HomeCommercial TermsINCOTERMS 2020 Rules - Latest 2021 Guide with best Incoterms Infographics

INCOTERMS 2020 Rules – Latest 2021 Guide with best Incoterms Infographics

INCOTERMS is an abbreviation for International Commercial Terms. Incoterms are a set of rules published by the International Chamber of Commerce (ICC) that are widely used globally for the purpose of commercial transactions or procurement of shipment.

Incoterms in 2021 – Everything that you need to know!

Incoterms is an acronym for “International Commercial Terms.” incoterms are widely used globally for the purpose of commercial transactions or procurement of shipment.

If you are into the logistics or import-export business, then you might have heard of Incoterms rules. If you are planning to participate in global trade business this blog will serve as a guide to understand incoterms in detail. For ease of reading this article, you can click on the sub-topics mentioned below in the table of contents menu to scroll through the blog.

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Introduction to Incoterms Rules

Incoterms are globally recognized commercial terms for import and export. It is like a common language of global traders. Incoterms are the most basic import-export terms you should know if you are planning to start an import and export business.

Incoterms by eximpedia.com and importexportindia.com
  • Full form of Incoterms – The ‘Incoterms’ acronym stands for ‘International commercial terms’ where ‘In’ stands for ‘international’, ‘Co’ stand for ‘commercial’ and ‘terms’ means something that describes.
  • Published by – International Chamber of Commerce (ICC)
  • Year – Incoterms were established in the year 1936. It is updated every 10 years and latest update or recent update was in September 2019 which came into effect from 1st January 2020.
  • Definition of Incoterms – The Incoterms or International Commercial Terms are a series of pre-defined commercial terms relating to international commercial law.
  • Types – There are officially 11 types if Incoterms divided in 2 groups. Group 1 has 7 incoterms which are used for all (any) modes of transport and Group 2 had 4 Incoterms which are used for sea and inland waterways transport.

List of Incoterms 2020

GROUP 1
FOR ALL OR ANY MODES OF TRANSPORT
GROUP 2
FOR SEA AND INLAND WATERWAYS
1. EXW – Ex Works1. FAS – Free Alongside Ship
2. FCA – Free Carrier2. FOB – Free on Board
3. CPT – Carriage Paid To3. CFR – Cost and Freight
4. CIP – Carriage and Insurance Paid4. CIF – Cost Insurance and Freight
5. DAP – Delivered at Place
6. DPU – Delivered at Place Unloaded
7. DDP – Delivered Duty Paid
INCOTERMS 2020 Table
List of Incoterms 2020 - group 1 and group 2 of Incoterms

What are Incoterms?

  • Incoterms are globally accepted commercial terms for trade. Trade here means import and export.
  • It gives importers and exporters (also known as buyer and seller or shipper and consignee) clear terms to put in their contracts of trade as these same incoterms are used globally.
  • It enables you to evaluate the risks till you receive the goods. Since these Incoterms are globally accepted it eliminates any confusion between domestic trade and international trade.
  • Some incoterms 2020 can be applied to all modes of transport and some only to sea or waterways.
  •  Inco terms are like a common language that is used by all international traders globally. All Incoterms or Each Incoterm is abbreviated by 3 letters example: EXW, FCA, CPT, CIF etc.
  • By using Incoterms it becomes easy to understand the risk involved and till where you will have to bear the risk as a seller/buyer.
INCOTERMS explained through Instagram Reel on Eximpedia

Key Notes for using Incoterms in trade

  • International Chamber of Commerce (ICC) changes the incoterms 1936 periodically, at present the period is every 10 years. Currently Incoterms 2020 are used globally.
  • Trade Contracts should specify which incoterms you are using example: Incoterms 1936, Incoterms 1953, Incoterms 1967, Incoterms 1976, Incoterms 1980, Incoterms 2000, Incoterms 2010, Incoterms 2020 etc. Click here for TimeLine of Incoterms.
  • All Incoterms of previous do not exist! Currently only Incoterms 2020 are in effect and Incoterms 2010 remains for those using it.
  • All Incoterms appear identical in different countries, but they have different meaning when they are being used domestically. Hence, while making trade contracts one should keep this in mind.

What are INCOTERMS in Hindi. Incoterms 2020 are explained in Hindi with examples. DO watch it and Subscribe to the Eximpedia YouTube channel.

