Lesson 2:

INCOTERMS
2010 & 2020
 OVERVIEW

01 INCOTERMS 2010

02 CHANGES IN
INCOTERMS 2020
 International
Commercial
Terms
The Incoterms rules or International
Commercial Terms are a series of pre-
defined commercial terms published by the
International Chamber of Commerce
(ICC) that are widely used in International
commercial transactions or procurement
processes..
 INCOTERMS DO
NOT
INCOTERMS OBJECTIVE DETERMINE

• Use generally • When the payment for

• They are a set of
recognized key words. the goods has to be
uniform rules.
made.
• They set out clearly the • Agree on the most
common understanding • At which point
rights and obligations
of such keywords. ownership in the goods
of buyers and sellers in
passes from seller to
international • Avoid
buyer.
transactions. misunderstanding on
• They are also known as the use of them.
trade terms.
Family Abbreviation Use Mode of Transport

The “W” EXW Ex works All Modes

The “F” FCA Free carrier All Modes

FAS Free Alongside Ship Maritime
FOB Free on Board Maritime

The “C” CFR Cost and Freight Maritime

CIF Cost Insurance and Freight Maritime
CPT Carriage Paid To All Modes
CIP Carriage Insurance Paid To All Modes

The “D” DAT Delivered at Terminal Land

DAP Delivered at Place Maritime
DDP Delivery Duty Paid All Modes
EXW Ex
seller places the goods at the disposal of the
buyer at the seller’s premises or at another named
place (i.e., works, factory, warehouse, etc.).

Works/Warehouse
FOB
Free on Board
Buyer must:
Seller must • At own expense, reserve space on board a vessel and
*Prepare and pack the goods as required; give all the required instructions to the seller enabling it
* Deliver the goods on board the vessel designated by to deliver in time for shipment (NOTE: this registration
the contract; and calling forward are normally carried out by the
* Bear all costs and all risks of the goods until they have buyers forwarding agent);
• * Bear all expenses and risks of the goods from the time
effectively passed ships rails;
they have effectively passed ships rail; * Bear the cost of
* Bear costs of counting, measuring, weighing; obtaining documents required for the export of the
* Provide when required, at the buyers expense, consular goods; Pay demurrage incurred at the port of shipment
certified invoices, certificates of origin and help buyer to unless the detention is attributable to the seller;
obtain other documents obtainable in the country and • * Bear any costs incurred if the vessel designated by the
which the buyer may need; and buyer or buyer’s agent is unable to take the goods;
* Provide the buyer at the seller’s expense with the usual • * Bear the cost of B/L and any documents the buyer
document of proof of delivery. may have asked the seller to provide; and Pay the cost
of inspection, if required.
FCA
Free Carrier

A very flexible rule that is suitable for all situations where

the buyer arranges the main carriage In all cases, the seller
is responsible for export clearance; the buyer assumes all
risks and costs after the goods have been delivered at the
named place. FCA is the rule of choice for containerized
goods where the buyer arranges for the main carriage.
 FAS
Free Alongside Ship

Use of this rule is restricted to goods transported by sea or inland waterway. In

practice it should be used for situations where the seller has direct access to
the vessel for loading, e.g. bulk cargos or non-containerized goods. For
containerized goods, consider “Free Carrier FCA” instead. Seller delivers
goods, cleared for export, alongside the vessel at a named port, at which point
risk transfers to the buyer. The buyer is responsible for loading the goods and
all costs thereafter.
CFR
Cost and Freight

Use of this rule is restricted to goods transported by sea or inland

waterway. In practice it should be used for situations where the seller has
direct access to the vessel for loading, e.g. bulk cargos or non-
containerized goods. Seller arranges and pays for transport to named
port. Seller delivers goods, cleared for export, loaded on board the vessel.
However risk transfers from seller to buyer once the goods have been
loaded on board, i.e. before the main carriage takes place. NB seller is not
responsible for insuring the goods for the main carriage.
 CIF
Cost, Insurance and
The seller delivers the goods on board the vessel
or procures the goods ready to delivered. The
risk of loss of or damage to the goods passes
when the products are on the ship.
Freight
CPT
Carriage Paid To

