The purchase and sale of goods in international trade can often be further complicated by responsibilities, costs, and risks that need to be defined for all parties involved.

For your convenience, the International Chamber of Commerce (ICC) introduces the International Commercial Terms (Incoterms®), which act as the basic rules for global trade and the sale of goods. Whether you are placing an order for purchase, packaging and labeling a shipment, or preparing a certificate of origin, these provisions have become part of the everyday trade lexicon and exist to guide you.

Since the first publication of the rules in 1936, ICC continues to support and develop them. To prepare businesses for the next century of global trade, the latest edition, Incoterms® 2020, came into effect on January 1, 2020.

The Incoterms® rules include a series of three-letter trade terms that have very precise meanings for the sale of goods worldwide. 

Rules for each mode or modes of transport:

EXW (Ex Works) – ex-factory (agreed place)

Often used in the initial sales offer for goods without included costs, EXW means that the seller offers the goods at their disposal at their premises or at another specified location (factory, warehouse, etc.). The seller is not required to load the goods onto any carrier, nor to clear the goods for export.

FCA (Free Carrier) – free carrier (agreed place)

FCA can have two different meanings, each with a different level of risk and cost for the buyer and seller. FCA (a) is used when the seller delivers the goods cleared for export at a specified place, which is the seller's premises. FCA (b) is used when the seller delivers the goods cleared for export at a specified place that is not the original location of the goods. In both cases, the goods can be delivered to a carrier specified by the buyer or to another party designated by the buyer.

CPT (Carriage Paid To) – carriage paid to (agreed destination)

According to CPT, the seller pays for the transportation of goods to the specified destination. 

CIP (Carriage and Insurance Paid to (named place of destination) – carriage and insurance paid to (agreed destination)

Similar to CPT with the exception that the seller is obligated to obtain minimum insurance for the goods during their transportation. 

DAP (Delivered at Place (named place of destination) – delivery at the agreed destination.

It is considered that the seller has delivered the goods when they are made available to the buyer upon the arrival of the transport vehicle and are ready for unloading at the specified destination. According to the terms of DAP, the seller must bear all risks associated with the transportation of the goods.

DPU (Delivered at Place Unloaded (named place of destination) – delivery at the agreed destination with unloading.

This Incoterm requires the seller to deliver the goods unloaded at the specified place. The seller bears all transportation costs (export duties, carriage, unloading from the main carrier at the agreed destination, and port charges) and assumes all risk until the goods arrive at the place of destination.

DDP (Delivered Duty Paid (named place of destination) – delivered, duty paid (agreed destination)

The seller is responsible for delivering the goods to the specified place in the buyer's country and pays all delivery costs to the destination, including import duties and taxes. The seller is not responsible for unloading.

Rules for maritime and inland waterway transport:

FAS (Free Alongside Ship (named port of shipment) – free alongside ship (agreed loading port)

The seller delivers when the goods are placed alongside the ship (e.g., on the quay or barge) named by the buyer at the named port of shipment. The risk of loss or damage to the goods passes when the goods are alongside the ship, and the buyer is responsible for all costs from that point onwards.

FOB (Free on Board) – free on board

The seller delivers the goods on board the ship named by the buyer at the named port of shipment or procures the goods already delivered. The risk of loss or damage to the goods passes when the goods are on board the ship, and the buyer is responsible for all costs from that point onwards.

CFR (Cost and Freight) – cost and freight

The seller delivers the goods on board the ship. The risk of loss or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.

CIF (Cost, Insurance and Freight) – cost, insurance, and freight

The same as CFR with the addition that the seller must obtain minimum insurance coverage against the risk of loss or damage to the goods during transportation, covering the buyer's risk.

The differences between Incoterms® 2010 and 2020:

  • Incoterms® FCA (Free Carrier) now provides the additional option for issuing an on-board notation on the bill of lading (marine bill of lading) before the loading of the goods onto the vessel.
  • The expenses are now described together in A9/B9 for each Incoterms® rule.
  • CIP now requires at least insurance coverage under the Institute Cargo Clause (A) (all risks with specific exceptions per item).
  • CIP now requires at least insurance coverage under the Institute Cargo Clause (C) (specified risks with specific exceptions per item).
  • The Incoterms® rules for Free Carrier (FCA), Delivered at Place (DAP), Delivered Duty Paid (DDP), and Delivered Unloaded (DPU) now consider that goods may be carried without the involvement of a third-party carrier, specifically using their own transportation.
  • The Incoterms® rule "Delivered at Terminal" (DAT) has been changed to "Delivered at Place Unloaded" (DPU) to make it clear that the place of destination can be any place, not just a ,,terminal".
  • Incoterms® 2020 now explicitly transfers responsibility for security-related requirements and additional costs to the seller.

Useful information  

Incoterms® do not constitute a complete sales contract but rather form a part of these contracts. The following structure should be used for the application of the rules: 

"[Selected Incoterms® Rule] [Designated Port, Place, or Point] Incoterms® 2020" 

Example: "CIF Shanghai Incoterms® 2020" or "DAP Downing Street 10, London, United Kingdom Incoterms® 2020" 2020“ 

If there is no year specified in Incoterms®, the following applies:
 Until December 31, 2019, Incoterms® 2010 is applied.
 From January 1, 2020, Incoterms® 2020 is applied. 

If another year is specified, for example, Incoterms® 1980, then the corresponding rules for that year apply.  

For more information, please refer to the official website of the International Chamber of Commerce (ICC): https://iccwbo.org.