Incoterms & trade contracts

Incoterms 2020

The eleven standard delivery terms published by the International Chamber of Commerce (ICC) that define where the seller delivers, when risk passes to the buyer and who pays for freight, insurance and customs formalities. Incoterms do not set the price, the payment method or the transfer of ownership; those must be written separately in the contract. A rule should always be quoted with a named place and the version, e.g. “FOB Mersin Port, Incoterms 2020”.

Related terms

Ex Works EXW

The Incoterm with the least obligation for the seller: goods are made available at the seller’s factory or warehouse, not loaded on the collecting vehicle. Loading, export clearance, freight and all risks are the buyer’s. Because a foreign buyer usually cannot file the export declaration itself, FCA is often the better choice for international sales.

Free On Board FOB

One of the most common terms in raw material trade, used only for sea and inland-waterway transport. The seller loads export-cleared goods onto the vessel nominated by the buyer at the port of shipment, and risk passes once the goods are on board. The buyer arranges freight and insurance; for bulk cargo the loading rate, laytime and demurrage must be agreed separately. For containerised goods FCA is the more accurate choice.

Cost, Insurance and Freight CIF

A sea-transport term that adds, to CFR, cargo insurance taken out by the seller in the buyer’s favour. Under Incoterms 2020 the minimum cover for CIF is Institute Cargo Clauses (C) for 110 % of the contract value; if broader “all risks” (A) cover is wanted it must be written into the contract. Risk still passes when the goods are loaded on board at the port of shipment, so the seller pays freight and insurance but does not carry the voyage risk.

Delivered at Place DAP

The seller places the goods at the buyer’s disposal on the arriving means of transport, ready for unloading, at the named destination, bearing all costs and risks up to that point. Unloading, import clearance, duties and VAT are for the buyer. Widely used for delivered truck sales; the contract should say who pays waiting charges if import formalities cause delays.

Delivered Duty Paid DDP

The Incoterm with the greatest obligation for the seller: the goods are delivered in the buyer’s country, cleared for import with duties and import taxes paid, ready for unloading. It is hard to apply if the seller has no tax registration or authorised representative in the importing country, and costs such as non-recoverable import VAT can arise. Because of these risks, raw material trade usually prefers DAP with the buyer handling import clearance.

Named place (point of delivery)

The city, port, terminal or premises written after the Incoterm abbreviation, marking where costs and risk change hands. The more precisely it is stated (e.g. “FCA Gebze, seller’s warehouse, 4 Yeni St.”), the lower the risk of dispute. Writing only a country, or no place at all, is a common mistake that leaves the transfer of risk and the split of costs unclear.

Explained in the trade handbook

Trade handbook