Incoterms 2020

Incoterms are international rules that define the responsibilities of the seller and buyer in the delivery of goods.

They help to agree in advance:

• who organizes the transportation;
• who pays for the delivery;
• who handles customs clearance;
• who insures the cargo;
• at what moment the risks pass from the seller to the buyer.

Each basis is denoted by a three-letter code: EXW, FCA, FOB, CIF, DDP and others. The chosen basis must be specified in the contract and affects the cost of transportation, distribution of expenses and liability of the parties.

It is important to understand that Incoterms regulate only the terms of delivery of goods. The rules do not determine the payment procedure, transfer of ownership, liability for breach of contract and dispute resolution procedure. These conditions must be separately stipulated in the contract.

In the 2020 edition of Incoterms, 11 delivery bases are in effect. They differ in the scope of responsibilities of the seller and buyer, distribution of expenses and the moment of risk transfer.

The gray area shows the section for which the seller is responsible. The green area indicates the buyer's responsibility. The red mark indicates the moment when the risks pass from the seller to the buyer.

The lower the basis is located, the more responsibilities the seller takes on.

The seller's minimum responsibility is provided for EXW. The maximum is for DDP.

When choosing a delivery basis, it is enough to answer three questions:

1. Who pays?
2. Who is responsible for the cargo?
3. Who goes through customs?

That's why we made a simpler version of the table for better understanding of Incoterms:

Below we will look at each delivery basis in detail, its features and the distribution of responsibilities between the seller and the buyer.

EXW is a basis with minimal obligations of the seller. He provides the goods at an agreed place, usually at his warehouse. The buyer takes on all further expenses, registration and risks.

This option is suitable for companies that manage logistics independently and work with their own carriers.

Seller's responsibilities:

• Pack the goods
• Mark the cargo
• Provide the goods at the agreed place
• Hand over the documents

Buyer's responsibilities:

• Load the goods
• Arrange transportation
• Arrange export
• Arrange import
• Pay for delivery

Risk transfer: when the goods are handed over at the agreed place.

With FCA, the seller hands over the goods to the carrier appointed by the buyer. The seller also performs export customs formalities.

One of the most popular bases for international road and container transportation.

Seller's responsibilities:

• Pack the goods
• Mark the cargo
• Complete export formalities
• Hand over the goods to the carrier

Buyer's responsibilities:

• Arrange the main transportation
• Pay for transportation
• Arrange import
• Accept the goods

Risk transfer: at the moment the goods are handed over to the carrier.

The basis is applied only for sea and river transportation. The seller delivers the cargo to the port and places it next to the ship.

After that, responsibility passes to the buyer.

Seller's responsibilities:

• Pack the goods
• Complete export formalities
• Deliver the cargo to the port
• Place the cargo alongside the ship

Buyer's responsibilities:

• Charter a vessel
• Arrange loading onto the vessel
• Pay for sea transportation
• Arrange import

Risk transfer: after placing the cargo alongside the ship.

With FOB, the seller not only delivers the cargo to the port, but also loads it onto the ship.

After loading, responsibility for the goods passes to the buyer.

Seller's responsibilities:

• Pack the goods
• Complete export formalities
• Deliver the cargo to the port
• Load the goods onto the ship

Buyer's responsibilities:

• Charter a vessel
• Pay for sea transportation
• Arrange import
• Arrange further delivery

Risk transfer: after loading onto the ship.

The seller pays for sea transportation to the port of destination, but the risk of loss or damage to the goods passes to the buyer at the port of departure.

Because of this, CFR is often confused with door-to-door delivery.

Seller's responsibilities:

• Complete export formalities
• Load the goods onto the ship

Pay for sea freight

Buyer's responsibilities:

• Arrange import
• Arrange delivery after arrival
• Take risks after loading

Risk transfer: after loading onto the ship.

The conditions are similar to CFR, but additionally the seller is obliged to arrange cargo insurance.

Insurance is arranged in favor of the buyer.

Seller's responsibilities:

• Complete export formalities
• Load the goods onto the ship
• Pay for sea freight
• Insure the cargo

Buyer's responsibilities:

• Arrange import
• Arrange further delivery
• Take risks after loading

Risk transfer: after loading onto the ship.

The seller organizes and pays for transportation to the agreed destination point.

At the same time, the risk passes to the buyer much earlier — at the moment of handing over to the first carrier.

Seller's responsibilities:

• Complete export formalities
• Hand over the cargo to the carrier
• Pay for transportation to the destination point

Buyer's responsibilities:

• Arrange import
• Take risks after handing over to the carrier
• Arrange unloading

Risk transfer: when handing over to the first carrier.

The basis is similar to CPT, but additionally, the seller is obliged to insure the cargo along the entire route.

Often used for multimodal transportation.

Seller's responsibilities:

• Complete export formalities
• Pay for transportation
• Insure the cargo
• Hand over the goods to the carrier

Buyer's responsibilities:

• Arrange import
• Organize unloading

Risk transfer: upon handing over to the first carrier.

The seller delivers the goods to the agreed destination point and bears risks almost along the entire route.

Unloading is carried out by the buyer.

Seller's responsibilities:

• Arrange transportation
• Complete export formalities
• Deliver the goods to the place of destination

Buyer's responsibilities:

• Unload the goods
• Arrange import

Risk transfer: at the place of destination before unloading.

The only Incoterms basis under which the seller is obliged to organize and pay for the unloading of the goods.

Seller's responsibilities:

• Arrange transportation
• Complete export formalities
• Deliver the goods to the place of destination
• Unload the goods

Buyer's responsibilities:

• Arrange import

Risk transfer: after unloading is completed.

Maximum scope of the seller's responsibilities. He organizes transportation, export and import formalities, and also pays customs duties.

For deliveries to Russia, the possibility of applying DDP must be additionally agreed upon before signing the contract.

Seller's responsibilities:

• Arrange transportation
• Complete export formalities
• Complete import formalities
• Pay duties and taxes
• Deliver the goods to the place of destination

Buyer's responsibilities:

• Accept the goods

Risk transfer: at the place of destination.

Incoterms 2020 help the seller and the buyer to determine in advance the responsibilities, expenses, and the moment of risk transfer in international goods delivery.

The choice of the basis depends on who should control the transportation and bear the main delivery expenses.

There is no universal basis. For each shipment, it is important to consider the route, mode of transport, insurance requirements, and cost distribution between the parties involved in the transaction.

If there are doubts when choosing a delivery basis, TransGID specialists will help to find the optimal option, taking into account the route, mode of transport, cargo specifics, and delivery requirements.