All Types of INCOTERMS 2020

There are 11 types of Incoterms 2020 divided into 2 groups. Group 1 consists of 7 INCOTERMS which apply to all or any modes of transport and 4 Incoterms are specifically used for sea or inland waterways. Incoterms are abbreviated by 3 letters for easier communication.

To understand the Incoterms 2020, we must first know the Transportation Chain or Transportation process of goods in import and export. It is also known as Logistical Chain.

Incoterms list with all 11 incoterms explanation

1. Exworks (EXW)

If ex-works or EXW incoterms are agreed between the seller and the buyer then the seller’s obligations are simple. The seller will only cover the cost of the goods and the export packaging. So the seller will manufacture the goods and have them packaged and ready for collection from their warehouse. From there on all additional costs and risks involved in transportation from the warehouse are covered by the buyer. Insurance here is negotiable and buyer and seller can decide mutually on who will bear the insurance costs.

2. Free Carriage (FCA)

Under FCA incoterm, the seller will cover export duties, taxes, and customs clearance to get the products prepared for export. From there on all additional costs and risks are covered by the buyer. Insurance here is negotiable and buyer and seller can decide mutually on who will bear the insurance costs.

3. Free Alongside Ship (FAS)

Under FAS incoterm the seller will cover the terminal handling charges, costs, and risks till the origin terminal. After the seller places the goods alongside the ship, from there on the risk is transferred to the buyer. Insurance here is negotiable.

4. Free On Board (FOB)

FOB Incoterm is the most common and widely used incoterm. It is generally used for containerized trade. When FOB terms are agreed upon, the seller has to bear all the risk and costs involved until the goods are actually loaded on board. That means the seller will pay for the loading charges to load the goods on board ready for export. Once the goods are loaded on board, all further associated costs and risks are transferred to the buyer. The buyer will pay for the international freight and all charges thereafter. Insurance here is negotiable.

5. Cost and Freight (CFR)

When the seller agrees to pay the international freight and carrier costs till the destination port then they can choose to sell the goods on CFR Incoterm. Once the goods reach the port, the risk and costs thereon are transferred to the buyer. Insurance here is negotiable.

6. Cost Insurance and Freight (CIF)

When the seller agrees to pay for insurance along with international freight and carrier costs till the destination port they can use CIF Incoterm for trade. Therefore, we can see that CFR & CIF incoterms are very similar. Only if the seller agrees to pay for insurance, CIF is used otherwise it is CFR. Same as CFR, once the goods reach the port, the risk and costs thereon are transferred to the buyer. Both CIF & CFR are only used for waterways transport. The minimum insurance cover in CIF is invoice value + 10% (i.e. 110%).

7. Carriage Paid to (CPT)

When the seller agrees to pay till the destination port handling charges CPT incoterm is used. When the goods reach the destination terminal and terminal handling charges are paid by the seller from thereon the cost is transferred to the buyer. Insurance here is negotiable.

8. Carriage and Insurance Paid to (CIP)

When the seller agrees to pay till the destination port handling charges and also pays for insurance then CIP Incoterm is used. When the goods reach the destination terminal port handling charges are paid by the seller from thereon the risk is transferred to the buyer. Therefore, we can see that CPT & CIP incoterms are very similar. Only if the seller agrees to pay for insurance, CIP is used otherwise it is CPT. CPT and CIP incoterms are used for any or all modes of transport. The minimum insurance cover in CIP is invoice value + 10% (i.e,110%).

9. Delivered At Place (DAP)

If DAP Incoterm is agreed upon by the seller, the seller will deliver the goods at the buyer’s place but not get it unloaded. Seller will cover the costs and risk till the goods reach the place of delivery. Once the goods reach the place of delivery, the seller’s obligation is over and now the buyer will pay for unloading costs and also pay the import duty & taxes and do the customs clearance. Insurance is negotiable.

10. Delivered at Place Unloaded (DPU)

Unlike DAP incoterm, if DPU incoterm is used then the seller will pay till the goods are unloaded at the place of delivery, which means here the seller will pay the unloading cost too after delivery is done. As soon as the goods are unloaded by the seller, the risk is now transferred to the buyer and now the buyer will pay the import duty & taxes and do the customs clearance. Insurance is negotiable.

