Insurance Paid 

The modifications in this Incoterm 2020 concern insurance coverage, becoming mandatory for the seller and linked to the Institute Cargo Clauses A, where the goods must be insured until delivered to the carrier at the agreed location.

• • The seller is responsible for the expenses up to delivery at the destination, such as origin expenses, freight, main transport, export clearance, and insurance coverage (the buyer must be named as the beneficiary of the insurance).
  • The buyer assumes the import procedures and the risks during transit, from when the goods leave the country of origin until delivery to the main carrier.

✔ DAP Delivered At Place

• • During the operation, the seller is responsible for all costs and risks, except for import clearance and unloading at the specified location.
  • The buyer is only responsible for import clearance and unloading.

This Incoterm does not require insurance to be contracted; however, if it is, the expenses would correspond to the seller.

* Given the seller's responsibilities and risks, costs can be difficult to control due to any setbacks in developing countries.

✔ DPU Delivered at place Unloaded

This new Incoterm replaces the previous DAT, expanding delivery options by terminal or any other agreed location.

• • The seller assumes the risks and costs of origin, packaging, loading, export clearance, freight, unloading, and delivery at the designated location. It is the only Incoterms rule where the seller must perform the unloading at the destination.
  • The buyer is only responsible for the import clearance procedures.

* This Incoterms is primarily used by companies intending to control logistics from origin to destination; however, given the extensive responsibilities of the seller (similar to the DAP Incoterm), it is not recommended to use this rule in countries with developing infrastructure, as it is more likely to encounter setbacks.  

✔ DDP Delivered Duty Paid

• • The seller assumes all risks and expenses completely. From packaging and freight, export and import clearances, to insurance coverage if contracted.
  • The buyer only needs to receive the goods.

This rule is recommended for low-value goods, where the provided service can be quick and efficient for the customer. The urgency of the shipment would be more relevant than the cost.

* This Incoterm is contrary to EXW; the seller is responsible for all expenses and risks. 

Incoterms valid for maritime and inland water transport

✔ FAS Free Alongside Ship 

• • The seller assumes costs, such as customs procedures, until delivering the goods at the loading dock of the port of origin. Their responsibilities do not include loading the goods onto the ship.
  • The buyer manages the loading, stowage, freight, and costs until delivery at the agreed place. They also assume risks when the goods are placed at the loading dock to be subsequently loaded onto the ship.

* This Incoterm is typically used for special goods with specific loading requirements.

✔ FOB Free On Board

• • The seller is responsible for costs and risks, as well as export clearance, until the goods are loaded aboard the ship.
  • The buyer must arrange for transportation, handle import procedures, freight costs, unloading, and delivery to the designated destination, as well as insurance if contracted. Risks are the buyer's once the goods are aboard the ship.
    

✔ CFR Cost and Freight

• • The seller assumes all costs until the goods reach the designated port, including main transport and unloading expenses.
  • The buyer assumes risks as soon as the goods are aboard and during transit, taking care of import procedures and transportation. Therefore, it is advisable to arrange for insurance.

✔ CIF Cost, Insurance and Freight

Like the CIP Incoterm, changes were made regarding insurance coverage for this rule, making it mandatory for the seller. The C Clauses of the Institute Cargo Clauses must be considered, which state that insurance must cover the goods until they arrive at the destination port.

• • The seller, as in the CFR rule, assumes all costs until arrival at the designated port. In addition to this, they must arrange for insurance, keeping in mind that risks are the buyer's responsibility once the goods are aboard the ship.
  • The buyer assumes risks during transit and import costs, as well as transportation.

Note: For more detailed information and a complete description of the rights and responsibilities of the proper use of the mentioned Incoterms®, you can refer to the INCOTERMS® 2020 publication from the International Chamber of Commerce (ICC).