About Incoterms

Incoterms are international terms agreed upon by international merchants to clearly identify the buyer’s and seller’s responsibilities and risks in connection with freight shipment. There are a total of 11 terms pertaining to distinct delivery phrases, each with a three-letter abbreviation in English. The words were initially published in 1936 and have been updated on a regular basis to reflect changes in logistical procedures and business practices. On 1 January 2020, a new edition of Incoterms 2020 became effective, however it does not supersede prior editions.

INCOTERMS 2020 comprises eleven delivery terms classified into four categories:

Group E

exemplified works: EXW;

Group F

Buyer is responsible for carriage costs: FCA, FAS, and FOB;

Group D

DAP, DPU, and DDP are the modes of delivery.

Group C

Seller bears the cost of carriage: CPT, CIP, CFR, and CIF;

The following is a list of Incoterms 2020 delivery terms.

  1. EXW – The term “ex works” refers to the manner in which the buyer receives the items from the vendor. The buyer is responsible for all procedures, including export customs declaration, delivery, and customs clearance upon import.
  2. FCA – the seller is responsible for clearing the items for export and loading them onto the buyer’s mode of transport. The customer must send a shipping document to the seller via the carrier in order to obtain a VAT refund.
  3. FAS – the seller is responsible for transporting the goods to the port and docking them alongside a named vessel. The purchaser accepts and loads the merchandise.
  4. FOB – the seller clears the items for export; thereafter, the buyer assumes responsibility.
  5. CFR – the seller clears the items for export, loads them onto a ship, and transports them to the target port. Once the products are loaded onto the ship, the risk is shifted to the customer. The buyer insures the products.
  6. CIF – as with CFR, the seller clears the items for export, loads and transports them. The distinction between CFR and CIF is that the seller insures the goods.
  7. CPT – the seller clears and loads the items for export, as well as transports them. After loading onto the carrier’s mode of transport, the customer assumes responsibility, albeit the seller bears the cost of delivery. The vendor is not obligated to enter into an insurance contract.
  8. CIP – the seller clears the products for export, loads, transports, and unloads them; after that, the buyer assumes responsibility. The seller insures the products.
  9. DPU (formerly DAT) — the seller clears the items for export, transports them, and unloads them at a terminal; after that, the buyer has responsibility for the goods. The vendor is not required to insure the merchandise.
  10. DAP – the seller clears the products for export, transports and delivers them to the buyer for unloading; thereafter, the buyer assumes responsibility for the items. The vendor is not required to insure the merchandise.
  11. DDP – the seller clears the items for export, delivers them to the buyer’s specified location, unloads the goods, and handles import customs clearance. The vendor is not required to insure the merchandise.

Significant distinctions between Incoterms 2020 and Incoterms 2010

  • DAT has been renamed DPU to avoid confusion with the similarly titled DAP – delivery without unloading, as well as delivery at locations other than terminals.
  • The FCA now permits the carrier to issue a “on board” bill of lading, which was previously not permitted.
  • CIF retains the requirement for a minimum level of insurance, but with the opportunity to enhance the level of coverage.
  • CIP contains a clause requiring a minimum level of insurance, but with the possibility of decreasing it.
  • There is a provision for instances in which the products are not transported by a third-party carrier but rather by either of the parties’ own transport.
  • The A9/B9 now includes a summary of expenses.
  • The stages of customs clearance (export, transit, and import) are discussed in further detail.
  • A greater emphasis has been placed on security concerns.

Experts expect that the new edition of Incoterms 2020 will be more convenient and straightforward to use, as well as more efficient for enterprises engaged in international trade.

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