11. Delivered Duty Paid (DDP)

When DDP incoterm is agreed upon, the seller has the obligation to pay all costs and bear the risks involved till the goods reach the place of delivery. Here, the seller will pay the import duty & taxes and do the customs clearance in the destination country or buyer’s country. The buyer will only be responsible for unloading the goods at the place of delivery mentioned by himself. Rest all the risks are on the seller. Hence, DDP incoterm is beneficial for the buyer. Insurance is negotiable.


What are main aspects of Incoterms 2020?

All 11 Incoterms names
  • For import-export we should know –
    1. Who is responsible for main carriage in Incoterms 2020? – Buyer or seller?
    2. If seller is responsible for main carriage where does the risk pass from seller to buyer?
  • This helps us classify Incoterms 2020 in 4 important groups –
    1. Buyer responsible for all Carriage – EXW
    2. Buyer arranges main Carriage – FAS, FOB, FCA
    3. Seller arranges main Carriage, risk passes after main carriage – DPU, DAP, DDP
    4. Seller arranges main Carriage but risk passes before main carriage – CFR, CIF, CPT, CIP
  • So there are two things to keep in mind before understanding Incoterms 2020
    1. Carriage costs – Transport & Main carriage (ship/aircraft/train/truck)
    2. Risk Transfer

Key Major Changes in INCOTERMS 2020

  • DAT is replaced by DPU: DAT meant delivery at terminal. It is replaced by DPU (Delivery at place unloaded) as the place cannot just be terminal but any named place like the buyer’s factory etc.
  • CIP & CIF Insurance cover: There are certain incoterms like CIP (Carriage and Insurance Paid to) and CIF (Cost Insurance and Freight) wherein insurance is mandatory up to certain level. This level is now increased and now under these levels there is higher level of cover that will need to be done. The level is increased in Incoterms 2020 as now CIP is complaint with the Institute Cargo Clauses (A) OR similar clauses and CIF which is used in sea trade, this remains at the default level of coverage. However, higher level of insurance cover can be opted by the parties as per their contract.
  • Allocation of Costs: Due to rising disputes on clarity of allocation of costs, Incoterms 2020 has now very precise allocation for costs. For example, there were many disputes on terminal handling charges that were paid by the seller due to ships changing their pricing. This has been precisely taken care of in article A9/B9 of the rules.
  • More Security: Article A4 for security of carriage and A7 for export/import clearance now provide more in detail security obligations. This was done as the demand for greater transport security for freight. Mandatory container scanning is also included.
  • Transport: In Incoterms 2010, it was assumed that the seller and buyer were using third party transport. Incoterms 2020 considers that seller may use his own transport means under DAP, DPU & DDP rules and buyer also may use his own transport means under FCA rule.
  • Bill of Lading (B/L): In the past, in many cases the ship refused to issue bill of lading if the goods were not received from the seller directly example- sometimes ship receives the goods from the truck, so they refuse to issue bill of lading. In Incoterms 2020, this issue has been resolved under FCA incoterm and now the buyer can tell the ship to issue the bill of lading to the seller and the seller then sends this bill of lading to the buyer.

FAQs on INCOTERMS 2020

Who uses INCOTERMS?

Incoterms are basically used by parties involved in Domestic and International trade. They are commonly known as importers and exporters or international traders or domestic traders. Other terms used for parties involved in Incoterms are buyer and seller, consignee and shipper, consignee and consigner, importer, and exporter.

Who decides Incoterms rules?

As incoterms apply to the entire world it is very carefully curated by 13 ICC commissions and members on these commissions are private sector industry experts. They are experts from their immediate fields to international businesses. They keep updating the rules as per the industry changes and growth.

Where are Incoterms used?

Since Incoterms specifies who is responsible for paying for shipment and managing risk for shipment as well as insurance, documentation, customs clearance, and other logistical activities it is used by domestic and international traders for import and export of goods. Incoterms do not apply for services. During import and export, these terms help the parties to identify and plan the risks and costs involved for a particular shipment as per the mutual contracts made by them using Incoterms. Incoterms 2020 do not apply for goods before or after delivery.

How are Incoterms used?

