Guide to Incoterms® 2020: Key Rules and Applications

1. What is Incoterms® 2020?

The Incoterms® rules established by the International Chamber of Commerce (ICC) define the boundaries of responsibilities, costs and risk transfer between the two parties during the transportation of goods from the seller to the buyer. The latest version is Incoterms® 2020, which covers 11 terms divided into two categories:

Incoterms rules for any mode of transport: EXW, FCA, CPT, CIP, DPU, DAP, DDP
Incoterms rules for sea/inland waterway transport: FAS, FOB, CFR, CIF

We Shanghai Nosinda Metal Co., Ltd have a mature logistics system and can sign contracts with customers of various incoterms.

2. Responsibilities and Transfer of Risks of Different Incoterms
2.1EXW (EX Works)

Seller's responsibility: prepare the goods at the factory or warehouse.

Buyer's responsibility: bear all costs and risks from picking up the goods to the destination.

Applicable scenarios: the buyer has strong logistics capabilities and wants to control the entire transportation.

2. 2FCA (Free Carrier)

Delivery is completed when the seller delivers the goods to the carrier (or third party) designated by the buyer at the designated place. Risk and cost are transferred to the buyer upon delivery. 

2.3 FAS (Free Alongside Ship)

Seller's responsibility: deliver the goods to the designated port of shipment and place them at the ship's side (such as a dock or barge) designated by the buyer.
Buyer's responsibility: book a container and informing the seller of the specific delivery location and time. After the goods are delivered to the ship's side, the buyer bears all risks and subsequent costs (such as loading charges, freight, insurance, etc.).

2.4. FOB（Free On Board）

Seller's responsibility: deliver the goods to the port of loading and load them onto the vessel.

Buyer's responsibility: bear the risks and costs of ocean shipping and subsequent transportation.

Note: risk transfers to the buyer when the goods "cross the ship's rail".

2.5. CFR (Cost and Freight)
Seller's responsibility: load the goods onto the ship (port of shipment) within the agreed time to complete the delivery.
Buyer's responsibility: after the goods are loaded onto the ship at the port of shipment, the buyer shall bear the risk of loss or damage to the goods.
Note: under the CFR terms, the seller does not need to purchase insurance, and the buyer needs to purchase insurance on his own. If insurance is not purchased, the buyer shall bear the loss during transportation.

2.6. CIF (Cost Insurance and Freight)
Seller's responsibility: pay freight and insurance to the destination port, but the risk is transferred at the port of destination.
Buyer's responsibility: bear the risk of goods after arrival and import customs clearance.
Note: CIF is only applicable to ocean freight, and the seller only needs to insure the minimum insurance.

2.7. CPT (Carriage Paid To)
Seller's responsibility: deliver the goods to the first carrier (such as a logistics company or freight forwarder) at the agreed time and place to complete the delivery.
Buyer's responsibility: after the goods are delivered to the first carrier, the buyer bears the risk of loss or damage to the goods.
Note: the buyer is responsible for insurance (the seller has no insurance obligation under CPT terms). 

2.8. CIP (Carriage and Insurance Paid To)
Seller's responsibility: deliver the goods to the first carrier (such as a logistics company or freight forwarder) at the agreed time and place, and insure the goods at least at the minimum risk level to cover the risks during transportation.
Buyer's responsibility: after the goods are delivered to the first carrier, the buyer bears the risk of loss or damage to the goods.
Insurance: Incoterms® 2020 requires the seller to insure the goods in accordance with the Institute Cargo Clauses (ICC) with an insurance amount of at least 110% of the contract value. If the buyer requires a higher level of insurance (such as all risks), he or she must purchase additional insurance.

2.9. DPU (Delivered at Place Unloaded)
Seller's responsibility: responsible for transporting the goods to the destination agreed in the contract, bear the unloading costs and risks, unload the goods from the means of transport and deliver them to the buyer.
Buyer's responsibility: after the goods are unloaded and delivered, the buyer bears the risk of loss or damage to the goods. Receive the goods at the designated place and bear all subsequent costs (such as storage fees, inland transportation fees, etc.).
Note: the seller must be responsible for unloading, which is the core feature of DPU. If the buyer wants to unload the goods by himself, he needs to choose other terms (such as DAP).

2.10. DAP (Delivered at Place)
Seller's responsibility: responsible for transporting the goods to the destination specified by the buyer (such as a warehouse, factory or port), and preparing them on the means of transport for the buyer to unload. The risk is transferred to the buyer when the goods arrive at the agreed place.
Buyer's responsibility: after the goods arrive at the agreed place, the buyer unloads the goods at his own expense, and the buyer bears the risk of loss or damage to the goods.
Key features: the seller bears the entire transportation costs and risks until the goods arrive at the destination, but is not responsible for unloading.

2.11. DDP (Delivered Duty Paid)
 Seller's Responsibilities: The seller is responsible for transporting the goods to the destination specified by the buyer (such as a warehouse, factory), completing import customs clearance, paying all taxes and fees (including tariffs, VAT, etc.), and delivering the goods to the buyer. The seller bears all risks, costs and responsibilities until the goods are available for the buyer to receive at the destination.
Buyer's Responsibilities: Receive the goods at the destination and bear all risks and costs after delivery (such as storage fees, inland transportation fees, etc.). Provide information or documents required for import customs clearance (such as import licenses) upon the seller's request. The buyer is usually responsible for unloading unless the contract stipulates that it will be done by the seller.
Key Features: this term is with maximum seller responsibility, the buyer only needs to receive the goods at the destination.