17 Dec
Understanding Incoterms 2020: Important Rules in Export–Import
In international trade, clear roles between sellers and buyers are mandatory. Without clear rules, the shipping process can cause confusion, unexpected costs, and even disputes. Therefore, the International Chamber of Commerce (ICC) publishes Incoterms, a set of international rules governing the division of tasks, costs, and risks in cross-border sales transactions.
Incoterms provide guidance on who handles documents, who pays shipping costs, who arranges insurance, and when the risk of goods transfers. When both parties understand the chosen Incoterms, the export-import process can run more securely, structured, and professionally.
Read also: What is HS Code: How to Find HS Code
In the 2020 version, ICC categorizes Incoterms into two categories: rules applicable to all modes of transport, and rules applicable only to sea and inland waterway transport. Here is the complete explanation.
Incoterms 2020 For All Modes of Transport (7 Rules)
1. EXW – Ex Works
The seller makes the goods available at their premises. All costs and risks from the moment the goods are picked up are borne by the buyer.
2. FCA – Free Carrier
The seller delivers the goods to the agreed location or carrier. Risk transfers when the goods are handed over.
3. CPT – Carriage Paid To
The seller pays the freight charges to the destination, but the risk transfers earlier—namely when the goods are handed over to the first carrier.
4. CIP – Carriage and Insurance Paid To
Similar to CPT, but the seller is also obliged to cover insurance up to a certain point.
5. DAP – Delivered at Place
The seller delivers the goods to the destination. The buyer bears the unloading costs.
6. DPU – Delivered at Place Unloaded
The seller delivers and unloads the goods at the destination.
(DPU replaces DAT.)
Read also: Understanding the Customs Clearance Process in Goods Import
7. DDP – Delivered Duty Paid
The seller bears all costs and processes, including import duties. The buyer only receives the goods.
Incoterms 2020 For Sea & Inland Waterway Transport (4 Rules)
8. FAS – Free Alongside Ship
The seller delivers the goods alongside the ship. Risk transfers to the buyer.
9. FOB – Free on Board
The seller bears the costs until the goods are on board the vessel. After that, the risk belongs to the buyer.
10. CFR – Cost and Freight
The seller pays the shipping costs to the destination port, but the risk transfers when the goods are on board the vessel at the port of loading.
11. CIF – Cost, Insurance and Freight
Similar to CFR, but the seller also covers insurance. Risk still transfers when the goods are on board the vessel.
Usage of Older Incoterms Versions
Although ICC recommends the use of Incoterms 2020, previous versions such as 2010 are still valid if agreed upon by both parties and clearly stated in the contract.
What Incoterms Do Not Regulate
Read also: Standard Operating Procedure (SOP) for Logistics Goods
Incoterms do not cover all details of a sales contract. These rules do not specify payment methods, do not regulate the transfer of ownership, and do not establish dispute resolution mechanisms. Therefore, Incoterms should be used as part of a more comprehensive and detailed sales contract.
ICC provides official Incoterms 2020 documents that can be accessed through its official website for companies or individuals who wish to study the details of these rules. https://2go.iccwbo.org/incoterms-2020-eng-config+book_version-Book/
Need Help Managing International Shipments?
If you want to ensure your export-import process runs smoothly, safely, and in compliance with regulations, Hyper Mega Shipping (HMS) is ready to assist.
HMS provides integrated international freight forwarding services, from document processing and route planning to door-to-door delivery.
Contact us for a more efficient and hassle-free shipping consultation.
