Incoterms 2020
Do you import or export goods to or from non-EU countries? If so, you will encounter International Commercial Terms, also known as Incoterms. When shipping products, you should always list the Incoterms on your commercial invoice.
Every day, we handle transportation for others as a freight forwarder. It’s essential to be well-prepared to avoid miscommunications between buyer and seller, or between importer and exporter. Establishing clear agreements is crucial, especially regarding cost distribution, risks, and customs obligations for the buyer or seller. It also defines who is responsible for transportation and insurance, known as obligations.
These agreements on the rights and duties of the buyer and seller are internationally established in the Incoterms. In this article, we briefly explain what they are, the different types, and which Incoterms we recommend.
Note! Incoterms are not, by themselves, a sales agreement.
What is an Incoterm?
Incoterms define who is responsible for organizing transport, covering costs, and bearing the risk of damage or loss at specific stages. They offer clarity and are revised every ten years, making them internationally accessible. Incoterms are available in more than 30 languages. The latest version was released in 2020, following the 2010 Incoterms.
Main Functions of Incoterms
Cost Allocation: Which contract partner bears which costs?
Obligation Distribution: Which contract partner assumes which obligations along the transport route?
Risk Transfer: Which contract partner bears what risk and at what point in time?
What Incoterms Are There?
In 2020, eleven Incoterms were established, specifying conditions and obligations for buyers and sellers. Among these, CFR, FOB, FAS, and CIF are specific to sea freight, while the other seven apply to all transport modes. With ICC (International Chamber of Commerce) Incoterms, the point of transfer is very important, as it marks where the goods pass from seller to buyer, along with associated costs, risks, and obligations. This transfer point could be a seaport, a vehicle, a storage facility, or a border.
The primary difference between these International Commercial Terms is the point at which risk shifts from seller to buyer. From that point onward, the buyer is responsible for:
- Transport costs;
- Shipping risks;
- Insurance.
Incoterms Suitable for All Transport Modes
EXW – Ex Works Under the Incoterm 2020 Ex Works, the seller has minimal obligations, preparing the goods at an agreed location for the buyer’s collection. The location is often the seller's business premises, workshop, or storage facility. The buyer assumes all risks and costs associated with export and import. Ex Works is suitable for all transport modes and is known in the Netherlands as “Af Fabriek.”
FCA – Free Carrier The 2020 FCA Incoterm imposes slightly more obligations on the seller than Ex Works. The seller hands over the goods to the buyer’s carrier at an agreed location, covering the transport to that point and transferring the risk once the goods are loaded. FCA is also known in the Netherlands as “Vrachtvrij tot Vervoerder.”
CPT – Carriage Paid To With the 2020 CPT Incoterm, the seller covers the entire transport cost. However, risks transfer once the goods are in possession of the first carrier. CPT thus involves both the transfer point and the final destination. Terminal Handling Charges (THC) are not automatically included in the CPT price, so it’s advisable for buyers to confirm to avoid surprises. In the Netherlands, CPT is called “Vracht Betaald tot.”
CIP – Carriage And Insurance Paid To The 2020 CIP Incoterm is similar to CPT, with the seller covering both transportation and insurance up to the destination. Risk transfer occurs, as in CPT, when the goods are handed over to the first carrier. The seller must take out cargo insurance covering the goods from handover until arrival at the final destination. In the Netherlands, CIP is known as “Vracht en Verzekering Betaald tot.”
DAP – Delivered At Place Under the 2020 DAP Incoterm, the seller bears all risks until the goods reach the agreed place. The seller is responsible for all transport, costs, and risks of loss or damage until unloading. DAP is also known in the Netherlands as “Geleverd ter Bestemming.”
DPU – Delivered At Place Unloaded Similar to DAP, but with DPU the seller is responsible until and including unloading. Therefore, DPU brings more obligations for the seller. In the Netherlands, DPU is known as “Geleverd ter Bestemming en Gelost.”
DDP – Delivered Duty Paid DDP brings the most obligations for the seller, who arranges and covers transport to the agreed destination and is responsible for customs clearance and any import duties. The seller also bears risk until the goods, unloaded, are delivered to the buyer. In the Netherlands, DDP is known as “Geleverd Rechten Betaald.”
Incoterms 2020 for Sea Freight:
FAS – Free Alongside Ship The seller delivers the goods to the agreed shipping port, placing them alongside the ship (e.g., on the dock or on a barge beside the ship). After that, the buyer assumes risks and costs, including loading the goods onto the ship. In the Netherlands, FAS is called “Vrachtvrij Langszij Schip.”
FOB – Free On Board The seller loads the goods onto the agreed ship, with risks and costs transferring to the buyer once the goods pass the ship's rail. For containerized goods that are already on the terminal and need no further transfer to the ship, FCA may be more appropriate. In the Netherlands, FOB is called “Vrachtvrij aan Boord.”
CFR – Cost And Freight The seller covers transport costs to the destination port, but risk transfers once the goods are loaded. It’s wise to check if Terminal Handling Charges (THC) are included in the CFR price. In the Netherlands, CFR is known as “Kostprijs en Vracht.”
CIF – Cost Insurance And Freight With the CIF Incoterm, the seller arranges and covers transport and insurance costs up to the agreed destination port, with risk transferring to the buyer once the goods are aboard the ship. CIF also requires the seller to insure the goods from the shipping port to the destination. Like with CFR, CIF may be unsuitable for containerized goods only delivered to the terminal; in these cases, CIP may be more appropriate. In the Netherlands, CIF is known as “Kostprijs, Verzekering en Vracht.”