The seller is responsible for arranging carriage to the named place,

but not for insuring the goods to the named place. However delivery
of the goods takes place, and risk transfers from seller to buyer, at
the point where the goods are taken in charge by a carrier. The buyer
may wish to arrange insurance cover for the main carriage, starting
from the point where the goods are taken in charge by the carrier –
NB this will not be the place referred to in the Incoterms rule, but
will be specified elsewhere within the commercial agreement
 CIP
Carriage and
Insurance Paid To

The seller is responsible for arranging carriage to the named place, and
also for insuring the goods. As with CPT, delivery of the goods takes place,
and risk transfers from seller to buyer, at the point where the goods are
taken in charge by a carrier. Although the seller is obliged to arrange for
insurance for the journey, the rule only requires a minimum level of cover,
which may be commercially unrealistic. Therefore the level of cover may
need to be addressed elsewhere in the commercial agreement
DAT
Delivered at
Terminal

Delivered at Terminal means that the seller delivers when

the goods are placed at the disposal of the buyer not
cleared for import on the quay (wharf) or port at the
named port of destination. The seller has to bear costs
and risks involved in bringing the goods to the named
port of destination and discharging the goods on the quay
(wharf) or port.
 DAF
Delivered at Frontier

Under DAP terms, the buyer assumes the cost and risk of
unloading at the named destination place and for CUSTOMS
CLEARANCE. This term may be used with any
TRANSPORTATION MODE and for international as well as
domestic sales transactions. The seller is responsible for
arranging carriage and for delivering the goods, ready for
unloading from the arriving conveyance, at the named place.
(An important difference from Delivered At Terminal DAT,
where the seller is responsible for unloading.)
 DDP
Delivered Duty Paid
The seller bears all the costs and risks involved in
bringing the goods to the place of destination.  They
must clear the products not only for export but also
for import, to pay any duty for both export and import
and to carry out all customs formalities.
Duties Connected Per Incoterm

The seller should do what is

FCA, FAS, FOB necessary to clear the goods for
export.

The seller assumes the obligation with

CPT, CFR, CIF, CIP respect to export, and the buyer assumes
the obligations with respect to imports.

The Buyer should do what is necessary

DAT, DAP to clear the goods for import.
Duties Connected Per Incoterm

EXW The Buyer has to assume the obligations

with respect to export as well as imports.

The parties are reminded in the preamble to

DDP it may be deemed appropriate to exclude
DDP from the sellers' obligations some of the costs
such as VAT payable upon import of goods.
INCOTERMS INSURANCE and

Incoterms only identifies the seller's obligation to take out insurance to the
benefit of the buyer under CIF and CIP terms. Under all terms, it is for the
buyer and the seller to arrange the insurance as they think fit. The seller's
insurance obligations to the benefit of the buyer stems from the following:
Nature of the C-terms, which requires the seller to contract for the
carriage-without assuming the risk of loss or damage to the goods in
transit. Requires the seller to take out insurance only on a minimum terms.
Invites the buyer to agree with the seller to arrange additional insurance
or to arrange additional insurance him/herself.
FACTS ABOUT INCOTERMS

Been in existence for more than 75 years

Provides uniform rules for easier
interpretation of trade terms
Provides clear definition for the buyer
and sellers rights and obligations in
international transactions
INCOTERMS
7 KEY
2020
CHANGES
 7 KEY CHANGES TO INCOTERMS
02 2020 03 04
01
Insurance Security in
DAT incoterm points are Costs and cost
relation to
changed to DPU clarified in CIF structures are
transport is now
&CIP now clarified
clearly detailed
incoterms rules
05 06 07
Provisions to allow Presentation and
for own transport FCA, FOB and design is much
rather than assuming Billings of Lading more user
3 party transport
rd
friendly
 DAT incoterm changed to DPU
Following on from several rounds of consultation, the
Drafting Group made the choice of removing the word
'terminal' as it often caused confusion.

