Unimasters | 28/08/2024
When buying or selling goods internationally, one of the most important decisions is determining who is responsible for transportation, costs, customs formalities, and risk at every stage of the shipment.
This is exactly what Incoterms® 2020 define.
Whether you are importing, exporting, or simply requesting a freight quote, understanding these internationally recognized trade terms can help you avoid misunderstandings, unexpected costs, and costly delays.
Incoterms® (International Commercial Terms) are a globally recognized set of trade rules developed by the International Chamber of Commerce (ICC). They define the responsibilities of buyers and sellers involved in international transactions.
Each Incoterm clearly specifies:
It is important to note that Incoterms® regulate only the delivery of goods. They do not govern ownership transfer, payment terms, or contractual obligations unrelated to logistics.
Using the appropriate Incoterm in a sales contract helps both parties clearly understand their obligations before the shipment even begins.
The right Incoterm can:
For businesses engaged in regular international trade, selecting the correct Incoterm is just as important as choosing the right logistics partner.
The eleven Incoterms® 2020 are divided into two main groups depending on the mode of transport.
These rules can be used for road, rail, air, sea, or multimodal transport:
These rules should only be used when delivery takes place at a port and the goods are transported by sea or inland waterways:
Choosing a maritime Incoterm for containerized shipments transported by road and sea is a common mistake. In many such cases, FCA is often a more suitable alternative than FOB.
The seller makes the goods available at its premises or another agreed location. The buyer assumes almost all responsibilities, including loading, export customs clearance, transportation, import formalities, and final delivery. Best suited for: experienced buyers who can organize the entire logistics process independently.
The seller delivers the goods to the carrier nominated by the buyer at the agreed location and completes export customs clearance. From that point onward, the buyer assumes transportation costs and risks. Best suited for: containerized shipments and multimodal transport.
The seller delivers the goods alongside the vessel at the agreed port of shipment. From that point onward, the buyer assumes all costs and risks. FAS is mainly used for bulk cargo, oversized cargo, and commodities that are loaded directly onto a vessel.
Under FOB, the seller is responsible until the goods are loaded onto the vessel at the port of shipment. Once the cargo is on board, the risk transfers to the buyer. FOB remains one of the most widely used Incoterms® in international maritime trade. However, for containerized cargo, FCA is generally the preferred option, as containers are typically handed over to the carrier before being loaded onto the vessel.
The seller pays the transportation costs to the destination port. However, the risk transfers to the buyer as soon as the goods are loaded onto the vessel at the port of origin. This means the seller pays for freight, but does not bear the transport risk during the sea voyage.
CIF follows the same principles as CFR, with one additional obligation: The seller must also arrange marine cargo insurance for the buyer. CIF is commonly used for international sea freight involving general cargo and commodity shipments.
The seller arranges and pays for transportation to the agreed destination. However, the risk transfers to the buyer as soon as the goods are handed over to the first carrier. This distinction between cost and risk is often misunderstood and makes CPT one of the Incoterms that requires particular attention.
CIP is similar to CPT, with one important difference: The seller is also required to arrange cargo insurance covering the buyer's risk during transport. Under Incoterms® 2020, CIP requires a higher level of insurance coverage than under previous editions.
Under DPU, the seller is responsible for transporting the goods to the agreed destination and unloading them. This is the only Incoterm® 2020 under which the seller is obligated to unload the cargo before delivery is considered complete. The buyer is responsible for import customs clearance, duties, and taxes. Best suited for: projects or shipments where the seller has the necessary unloading equipment or has arranged unloading services at the destination.
The seller bears all transportation costs and risks until the goods arrive at the agreed destination. The buyer is responsible for import customs clearance, payment of duties and taxes, and unloading. DAP is frequently used for door-to-door international deliveries.
DDP places the maximum responsibility on the seller.
The seller is responsible for:export customs clearance; transportation; import customs clearance; payment of customs duties and taxes; delivery to the buyer's specified location. The buyer simply receives the goods. Although convenient for the buyer, DDP can be complex for sellers who are unfamiliar with local customs regulations in the destination country.
There is no universal "best" Incoterm. The right choice depends on factors such as:
Businesses that regularly manage imports and exports often choose FCA, CPT, DAP, or CIP because these terms provide a balanced allocation of responsibilities and work well with modern multimodal transport.
Conversely, EXW and DDP represent opposite ends of the responsibility spectrum, placing nearly all obligations on either the buyer or the seller.
Even experienced companies occasionally misuse Incoterms®.
Some of the most common mistakes include:
Understanding these distinctions can help prevent disputes, unexpected costs, and delays in international supply chains.
Incoterms 2020 provide a common language for international trade, enabling buyers and sellers around the world to clearly define responsibilities, costs, and risk.
Selecting the appropriate Incoterm not only reduces uncertainty but also improves supply chain efficiency and supports smoother international transactions.
Whether you are shipping by road, sea, air, or rail, understanding how each Incoterm works is essential for making informed logistics decisions.
When in doubt, consulting an experienced freight forwarding partner can help you choose the Incoterm that best fits your shipment and business objectives.