Incoterms are used in contracts when there involves trading of goods such as import and export contracts. When you are planning to import or export any goods the buyer or seller will ask you the incoterm to be used in the contract that you will be making for exporting or importing. You can decide which incoterm will be most useful for you. Example: If you are a seller then EXW incoterm will be beneficial and if you are the buyer then DDP incoterm will be beneficial. Depending on your mutual understanding with the opposite party you can decide on any other incoterm to be used for your trade.

Why are Incoterms used?

Incoterms help buyer/seller or importer/exporter identify their responsibility as to – who will be paying for Managing the shipment, logistical activities involved, Insurance for goods, documentation needed for customs and other purposes, customs clearance work, etc. Incoterms give a clear picture to calculate risks and costs that will be involved in trade and to makes agreements between parties easier to deal with. It eliminates inconsistencies in language if any. This helps in reducing risks at both ends and both parties are aware of their responsibilities.

Can incoterms be used for domestic transport?

Yes, incoterms can be used for domestic transport as well as it acts as a guide for any transport contract between seller and buyer. It is important to discuss terms carefully beforehand.

Incoterms 2020 with examples

All 11 Incoterms names with full forms

Below are 11 incoterms 2020 explained in detail with examples –

Let’s assume, you are an exporter of caps in India, and you have your factory/warehouse in Mumbai. You have a client, who is an importer of caps in the USA who has his warehouse in Boston.

He places an order with you for 10,000 caps. You both decide the Incoterm and make the contract as per your choices and communication. Now you must export 10,000 caps to the USA from India. So here you become the seller/exporter and your client becomes the buyer/importer.

Let’s see how different incoterms will work in this case – In each Incoterm you have to understand 3 basic things RISK, COST & INSURANCE.

1. Exworks EXW

  • You must export 10,000 caps from India to USA in the buyer’s warehouse in Boston on exworks basis.
  • RISK & COSTS – As per the rule, you will pack the 10,000 caps and keep it in your factory/warehouse in Mumbai ready for the buyer to pick up and that’s it once you pack the goods and keep at place agreed between you and your buyer which can be your factory/warehouse your risks & costs are transferred to buyer.
  • Now for some reason your buyer is not able to arrange for transport to pickup from your warehouse till customs port in India. You say you will help the buyer and hence you arrange the transport. Although you have arranged for transport the risks and cost will still be of buyer only. Your risks and costs are over when you packed the goods and kept.
  • Practically, even if you have agreed on exworks, still you might have to interfere at various points in customs clearance till the goods are out of India. So, consider this while making the contracts.
  • INSURANCE – This will be as per your contract terms. This incoterm does not include insurance.

2. Free Carriage FCA

  • You must export 10,000 caps from India to USA in the buyer’s warehouse in Boston on FCA basis.
  • RISKS & COSTS – You must bear the risks and costs till the terminal or main carriage (ship) or forwarder’s warehouse as your buyer says or as you both have agreed in contract. You will have to arrange for a carrier that might be a truck and load the 10,000 caps in the truck at your factory in Mumbai. Make all the documents required for export clearance in customs, pay the duty and taxes and clear the goods for export and as soon as it reaches the terminal your risks and costs are over. The shipping line of the main carrier will unload the goods and load it on the ship and give you the bill of lading.
  • Once your truck reaches the terminal your risk and costs are transferred to buyer. Terminal handling costs will be based on your contract terms. Carriage which is a truck in this case will be responsible to unload the goods.
  • If there are multiple carriage for transport to terminal than your risk will be transferred to first carrier once the goods reach the named place.
  • INSURANCE – This will be as per your contract terms. This incoterm does not include insurance.

3. Free Alongside Ship FAS

  • FAS is used mostly for bulk or non-containerised cargo that is if you are not sending your 10,000 in a container. If you want to send those caps in container then you can use FCA instead. Also, FAS in only used for sea or inland waterways.
  • RISKS & COSTS – Here the process remains same as FCA, only difference is you unload the goods from the truck and keep it alongside or near the ship. Once you unload and keep it near the ship your risks and costs are transferred to buyer. Now your buyer will be responsible to loading the goods on the ship.
  • Again here, mention in your contract terms who will bear the terminal handling costs for loading the goods on the ship.
  • INSURANCE – This will be as per your contract terms. This incoterm does not include insurance.

