Guides - 01
Incoterms 2020, explained
An Incoterm in a sale contract decides who books and pays for each stage of transport, and the point where the risk of loss passes from seller to buyer. The rules are published by the International Chamber of Commerce. The current edition is Incoterms 2020.
How to read a rule
Every rule is written with a named place: FOB Shanghai, DAP Rotterdam warehouse. The place matters as much as the three letters. Without it, the rule does not say where delivery happens.
Two things move at different points: cost (who pays for carriage) and risk (who bears loss or damage). Under the C rules, the seller pays to the destination, but risk passes much earlier, at shipment. That gap is the most common source of disputes.
Rules for any mode of transport
| Rule | Seller delivers when | Risk passes |
|---|---|---|
| EXW Ex Works | Goods are made available at the seller's premises. The buyer loads, ships and clears export. | At the seller's premises |
| FCA Free Carrier | Goods are handed to the carrier the buyer nominates, at the named place. The seller clears export. | On handover to the carrier |
| CPT Carriage Paid To | The seller pays carriage to the named destination. | On handover to the first carrier |
| CIP Carriage and Insurance Paid To | As CPT, and the seller insures the goods. Incoterms 2020 sets the minimum at Institute Cargo Clauses (A), all-risks cover. | On handover to the first carrier |
| DAP Delivered at Place | Goods arrive at the named place, ready for unloading. The buyer clears import. | At the named place, before unloading |
| DPU Delivered at Place Unloaded | Goods are unloaded at the named place. The buyer clears import. | At the named place, after unloading |
| DDP Delivered Duty Paid | Goods arrive at the named place, cleared for import, with duties paid by the seller. | At the named place |
Rules for sea and inland waterway only
| Rule | Seller delivers when | Risk passes |
|---|---|---|
| FAS Free Alongside Ship | Goods are placed alongside the vessel at the named port of shipment. | Alongside the vessel |
| FOB Free On Board | Goods are loaded on board the vessel at the named port of shipment. | Once on board |
| CFR Cost and Freight | The seller pays freight to the named port of destination. | Once on board at the port of shipment |
| CIF Cost, Insurance and Freight | As CFR, and the seller insures the goods. Incoterms 2020 sets the minimum at Institute Cargo Clauses (C). | Once on board at the port of shipment |
FOB, CFR and CIF are written for cargo loaded straight onto a vessel. For containers handed to a carrier at a terminal, FCA, CPT and CIP usually fit better, because the seller loses control of the box before it is loaded.
Customs, in one line
Under every rule except EXW, the seller clears the goods for export. Under every rule except DDP, the buyer clears them for import.
Where we come in
We arrange the part of the transport that the rule gives to you, whichever side of the contract you are on, and we prepare the documents the rule and the contract call for. We can explain what a rule means for a shipment. The choice of rule belongs in your contract.
Services that use this
- Full container load (FCL)A container for your cargo alone.
- Less than container load (LCL)Space in a shared container.
- Marine cargo insuranceCover arranged with insurers.
- Customs declarationsHong Kong declarations coordinated; clearance abroad through licensed brokers.
Send us the details.
Tell us the cargo, the route and the dates. We will reply by email with what we can arrange.
