Promulgated by the International Chamber of Commerce, Incoterms® are a set of international standards for the uniform interpretation of common contract clauses in international trade. The ICC is the largest business organization in the world and published its first set of Incoterms® in 1936. The Incoterms® are updated every 10 years. Incoterms® 2020 comprises the latest revisions and should be used exclusively starting January 1, 2020. Incoterms® are internationally recognized terms of agreement for buying and selling goods across the globe, and are agreed upon between the seller and buyer in regards to when the risk and responsibility of the goods and transport are transferred. There is a set of 11 terms used in contracts for the sale and purchase of goods, and describe obligations, risks and costs.
Major Changes from Incoterms® 2010 to Incoterms® 2020:
- The Incoterms® 2020 design is more user-friendly than 2010
- DAT, Delivered at Terminal was omitted.
- DPU, Delivered to door & unloaded was added.
- The CIP default insurance coverage has been changed from "Free of Particular Average" to "All Risk."
Note, CIF default insurance coverage has not been changed and the default is still "Free of Particular Average."
- Cost items are now spelled out under the "Seller" and "Buyer," making it easier to understand where the cost is borne.
- The new Incoterms® point out risks exist when a buyer or seller becomes the importer or exporter of record in a foreign country.
- The security requirements in relation to transportation-related issues are covered in Incoterms® 2020.
- FCA & FOB Bills of Lading
- Incoterms® 2020 are now written to include arrangement of freight by non-carriers.
Scarbrough is offering a FREE 30-minute consultation to shippers and importers looking for help with strategies on supply chain optimization and adding to their bottom line. Our Incoterms® consultation will ensure your company is buying or selling on the best terms for your situation. Email firstname.lastname@example.org or fill out the form below.
Download Incoterms® 2020 PDF Chart
We have created a handy downloadable PDF which indicates where the risk is transferred from the seller to the buyer, as well as delivery and cost of goods.
Please insert your information to the right to receive a PDF version of the chart.
This chart will print on a letter sized paper.
Feel free to contact us for cardstock copies at email@example.com.
Incoterms® are not law nor binding.
They are only used as a guidance guide and represent different ways international shipments are bought and sold.
Rules of Thumb
- The party responsible for transport arrangement and payment of transportation charges is in control of the cargo
- The more responsibility the party has, the more control they have... but must also consider the risk involved!
The Incoterms® rules describe:
- Obligations: Who does what as between seller and buyer. For example: Who organizes carriage or insurance of the goods or who obtains shipping documents and export or import licenses.
- Risk: Where and when the seller “delivers” the goods, in other words where risk transfers from seller to buyer. There is a lot of risk associated to becoming importer and exporter of records depending on Incoterms® selected. An organization must consider the risk in compliance with local regulations and Customs formalities.
- Costs: which party is responsible for which costs. For example: transport, packaging, loading or unloading costs, and checking or security-related costs.
The Incoterms® rules do NOT:
- Automatically apply. They must be specified.
- Determine ownership, transfer of title or ownership of goods
- Determine payment terms between seller & buyer
- Act as a substitute for a contract, define contractual rights (except for delivery) or breach of contract remedies
- Protect parties from their own risk or loss, cover the goods before or after delivery
- Specify details of the transfer, transport or delivery of the goods
For example: Container loading is NOT considered packaging, and must be addressed in the contract. By the way, DPU is the only Incoterm that specifies unloading.
As mentioned above, Scarbrough's Incoterms® consultation will ensure your company is buying or selling on the best terms for your situation. Email firstname.lastname@example.org or fill out the form below.