Incoterms 2020 explorer
Pick a rule to see who pays for each leg of the journey and where the risk passes from seller to buyer.
What Incoterms are
Incoterms are eleven three-letter trade rules published by the International Chamber of Commerce. Written into a sales contract, a rule such as “FOB Mumbai” or “DAP Rotterdam” settles three questions in three letters: which of the two parties arranges and pays for each stage of transport, which of them handles export and import formalities, and the exact point at which the risk of loss or damage moves from the seller to the buyer. The current edition is Incoterms 2020.
Cost and risk are not the same thing
The most common mistake is to assume that whoever pays the freight also carries the risk. Under the four “C” rules (CFR, CIF, CPT, CIP) the seller pays for carriage to the destination, but the risk passes to the buyer back at the start of the journey, when the goods are loaded or handed to the first carrier. If the ship sinks, it is the buyer’s loss. The diagram shows cost and risk as two separate bars for this reason.
Containers and the sea rules
FAS, FOB, CFR and CIF were written for cargo that goes directly on and off a ship, such as bulk grain or steel. A container is handed over at a terminal days before it is loaded, so the buyer of an FOB shipment is exposed to a gap the rule does not cover. For containers, air freight and road, the ICC recommends FCA instead of FOB, CPT instead of CFR, and CIP instead of CIF.
What changed in 2020
DAT was renamed DPU and can now be used for any place, not only a terminal. CIP now requires the seller to buy all-risks insurance, while CIF keeps the minimum cover. Under FCA the parties can agree that the buyer’s carrier issues an on-board bill of lading to the seller, which helps with letters of credit.
Common questions
What is landed cost? The full cost of getting goods to your door: the purchase price plus freight, insurance, duty, tax, port charges and local delivery. It is the figure to compare suppliers on, and it is often 20 to 60 percent above the invoice price.
How is import duty worked out in India? On the assessable value, which is normally the CIF value: goods, freight and insurance. Basic customs duty is charged on that; a social welfare surcharge of 10 percent of the duty is added; and IGST is charged on the total of all three. The calculator follows that order. Enter the rates for your product’s tariff heading.
Do Incoterms cover payment or ownership? No. They say nothing about when you pay, when title passes, or what happens if the goods are faulty. Those need their own clauses.