Edward G.

Hinkelman

INTERNATIONAL PAYMENT

4th Edition
World Trade Press
Chapter 6:
Incoterms 2020

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 Incoterms

• In international business transactions, you will use different

methods of payment, and possibly a different currency,
than you do in domestic transactions. In addition, while the
terms of sale commonly used in international business
transactions often sound similar to those used in domestic
contracts, they often have different meanings in global
transactions.
• Confusion over these terms can result in a lost sale or a
financial loss on a sale.
 It is essential that you understand the various trade terms
before you finalize a contract.

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 Incoterms 2020 and the ICC
• "Incoterms" is a set of uniform rules codifying the
interpretation of trade terms defining the rights and
obligations of buyers and sellers in international
transactions. Developed and issued by the International
Chamber of Commerce (ICC) in Paris, the current version is
publication from 2020.

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 Incoterms
• The Incoterms® rules defines the obligations, risk and costs of the buyers
and sellers in international transactions for the sale of goods (not services).

Obligations: Who does what as between seller and buyer, e.g. who organises
carriage or insurance of the goods or who obtains shipping documents and
export or import licences;

Risk: Where and when the seller “delivers” the goods, in other words where
risk transfers from seller to buyer; and

Costs: Which party is responsible for which costs, for example transport,
packaging, loading or unloading costs, and checking or security-related costs

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 Incoterms 2020
• Incoterms – Key elements of international contracts of sale.
They tell the parties what to do with respect to carriage of the
goods from buyer to seller and export & import clearance.
They also explain the division of costs and risks between the
parties.
• Incoterms 2020 consists of 11 rules, and entered into force on
January 1, 2020. Note that Incoterms are not implied in
contracts. If you desire to use Incoterms, you must specifically
include them in your contract. Your contract should also refer
to a specific version of Incoterms. Therefore, only a contract
that refers to Incoterms 2020 will be governed by that version.

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 Incoterms 2020
• The 11 Incoterms 2020 are:
1. Ex Works (EXW) …..named place of delivery
2. Free Carrier (FCA) …..named place of delivery
3. Free Alongside Ship (FAS)…..named port of shipment
4. Free On Board (FOB) …..named port of shipment
5. Carriage Paid To (CPT) ……named place of destination
6. Carriage and Insurance Paid To (CIP) …..named of place of
destination
7. Cost and Freight (CFR) …..named port of destination
8. Cost, Insurance and Freight (CIF)….named port of destination

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 Incoterms 2020
• The 11 Incoterms 2020 are:
9. Delivered at Place (DAP) …..named place of destination
10. Delivered at Place Unloaded (DPU) …..named place of
destination
11. Delivered Duty Paid (DDP) …..named place of destination

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 Incoterms 2020
• RULES FOR ANY MODE OR MODES OF TRANSPORT
• EXW | Ex Works
• FCA | Free Carrier
• CPT | Carriage Paid To
• CIP | Carriage and Insurance Paid To
• DAP | Delivered at Place
• DPU | Delivered at Place Unloaded
• DDP | Delivered Duty Paid
• RULES FOR SEA AND INLAND WATERWAY TRANSPORT
• FAS | Free Alongside Ship
• FOB | Free On Board
• CFR | Cost and Freight
• CIF | Cost Insurance and Freight

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 Incoterms 2020
INCOTERMS BY GROUPING:
• Group E: EXW
• Group F: FCA, FAS, FOB
• Group C: CFR, CIF, CPT, CIP
• Group D: DAP, DPU, DDP

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 EXW
• EXWORKS: The seller makes the goods available to the buyer at the
“named place of delivery”. This is commonly, but not necessarily,
the seller’s place of business. The seller has no responsibility to
load the goods onto a truck or other transport vehicle or to clear
the goods for export. This trade term places the greatest
responsibility on the buyer and minimum obligations on the seller.

EXW is often used when making an initial quotation for the sale of
goods.
EXW is commonly used in courier shipment when couriers pick up the
shipment from the seller’s premises and loads the courier’s own truck.

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EXW

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 FCA
• FREE CARRIER (…NAMED PLACE): This term means that the
seller delivers the goods, cleared for export, to the carrier
nominated by the buyer at the named place of delivery.
• If the named place of delivery is the seller’s place of business,
the seller is responsible for loading the goods onto the
transport vehicle.
• If it is any other location, the seller delivers by making the
goods ready for unloading from the seller’s means of transport.
• With FCA, the named place of delivery is domestic to the buyer.
• FCA is often used when making an initial quotation for the sale
of goods.