4. Free on Board FOB

  • FOB is used mostly for bulk or non-containerised cargo that is if you are not sending your 10,000 in a container. If you want to send those caps in container then you can use FCA instead. Also, FOB in only used for sea or inland waterways.
  • When the goods are loaded on ship and are on ship it is called as the goods are ‘on board.’ Just like when we travel and sit in a plane we are ‘on board’. Again, FOB is only used for sea or inland waterways and would be safe to use for bulk and non-containerised cargo. For containerised goods it is best to use FCA.
  • RISKS & COSTS – Same procedure is same as FAS, but here you move one step ahead and place your goods on board, that is on the ship. Once you place the goods on board, the risk is transferred to your buyer.
  • You will pay for unloading goods from truck and loading of goods on ship in India. From here onwards your buyer will bear all the costs and risks.

5. Cost and Freight CFR

  • CFR is used mostly for bulk or non-containerised cargo that is if you are not sending your 10,000 in a container. If you want to send those caps in container then you can use CPT instead. Also, CFR in only used for sea or inland waterways.
  • RISK – Risk is transferred to buyer when you load the goods on board same as FOB,
  • COSTS – You must bear the costs till the ship reaches USA port terminal.
  • In FOB you must bear costs only till you load the goods on board, in CFR you must bear it till USA port.
  • So here, transfer is risk happens when the goods are on board and transfer of costs happen when goods reach USA port. This is the major difference between FOB and CFR.
  • INSURANCE – This will be as per your contract terms. This incoterm does not include insurance.

6. Cost Insurance and Freight CIF

  • CIF is used mostly for bulk or non-containerised cargo that is if you are not sending your 10,000 in a container. If you want to send those caps in container then you can use CIP instead. Also, CIF in only used for sea or inland waterways.
  • This is exactly same as CFR only difference here is the ‘insurance’.
  • RISK – Risk is transferred to buyer when you load the goods on board same as FOB,
  • COSTS – You must bear the costs till the ship reaches USA port terminal.
  • INSURANCE – You as a seller must arrange for insurance of goods as this incoterm specifically mentions insurance. This insurance will be from India’s port till USA port. Since the insurance cover required is of minimum level it is advisable to discuss the same with the buyer in advance and mentioned the same accordingly in the contract. The minimum insurance cover in CIF is invoice value + 10% (i.e. 110%).
  • Transfer is risk happens when the goods are on board and transfer of costs happen when goods reach USA port and minimum level of insurance is the responsibility of the seller.

7. Carriage Paid To CPT

  • RISK – Here, your risk is over when the goods are taken incharge by the main carrier.
  • COSTS – but you must arrange the main carrier from India till the destination port that is in USA
  • INSURANCE – This will be as per your contract terms. This incoterm does not include insurance.
  • One point to remember is, Once the goods reach USA terminal, the terminal operator will pay the terminal handling charges, in case he does not pay which depends as per shipping line policies, then it should be mentioned in your contract who will pay the THC.

8. Carriage and Insurance Paid To

  • Same as CPT, only difference is insurance.
  • RISK – Here, your risk is transferred to buyer when the goods are taken incharge by the main carrier.
  • COSTS – but you must arrange the main carrier from India till the destination port that is in USA
  • INSURANCE – You as a seller will have to arrange for insurance from port terminal in India till port terminal in USA. Since this is minimum level of insurance required for this incoterm, you must discuss with your buyer regarding insurance terms for the goods. The minimum insurance cover in CIP is invoice value + 10% (i.e,110%).
  • One point to remember is, Once the goods reach USA terminal, the terminal operator will pay the terminal handling charges, in case he does not pay which depends as per shipping line policies, then it should be mentioned in your contract who will pay the THC.

9. Delivery at Place DAP

  • Here you arrange for the main carrier say example ship till USA port arrange for transport where the buyer tells you to deliver, and you must deliver to that named place and keep the goods ready for unloading in Boston, USA.
  • All import clearance process and payment of taxes and duty will be done by the buyer
  • RISK – so, your risk is transferred here when you make the goods just ready for unloading. Unloading the goods will be your buyer’s risk.
  • COSTS – you must bear all the costs till the goods are kept ready for unloading but you don’t have to do the import clearance and pay the duty or taxes.
  • INSURANCE – This will be as per your contract terms. This incoterm does not include insurance.

