Understanding Incoterms 2020: A Shipper’s Guide

What Are Incoterms?

Incoterms (International Commercial Terms) are standardised trade terms published by the International Chamber of Commerce (ICC) that define the responsibilities of buyers and sellers in international transactions. The current version, Incoterms 2020, comprises 11 terms.

The 11 Incoterms 2020

Any Mode of Transport

• EXW (Ex Works): Seller makes goods available at their premises. Buyer arranges everything from that point.
• FCA (Free Carrier): Seller delivers goods to a named carrier at a named place.
• CPT (Carriage Paid To): Seller pays freight to the named destination but risk transfers at origin.
• CIP (Carriage and Insurance Paid To): Like CPT but seller also arranges insurance.
• DAP (Delivered at Place): Seller delivers goods to a named destination, ready for unloading.
• DPU (Delivered at Place Unloaded): Seller delivers and unloads goods at destination.
• DDP (Delivered Duty Paid): Seller bears all costs and risks including import duties.

Sea and Inland Waterway Only

• FAS (Free Alongside Ship): Seller places goods alongside the vessel at the port of shipment.
• FOB (Free On Board): Seller loads goods onto the vessel. Risk transfers when goods are on board.
• CFR (Cost and Freight): Seller pays freight to destination port. Risk transfers at origin.
• CIF (Cost, Insurance and Freight): Like CFR but seller also arranges insurance.

Which Incoterm Should You Use?

FOB and CIF are the most commonly used for sea freight. FCA and DAP are increasingly popular for air freight and multimodal transport. DDP is preferred by importers who want a hassle-free all-inclusive price.

Common Mistakes

• Using FOB/CIF for air freight (they are sea-only terms)
• Not specifying the named place precisely
• Confusing risk transfer with cost transfer
• Assuming Incoterms define ownership transfer (they do not)

Need Incoterms advice? KAM Freight can recommend the best terms for your specific trade. Call +44 (0) 208 573 2522.