Introduction
Incoterms (International Commercial Terms) are globally recognised trade terms that define the responsibilities of buyers and sellers in international transactions. First published by the International Chamber of Commerce (ICC) in 1936, Incoterms provide clarity on shipping, insurance, customs, and cost allocation.
The latest version, Incoterms 2020, came into effect on September 10, 2019, and remains the standard for international trade. This guide explains the key rules, updates, and practical applications of Incoterms 2020 for businesses worldwide.
What Are Incoterms?
Incoterms are standardised trade terms used in international contracts to define:
- Who is responsible for transportation costs
- Who handles insurance for the goods
- Customs clearance obligations
- Other shipping-related expenses
Although Incoterms are not laws, they are widely recognised by businesses and governments to avoid disputes and ensure smooth transactions.
What’s New in Incoterms 2020?
Incoterms 2020 introduced several updates compared to Incoterms 2010:
1. New Incoterm: DPU
- Delivered at Place Unloaded (DPU) replaces Delivered at Terminal (DAT).
- Clarifies that the seller is responsible for unloading at the named place.
2. Transport and Insurance Responsibilities
- Buyers and sellers must agree on who arranges transport and insurance.
- Incoterms 2020 provides guidance on how to handle these arrangements.
3. Security Requirements
- Provides guidance on cargo security, including inspections, packaging, and labelling.
4. Bills of Lading
- Clarifies responsibilities of buyers and sellers regarding the bill of lading, a document evidencing the carriage contract.
5. Cost Allocation
- Offers clear guidance on loading/unloading costs, customs duties, and taxes, ensuring businesses understand financial responsibilities.
Incoterms 2020 Rules
For Any Mode of Transport
- EXW (Ex Works) – Seller delivers at premises; buyer takes all risks/costs
- FCA (Free Carrier) – Seller delivers to a carrier chosen by the buyer
- CPT (Carriage Paid To) – Seller pays for carriage to named place
- CIP (Carriage and Insurance Paid To) – Seller pays for carriage + insurance
- DPU (Delivered at Place Unloaded) – Seller delivers and unloads at destination
- DAP (Delivered at Place) – Seller delivers goods ready for unloading
- DDP (Delivered Duty Paid) – Seller bears all costs, including duties and taxes
For Sea and Inland Waterway Transport
- FAS (Free Alongside Ship) – Seller delivers alongside the ship
- FOB (Free on Board) – Seller delivers on board ship
- CFR (Cost and Freight) – Seller pays cost + freight to port of destination
- CIF (Cost, Insurance, and Freight) – Seller pays cost, insurance, and freight
Practical Tips for Using Incoterms 2020
- Always clarify the Incoterm in the sales contract
- Confirm who is responsible for customs, duties, and insurance
- Use Incoterms to reduce disputes and misunderstandings
- Keep updated with ICC guidance for regulatory and compliance changes
Conclusion
Incoterms 2020 provide clear rules for international trade, defining the responsibilities of buyers and sellers regarding delivery, costs, insurance, and customs. Understanding these terms:
- Minimises trade disputes
- Clarifies financial obligations
- Ensures smoother global transactions
By using Incoterms 2020 correctly, businesses can confidently manage international trade contracts and compliance requirements.
Review your international trade contracts today and ensure your business is using Incoterms 2020 correctly to avoid unnecessary risks and costs.