10. Delivered at Place Unloaded DPU

  • This is one incoterm that was introduces in Incoterm 2020.
  • As, per this DPU rule you must deliver the goods to the named place of buyer and also unload it there. This place can be buyer’s warehouse or transport hub as mentioned in your contract. Place should be very precisely mentioned in this case.
  • Your buyer will pay for the import clearance in USA and pay all duty and taxes applicable there for the shipment.
  • RISK – risk is transferred to the buyer when the goods are unloaded by you from the transport vehicle.
  • COSTS – You must bear all the costs till the goods are unloaded at a named place of buyer except for import clearance charges, customs duty and taxes.
  • INSURANCE – This will be as per your contract terms. This incoterm does not include insurance.

11. Delivered Duty Paid DDP

  • If DDP is your incoterm, then the responsibility on you is much more. You have do your export clearance, pay all export duties, arrange for main carriage, unload and load the goods and then do the import clearance in USA and also pay import duties & taxes there and the deliver it to the named place of the buyer and keep it ready for unloading there.
  • RISK- Just like DAP, your risk is transferred here when you make the goods just ready for unloading. Unloading the goods will be your buyer’s risk.
  • COSTS – Here, you must do the import clearance and pay the import duties and taxes that are applicable in Boston, USA along with all other charges expect for charges for unloading at the named place of buyer.
  • INSURANCE – This will be as per your contract terms. This incoterm does not include insurance.
  • DDP is not preferred because it becomes highly problematic for the seller to do all formalities at customs as taxes and charges are different for every country. It is also goods if the buyer does the clearance as they are aware about their local laws and rules.

INCOTERMS TIMELINE – or HISTORY OF INCOTERMS

INCOTERMS TIMELINE | HISTORY OF INCOTERMS
  • 1923: The International chamber of commerce(ICC) along with National committees came up with the first six rules of in 1923 namely FOB, FAS, FOT, FOR, CIF, C&F also known as the forerunners which later be known as Incoterms. This was first ever initiative taken to facilitate international trade. A study was carried out for these 6 terms for only 13 countries.
  • 1928: Based on the findings and discrepancies identified in the first study/survey, a second survey was initiated and this time it was carried out on 30 countries.
  • 1936: Established in the year 1936 by the ICC based in Paris. Guidelines were issued globally to all countries of the world and Incoterms were FAS, FOB, C&F, CIF, Ex ship and Ex Quay.
  • 1946: The first review was undertaken after 10 years of establishment making a first new version of Incoterms 1936.
  • 1953: Incoterms of 1953 were discussed at Vienna Congress. Due to World War II supplementary revision of Incoterms were suspended and did not start till 1950’s. Hence, first revision of Incoterms was issued in 1953 wherein 3 new trade terms were introduced as rail transport was on rise. The 3 new rules were DCP (Delivered Cost Paid), FOR (Free on Rail) and FOT (Free on Truck)
  • 1967: The third version in Incoterms were introduced as there were many misinterpretations in the previous terms. Two new terms were added to take into account delivery terms which are DAF (Delivery at frontier) and DDP (Delivery at Destination)
  • 1974: In 1974, air transportation started increasing and therefore certain incoterms for air had to introduced with a revision to regulate it and hence FOB airport (Free on Board airport) was introduced.
  • 1980: Due to rapid increase in container traffic and large amount of goods being sent by containers a new revision was made here and the term FCR (Free Carrier) was introduced which considered goods not received by the ship but at the counter like a container yard on land. This gave clarity that different modes of transport are used till goods reach ship. In the same year FCR was revised to FCA. Just the change of acronym with no change in the meaning as it was easier to understand.
  • 1990: This was the fifth revision in Incoterms wherein the terms were simplified. The terms FOR (Free on Rail), FOT (Free on Truck), FOB airport (Free on Board airport) were all deleted and FCA (Free carrier) was considered enough to be used as a general terms and the era of electronic messages had started taking pace.
  • 2000: Importer and exporter issues were taken into consideration and the sections of Licenses, authorisations and formalities of FAS and DEQ Incoterms rules were modified, and hence custom authorities could address the importer exporter issued for evidently.
  • 2010: The D-family was taken into consideration in this revision. Incoterms DAF (Delivered at Frontier), DEX (Delivered Ex ship), DEQ (Delivered Ex quay) and DDU (Delivered Duty Unpaid) were all removed, and DAT (Delivered at Terminal) and DAP (Delivered at Place) were added. There were certain other modifications like more obligations were placed on buyer and seller with respect to their trade transparency.
  • 2020: The most recent incoterm rules that are been used are Incoterms 2020. It was launched in September 2019 and came into force in January 2020.

