The Top Complete guide to Incoterms Explained in 2022
Incoterms® 2020 Explained, how they will affect global trade
Incoterms, or International Commercial Terms, is a set of 11 guidelines developed by the International Chamber of Commerce to help buyers and sellers in international trade transactions communicate more effectively.
What is an incoterm?
The International Chamber of Commerce has released new Incoterms® 2020, which will take effect on January 1, 2020. The International Chamber of Commerce (ICC) first issued Incoterms® in 1936 and has continued to update them to reflect developments in the global trade environment. It’s critical that all trade participants understand the developments and how they affect global supply networks.
Incoterms® are extremely important in the world of global trade. Although Incoterms® 2010 or 2020 may appear confusing, it is critical that buyers and sellers understand how they work and their own responsibilities across the supply chain. We describe the changes made in this post and provide straightforward explanations, as well as an Incoterms® infographic to explain Incoterms® 2020.
Note: The information in this article and chart is provided solely for educational reasons and should not be construed as personalised legal or professional advice.
Knowing your incoterms is crucial if you are shipping products since it helps you identify who is in charge of what in your supply chain.
Learn all there is to know about incoterms and how to pick the best one for your cargo by reading on.
A summary of the Incoterms® 2022 for 11 Terms and 7 for any mode of transportation.
EXW – Ex-Works or Ex-Warehouse
Ex-works is when the 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.).
The seller does not need to load the goods on any collecting vehicle. Nor does it need to clear them for export, where such clearance is applicable.
FCA – Free Carrier
The seller delivers the goods to the carrier or another person nominated by the buyer at the seller’s premises or another named place.
The parties are well advised to specify as explicitly as possible the point within the named place of delivery, as the risk passes to the buyer at that point.
FAS – Free Alongside Ship
The seller delivers when the goods are placed alongside the vessel (e.g., on a quay or a barge) nominated by the buyer at the named port of shipment.
The risk of loss of or damage to the goods passes when the products are alongside the ship. The buyer bears all costs from that moment onwards.
FOB – Free On Board
The seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment or procures the goods already so delivered.
The risk of loss of or damage to the goods passes when the products are on board the vessel. The buyer bears all costs from that moment onwards.
CFR – Cost and Freight
The seller delivers the goods on board the vessel or procures the goods already so delivered.
The risk of loss of or damage to the goods passes when the products 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
The seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the products are on the ship.
The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.
The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage.
The buyer should note that under CIF the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.
CPT – Carriage Paid To
The seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such site is agreed upon between parties).
The seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination.
CIP – Carriage And Insurance Paid To
The seller has the same responsibilities as CPT, but they also contract for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage.
The buyer should note that under CIP the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.
DAP – Delivered At Place
The seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination.
The seller bears all risks involved in bringing the goods to the named place.
DPU – Delivered At Place Unloaded (replaces Incoterm® 2010 DAT)
DPU replaces the former Incoterm® DAT (Delivered At the Terminal). The seller delivers when the goods, once unloaded are placed at the disposal of the buyer at a named place of destination.
The seller bears all risks involved in bringing the goods to and unloading them at the named place of destination.
DDP – Delivered Duty Paid
The seller delivers the goods when the goods are placed at the disposal of the buyer, cleared for import on the arriving means of transport ready for unloading at the named place of destination.
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, pay any duty for both export and import and carry out all customs formalities.
Incoterms for Air Freight
Incoterms commonly used for air shipments are:
EXW (Ex-works), in which the buyer assumes responsibility at the seller’s warehouse and takes care of everything including transportation and insurance.
CIP (Carriage and insurance), which puts responsibility for insurance on the seller.
CPT (Carriage Paid To), in which the seller delivers the goods and covers all fees involved in delivering the goods to the named destination. After delivery, the buyer assumes responsibility.
DDP (Delivered Duty Paid), which puts most obligations on the seller. They carry all the costs and risks of transport, insurance, and customs clearance. This is the only incoterm that lists the seller as the importer of record at the destination.
DAP-Delivered At Place, where the seller covers the costs involved in the main carriage but is not responsible for customs clearance.
Download a simple chart with all Incoterms® 2020.
This infographic lists all Incoterms® and explains the responsibilities and fees that the buyer and seller agree
Frequently Asked Questions
Knowing your incoterms is crucial if you are shipping products since it helps you identify who is in charge of what in your supply chain.
This infographic lists all Incoterms® and explains the responsibilities and fees that the buyer and seller agree.
This infographic lists all Incoterms® and explains the responsibilities and fees that the buyer and seller agree.
This infographic lists all Incoterms® and explains the responsibilities and fees that the buyer and seller agree.