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FCA

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 FAS
• FREE ALONGSIDE SHIP (…NAMED PORT OF SHIPMENT): This
term means that the seller delivers when the goods are
placed alongside the vessel at the named port of shipment.
The seller is required to clear the goods for export. The
buyer has to bear all costs and risks of loss or damage to
the goods from that moment. This term can be used for sea
transport only.
• With FAS, the named port is domestic to the seller.
• FAS is commonly used in the sale of bulk commodity cargo
such as oil, grains…

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FAS

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 FOB
• FREE ON BOARD (…NAMED PORT OF SHIPMENT): This term
means that the seller clears the goods for export and delivers
them on board the named vessel at the “named port of
shipment”. This means the buyer has to bear all costs and risks
to the goods from that point.
• With FOB, the named port of shipment is domestic to the seller.
• If the shipment is containerized or to be containerized,
common practice is to deliver the shipment to the carrier at a
terminal and not on board a ship. In such situation, the FCA
term is recommended. The FOB term is commonly used in the
sale of bulk commodity such as oil, grains…

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FOB

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 CPT
• CARRIAGE PAID TO (…NAMED PLACE OF DESTINATION): This
term means that the seller clears the goods for export and
delivers the goods to the carrier for transport. This is where
the risk passes from seller to buyer. The seller, however, is
responsible for contracting for and paying the costs
associated with transport of the goods (but not insurance)
to the “named place of destination”. This is where costs
transfer from seller to buyer.
• Note that the transfer of risks occurs at a different point
than the transfer of costs.

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 CPT
• In CPT, the named place of destination is
domestic to the buyer.
• CPT is often used in sales where the shipment
is by air freight, containerized ocean freight…

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CPT

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 CIP
• CARRIAGE & INSURANCE PAID TO (…NAMED PLACE OF
DESTINATION: This term is the same as CPT with the
exception about insurance.
• In CIP, insurance coverage must comply with “Institute
Cargo Clause (A)” or similar.

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CIP

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 CFR
• COST & FREIGHT (…NAMED PORT OF DESTINATION): This
term means the seller clears the goods for export and
delivers them on board the ship at the port of shipment.
This is where risk passes from the seller to buyer. The seller,
however, is responsible for contracting for and paying the
costs associated with transport of the goods to the named
port of destination. This is where costs transfer from seller
to buyer.
• Note that the transfer of risk occur at a different point than
the transfer of costs.

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 CFR
• With CFR, the named port of destination is
domestic to the buyer.
• CFR is commonly used in the sale of (a) bulk
commodity cargo such as oil, grains, (b)
oversize and overweight cargo that will not fit
into an ocean container, and (c) cargo that
exceeds the weight limitations of ocean
containers.

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CFR

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 CIF
• COST, INSURANCE & FREIGHT (…NAMED PORT OF
DESTINATION): This term is the same as CFR with the
exception about insurance.
• Insurance coverage must comply with “Institute Cargo
Clauses (C)” or similar.

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CIF

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 DAP
• DELIVERED AT PLACE (…NAMED PLACE OF DESTINATION):
DAP means the seller clears the goods for export and
delivers when the goods are made available to the buyer on
the arriving means of transport, not unloaded, at the
“named place of destination”. This is where risk and costs
transfer from seller to buyer.
• In DAP, the named place of destination is domestic to the
buyer and is often the buyer’s place of business.
• The seller is not responsible for import documents,
formalities, fees, or duties.

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DAP

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 DPU
• DELIVERED AT PLACE UNLOADED (…NAMED PLACE OF
DESTINATION): This term means that the seller clears the goods
for export and delivers when the goods are made available to
the buyer unloaded from the arriving means of transport at the
“named place of destination”. This is where risk and costs
transfer from seller to buyer.
• The buyer is responsible for import documents, formalities, fees,
and duties.
• In DPU, the named place of destination is domestic to the buyer
and is often the buyer’s place of business.
• DPU is the only term under which the seller is responsible for
unloading.

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DPU

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 DDP
• DELIVERED DUTY PAID (…NAMED PLACE OF DESTINATION): This
term represents maximum obligation to the seller and minimum
obligation to the buyer. The seller clears the goods for export
and delivers when they are made available to the buyer on the
arriving means of transport, ready for unloading, at the “named
place of destination”. This is when the risk and costs transfer
from the seller to the buyer.
• The seller also clears the goods for import in the country of
destination and pays for all import documentation, formalities,
fees, duties and taxes.
• In DDP, the named place of destination is domestic to the buyer
and is often the buyer’s place of business.

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DDP

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