10 Common Mistakes made while using INCOTERMS

Eximpedia has listed commonly made mistakes while using Incoterm rules. These mistakes should be avoided to minimize risks and know the responsibility

1. Using the ‘sea and inland waterways’ specific rules for ‘any modes of transport’ example: using FOB or CIF for air or train when it should only be used for sea shipments. This increases risk for the parties involved. Example: During Tsunami in 2011 in Japan which damaged the Sandai terminal, many shipments that were waiting for dispatch were damaged. Parties that were using the wrong rule.

2. It needs to be mentioned in the sales contract specifically when the title passes on to the buyer. Making assumptions just based on the Incoterm rule will create confusion and lead to disputes. Incoterms remain silent and the specifications in contract takeover while doing actual shipments.

3. Specific Port or Place is not mentioned precisely eg: FCA India, which can refer to many places in India. It should be mentioned FCA Nhava Sheva.

4. Trying to get DDP without understanding whether the other party can do all payment formalities here. Example: paying GST or other applicable taxes in India.

5. Trying to get EXW without understanding that buyer might have to talk to different authorities in a number of different ways and implications that buyer might have faced while doing the same in some countries for doing the export procedures.

6. Not checking contract terms with respect to insurance coverage when choosing CIP or CIF. Sometimes a minimum cover is required by these incoterms which might not suffice the entire shipment.

7. Failure to think from all sides if more than one carrier is involved. If the goods need to be transferred from one carrier to another then the responsibility terms and it might become difficult if the loss or damage occurs to identify the party to be held responsible.

8. Clearing terms on terminal handling charges (THC) when goods reach the customs port. Some shipping companies include the THC in the freight rates and some do not. So these charges must be discussed well before the shipment arrival.

9. If the payment is based on a Letter of Credit (LC) or payment against documents then in such a case Incoterms might not align as per the requirements of banks or security. Such terms must be cleared in the contract itself.

10. When DAT/DPU or DAP has been agreed on with a post-clearance delivery point, it is important to calculate costs and time as such these incoterms might lead to delays and extra costs to the seller as the shipping lines and customs might not work in liaison.

What Incoterms do not Cover?

In all articles of Incoterms, we cover what incoterms do and how to use them, but it is also very important to know what incoterms do not do to use them.

Please note that Incoterms are not your contract of sale. Instead, incoterms are to be used in your contract of sale. Incoterms cannot be assumed to be your contract of sale substitute.

Below are 8 important points that incoterms 2020 do not do or do not cover-

Incoterms does not –

1. Address all the conditions of sale nor can identify if the contract of sale exists.

2. Identify the type of products/goods that are being sold or dealt with.

3. Provide a list of the contract prices or the price of the goods.

4. Provide the time period, place, method, or any reference whatsoever for the payment negotiated between buyer and seller.

5. The transfer of ownership of goods from the seller to the buyer.

6. Mention documents to be provided by the seller to the buyer or vice-versa for the customs clearance process in their country of clearance.

7. Deal with any sort of delayed delivery for whatsoever reasons.

8. Deal with situations where goods are not as per contract of sale.

Important points to be noted

  • Only Incoterms do not complete the contract of Sale. It is just one part of contract.
  • This article is just for reference, kindly read the latest version of Incoterms®2020 rules published by International chamber of commerce (ICC) and protected by copyright. The revised rules reflect the latest developments in commercial transactions. As of January 1,2020, all sales contracts should include reference to Incoterms® 2020 rules. You may Obtain Incoterms® 2020 visit the ICC website
  • You can purchase the official Incoterms® 2020 book from the International Chamber of Commerce here.
Incoterms by eximpedia.com and importexportindia.com

**Disclaimer

This information has been provided as a resource to help importers, exporters, and students with Incoterms®. This page is not legal advice, and the information provided is not the official legal or full definition of each Incoterm. When pursuing a specific transaction, you are encouraged to conduct your own due diligence and to consult legal counsel as appropriate. Licensed freight forwarders may also be helpful.


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