INCOTERMS® 2020 RULES

The Incoterms® Rules and Common Shipping Terms: 

The International Chamber of Commerce's (ICC) Incoterms standards, which specify international import and export guidelines as well as common shipping terms.

What do Incoterms mean? Do Incoterms have to be used?

Short for “International Commercial Terms,” the Incoterms are a set of globally recognized trade rules organized into 11 abbreviated terms. First published in Paris in 1936, by the International Chamber of Commerce (ICC), the Incoterms rules provide:

Common contract provisions, primarily in export and import operations, are interpreted uniformly.
An example of how buyers and sellers' costs and risks are allocated in time and in different ways a shipment cost and risk should be discussed in detail before it is sent, as well as each party's duties.

How do I utilize Incoterms?
When incorporating Incoterms into a sales contract you will need two components: 1) the abbreviated name of the rule/term you’re using and 2) a named place.

All 11 of the Incoterms rules require one of the four named places:

1. Place of delivery
2. Place of destination
3. Port of shipment
4. Port of destination

In the sample below, FCA stands for "Free Carrier," and the remaining text details the "designated location of delivery" that is required by the law.

Example: FCA, Generic Cargo Terminal, Chicago O'Hare International Airport (ORD), USA

Groups of Shipping Terms Abbreviations

The 11 Incoterms rules are divided into the following list into four color-coded groups for simple navigation and comprehension.
USA, (ORD)

Notably, all other words may be used to all forms of transportation, including air, ground, rail, and ocean, unlike the Incoterms FAS, FOB, CFR, and CIF, which are only applicable to sea or inland waterway transit.

After each rule's name, you'll discover the designated location that each one requires in parenthesis.

E terms - Departure

• EXW - Ex Works (Place of Delivery, Usually Seller’s Premise)

F terms - Main Carriage Unpaid

• FCA - Free Carrier (Place of Delivery)
• FAS - Free Alongside Ship (Port of Shipment)
• FOB - Free On Board (Port of Shipment)

C terms - Main Carriage Paid

• CFR - Cost and Freight (Port of Destination)
• CIF - Cost, Insurance and Freight (Port of Destination)
• CPT- Carriage Paid To (Place of Destination)
• CIP - Carriage and Insurance Paid To (Place of Destination)

D terms - Arrival

• DPU - Delivered at Place Unloaded (Place of Destination, Where Seller Unloads)
• Formerly: DAT - Delivered At Terminal (Terminal at Port or Place of Destination)
• DAP - Delivered At Place (Place of Destination)
• DDP - Delivered Duty Paid (Place of Destination)

Limited Terms and Conditions

The specific Incoterms regulations leave some terms up to the parties' discretion and do not cover every scenario that might arise in a global transaction. Terms of payment or ownership/passage of title, for instance, are not covered by Incoterms regulations. Additionally, national trade words like the American expression "less than truckload shipping (LTL)" are not covered by Incoterms guidelines because of their worldwide, universal nature.

Updates on Incoterms

Every ten years, the ICC publishes a significant amendment to the Incoterms regulations. The most recent version, Incoterms 2020, entered into effect on January 1, 2020 after being released on September 10, 2019.

There are two significant rule modifications in Incoterms 2020, despite the fact that most of the regulations are the same between Incoterms 2010 and 2020:

Delivered at Place Unloaded is the new name for the regulation formerly known as Delivered at Terminal (DAT) (DPU)[PB1]

• The level of freight insurance offered is now Institute Clauses (A), as opposed to the lower level Institute Clauses, according to the requirements for Carriage and Insurance Paid (CIP) (C
• Do the Incoterms guidelines permit electronic communication?
  Yes. Electronic communication, including EDI and electronic documents, is permitted by Incoterms if both parties agree to it.

Glossary of Incoterms Shipping Terms

The following are a few of the most frequent terms and expressions found in the Incoterms rules:

Break Bulk Cargo
Conventional, un-containerized cargo that ships in units of one or packages, such as vehicles, machinery, palletized or boxed cargo.

Bulk Cargo
Cargo that is composed either of 1) free flowing articles, like oil, grain, ore or coal or 2) uniform cargo that stows solid, such as coils, pipes, sheets of metal, timber and lumber.

Bonded Warehouse/Terminal
A warehouse or terminal approved by the U.S. Treasury Department for storing goods until duties are paid or the goods are released.

Carriage
Transportation of cargo while on board main carrier from airport/port of loading to airport/port of discharge.

Carrier
An individual or legal entity in the business of transporting goods for hire.

Customs-Trade Partnership Against Terrorism (C-TPAT)
A voluntary business initiative, administered by U.S. Customs and Border Protection (CBP), to ensure the integrity of the supply chain among importers, carriers, brokers, warehouse operators and manufacturers.

Customs Broker
An individual or firm licensed by U.S. Customs and Border Protection to handle a sequence of customs formalities required for the import and export of goods.

Delivery
In the Incoterms rules, delivery refers to the point when risk transfers from seller to buyer. This is often, but not always, the same point in the transaction through which the seller has agreed to pay, it is not always the same point. “Delivery” is thus when the seller has fulfilled their obligation and bears no more risk, even if still responsible for paying for the next stage in the transaction.

Duty
A tax levied by a government on the import, export and consumption of goods. Duties are based on the value of goods as well as factors like weight and quantity.

Freight Forwarder
A company providing a range of transportation services for cargo shipments.

ICC
The International Chamber of Commerce.

Incoterms / Terms of Sales
Terms that define the obligations, risks and costs of the buyer and seller, involving the delivery of goods that comprise the commercial transaction. Incoterms are organized by modes of transport, either any mode or modes of transport and sea and inland waterway transport terms.

Intermodal
The coordinated transport of long-haul movements using any combination of modes, freight forwarders or motor carriers.

Multimodal (or “any mode”)
The use of more than one mode of transportation to move goods from origin to final destination. The Incoterms for the use of any mode or multiple modes of transportation to move goods from origin to final destination. They are EXW, FCA, CPT, CIP, DAT, DPU and DDP.

On-Carriage
Transportation that takes place after the shipment is offloaded from main carrier at port of discharge.

Pre-Carriage (inland transportation)
Transportation that takes place prior to the shipment being loaded on board main carrier at airport/port of loading.

Ro-Ro Vessel
A category of ships designed to load and discharge cargo that rolls on wheels, such as cars, trucks or locomotives.

Sea and Inland Waterways 
Specific Incoterms for maritime shipments that cover both inland waterways and seas and where the seller places the goods alongside or on board the vessel at port (and at which point the risk of loss passes to the buyer). They are FAS, FOB, CFR and CIF.

Terminal
An area that serves as a loading, unloading and transfer point for cargo.

Do you have a query? Get in touch with a representative.

{formbuilder:58947}

Any excerpts quoted from the Incoterms® 2020 rules are the copyright of the International Chamber of
Commerce. Source: ICC website. The full text of the 2020 edition of the Incoterms rules is available at
https://2go. iccwbo.org/. The word “Incoterms” is a registered trademark of the International Chamber of Commerce.