Incoterms 2020

A purchase order says FOB Shenzhen, the goods are packed, and the container sits at the terminal for nine days because the supplier thought the buyer had booked the vessel and the buyer thought the opposite. Incoterms® 2020, published by the International Chamber of Commerce, exist to settle that question before the goods move. Each of the eleven three-letter rules says who books and pays each part of the journey, the point where the risk of loss passes from seller to buyer, and who clears customs on each side. They govern delivery under the sale contract.

The five legs of an import

A shipment from a factory in Asia to a warehouse in Europe crosses five stages. Pre-carriage takes the goods from the factory to the port, airport or consolidation warehouse. At departure come export clearance, terminal handling and loading. The main carriage is the sea or air leg, port to port. On arrival come unloading, terminal charges and import clearance, with duty and import VAT. On-carriage brings them by truck to your warehouse or your 3PL.

In practice a single freight forwarder sells several legs as one booking, port to port or door to door, and buys the trucking, the customs broker and the space on the ship behind it. The Incoterm tells you which of those legs are yours to buy.

The eleven rules

Seven rules work for any mode of transport. Four are written only for sea and inland waterway.

The C rules split cost and risk at two different places. Under CIF the supplier pays the ocean freight, yet the risk became yours when the goods were loaded at origin, so a container lost at sea is your claim to make on the insurance. DPU is the only rule where the seller unloads at destination; it replaced DAT in the 2020 edition.

Who books each leg

When the named FCA place is the seller's own premises, the seller loads your truck and clears export, and your carrier drives away with the goods.

Containers and bulk

FAS, FOB, CFR and CIF were written for cargo that goes straight over the ship's rail: grain, ore, timber, oil. A container is handed to the carrier at the terminal gate, often days before it is loaded. Under FOB the seller keeps the risk all that time, in a yard it no longer controls. The ICC's own training material points FOB at bulk cargo moved port to port and FCA at goods in containers or on pallets. The same reasoning moves a containerised CIF sale to CIP, which also lifts the insurance from minimum cover to all risks. FCA in the 2020 edition lets both sides agree that the buyer's carrier issues an on-board bill of lading to the seller, for the bank that asks for one under a letter of credit.

A container changes hands at the terminal gate days before it sails, and FCA is the rule written for that moment.

Common traps

EXW looks like the cheapest price and leaves you as the exporter in the supplier's country, where a foreign buyer often cannot lodge the export declaration. FCA at the supplier's premises gives you the same control and keeps loading and export clearance with the supplier.

DDP into the EU makes the supplier the importer: an EORI number, import VAT, sometimes a VAT registration in your country. A supplier outside Europe that quotes DDP without those registrations leaves the goods held at the border. DAP with your own customs broker keeps the import under your control.

Under CFR and CIF, the arrival charges at the port are usually yours unless the carriage contract covers them. Ask for them in writing before you compare a CIF price with an FOB one.

Write the rule, the precise place and the edition together: "FCA Yantian container terminal, Shenzhen, Incoterms 2020". A clause reading "FOB China" leaves the port, the terminal and the edition open to argument.

Incoterms in your account

The Incoterm sits on every purchase order and freight booking in your account, so each order shows which legs you pay for. The legs that are yours we arrange: air, sea and road, quoted per lane and rebilled at the negotiated carrier cost.