DAT required Delivery at Terminal (unloaded), however,

following on from feedback to the drafting committee, it was
decided to change the term to DPU (Delivery at Place
Unloaded), to broadly cover 'any place, whether covered or
not
Insurance cover differs between
CIF & CIP
Under CIF / CIP, the seller buys insurance for the
buyer. In Incoterms® 2010, insurance is required under
clause C, but in Incoterms® 2020, CIP requires
insurance complying with Institute Cargo Clause (A)
whereas CIF requires insurance under Clause C. Why?
Because Clause A covers a more comprehensive higher
level of insurance (e.g. for the manufactured goods),
whereas a lower level of cover from Clause C would
probably apply to the commodities world.
 LISTING OF COSTS
All costs are now listed in the Allocation of Costs'
sections for each rule, to avoid confusions, Because the
ordering of articles within the Incoterms 2020 rules have
also changed, these now appear in the A9/B9 section of
each rule.

Costs were a big issue in the 2010 incoterms, Carriers

Seeding Seedling Pollination
often changed their pricing structure to deal with add ons
There are many There are many There are many
and sellers were often surprised by being back charged
things you can do to things you can do to things you can do to
terminal handling
help your plants grow
charges. The A9
help your plants grow
sections in the
help your plants grow
Incoterms
faster. rules guide now faster.
collects together the faster.
costs,
with the principle aim of clearly stating the costs to each
party.
 SECURITY REQUIREMENTS
Cargo security has been particularly important since 9/11, and the 2020
rules now address many of the security related requirements that became so
prevalent in the early part of this century. From a carriage requirements
perspective, security related allocations have been added to A4 and A7 of
each Incoterms rule, and the necessary costs associated have been added to
A9/B9 (see 3).
 OWN TRANSPORT
Incoterms 2010 rules assumed that goods carried from the seller to
the buyer were via a 3rd party. Incoterms 2020 allows for own
means of transport by the buyer in the FCA rules and by the seller
in the D rules.
 FCA AND BILLS OF LADING
According to FCA, part B4, The buyer must contract or arrange at its own cost for the carriage
of the goods’.

There is a gap in delivery between FCA and FOB. If you're selling FCA, your delivery point is
different to FOB. The difference between FCA and FOB to the seller is a significant cost and
risk. In the 2010 Incoterms rules, exporters of goods in containers were encouraged to use FCA,
which seemed best for both parties. However, many people were using FOB when they
should've really been using FCA.

Why? Even sophisticated sellers said they wanted to use FOB, because a standard Letter of
Credit requires an onboard Bill of Lading to be presented. Therefore the sellers were often
taking the risk and using FOB instead, because they wanted to get paid under the LC. The
Incoterms® 2020 FCA extra provision now states that if the parties have so agreed, the buyer
must instruct the carrier to issue to the seller, at the buyers cost and risk, a transport document
stating that the goods have been loaded (such as a Bill of Lading with an on board notation).
 Incoterms® 2020 rules have much more
extensive explanatory notes, with better
diagrams, a different structure for users
and are ordering of rules to make
PRESENTATION delivery and risk more obvious. Maritime
related rules sill haven't changed and
AND DESIGN remain at the back of the rule book as
they still might be used for bulk
commodities.
What is ‘Effective date’ in Incoterms?
Despite an 'effective' date of the 1st January 2020, Incoterms 2020 can
be used now. That said, after this date, there is still no obligation to use
Incoterms 2020. So what does 'Effective 1st January 2020' actually
mean? If you haven't made it clear in your contract which Incoterms
version to refer to or have a flexible contract which states that when the
contract is effective, the latest Incoterms® rules apply, then the 2020
rules will apply in these circumstances. That said, It's estimated that the
Incoterms 2020 rules might take 1-2 years for the market to adopt.
 3 TIPS ON HOW TO USE
INCOTERMS CORRECTLY
CHOOSE THE RIGHT
01 RULE

SPECIFY THE
PLACE/PORT
PRECISELY 02
INCORPORATE THEM INTO
03 THE CONTRACT AS WELL
AS THE LC AND INVOICE
 LESSON
2

THE END