Incoterms® 2020 Memo Aid

The Incoterms® rules explain a set of three-letter trade terms reflecting business-to-business practice in contracts
for the sale of goods.
Purpose
Deals with a number of identified obligations imposed Deals with the obligations
on the parties – such as: Seller’s obligation • to clear the goods for export and import,
• to place the goods at the disposal • the packing of the goods,
of the buyer or • the buyer’s obligation to take delivery
• hand over for carriage or as well as the obligation to provide proof that the
• deliver them at destination and respective obligations have been duly fulfilled.
• with the distribution of risk between parties
in these cases.

Advantages
They follow trade practices rather than attempt to direct it. Since they are not law, they can be revised as needed to
suit major changes in the way business is done.

Benefits to Traders
Helps to prevent misunderstandings in international trade contracts. Aids the contracting parties to clarify beyond
doubt which party to the contract is responsible for goods in transit at particular stages of their journey and who is
responsible for important tasks such as managing export and import clearance and arranging the insurance of
the goods.

Misconceptions
Frequently misunderstood as applying to the contract of carriage rather than to the contract of sale. They are
sometimes wrongly assumed to provide for all the duties which parties may wish to include in a contract of sale.

Incoterms do not cover:

• Ownership title/title to the goods
• Payment obligation (when/how/what security/against what documents)
• Vessel requirements
• Force majeure
• Termination
• Insolvency
• do not constitute a complete contract of sale.
• PROVIDE convenient, internationally recognized rules for the sale of goods

Terminologies under Incoterms:

1. Main Carriage – transport or freight cost by air or sea, charged by the carrier or the amount paid by the shipper
to carrier for the transport of goods from exporting country to importing country.
2. Pre-Carriage – transport cost or hauling charges of goods from the seller’s warehouse to a designated point at
exporting country.
3. On-Carriage – the transport cost or hauling charges of goods from the port of destination to the buyer’s
warehouse or designated place at destination.
4. FRT Prepaid – main carriage for the exportation of goods paid by the seller from exporting country.
5. FRT Collect – main carriage paid by the buyer upon arrival of imported goods at destination.
 6. Multi-modal Transport – the inter-continental transit of goods involving main carriage that can be carried out
both by air or by sea.
7. Port-to-port Insurance – Cargo insurance covering the international transport of goods by air/sea.
8. Internal Insurance – Cargo insurance taken up by the seller to cover risks while in transit from his warehouse
to a delivery point.
9. Carrier – Airlines, shipping lines or their agents.
10. Delivery – bringing of goods to a specific place or entity at country of origin or destination.

Group Terms Note

1. Group E (Departure) Ex-Works (EXW) named place of FRT prepaid/collect (option of the
delivery buyer) Multi-modal Transport.
2. Group F (Shipment) a. Free Carrier (FCA) named Main carriage (FRT collect) and
place of delivery port insurance not included in
b. Free Alongside Ship (FAS) seller’s invoice.
named port of shipment
c. Free On-Board (FOB)
named port of shipment
3. Group C (Shipment) a. Cost and Freight (CFR) Main carriage paid by the seller
named port of destination pre-departure at origin and
b. Cost Insurance and Freight included in seller’s invoice.
(CIF) named port of
destination
c. Carriage Paid To (CPT)
named destination
d. Carriage Insurance Paid to
(CIP) named destination
4. Group D (Arrival) a. Delivered at Place Arrival, main carriage (FRT
Unloaded (DPU) named prepaid) paid by the seller pre-
place of destination departure at origin and included in
b. Delivered at Place (DAP) seller’s invoice except port to port
named place of destination insurance.
c. Delivered Duty Paid (DDP)
named place of destination

The Incoterms rules describe mainly the tasks, costs and risks involved in the delivery of goods from sellers to
buyers.

MEANING OF DELIVERY

This concept has multiple meanings in trade law and practice, but in the Incoterms® rules, it is used to indicate
where the risk of loss of or damage to the goods passes from the seller to the buyer.

MEANING OF PACKAGING

1. The packaging of the goods to comply with any requirements under the contract of sale.

2. The packaging of the goods so that they are fit for transportation.

3. The stowage of the packaged goods within a container or other means of transport.
 1. Classification of the 11 Incoterms® 2020 rules;

ANY MODE OR SEA AND INLAND

MODES OF WATERWAY
TRANSPORT TRANSPORT
(Omni-Modal (Marine-
Transport) Restricted)
EXW – Ex Works FAS – Free Alongside Ship
FOB – Free On Board
FCA – Free Carrier
CFR – Cost and Freight
CPT – Carriage Paid To CIF – Cost, Insurance and
Freight
CIP – Carriage&Insurance
Paid To
DPU – Delivered at Place
Unloaded
DAP – Delivered at Place
DDP – Delivered Duty Paid

2. Rules for domestic and international trade;

3. Guidance Notes;
4. Electronic Communication;
5. Insurance Cover;
6. Security-related Clearances and information required for each clearances;
7. Terminal Handling Charges;
8. String Sales;
OMNI-MODAL INCOTERMS®

1. Ex Works (EXW) + (Named Place) + Incoterms®

Means that the seller delivers when it places the goods at the disposal of the buyer at the seller‘s premises or at
another named place (i.e., works, factory, warehouse, etc.)
NOTES:
1. In EXW, the seller does not need to load the goods on any collecting vehicle, nor does it need to clear the
goods for export, where such clearance is applicable. If he does, it will be at the buyer’s risk and expenses.
2. EXW represents the minimum obligation for the seller.
3. Delivery constitutes (1) after goods are packaged and
(2) the buyer is notified that the goods are available for transportation. Delivery occurs prior to being
picked up from the loading truck.

2. Free Carrier (FCA) + (Named Place) + Incoterms®

Means that the seller delivers the goods to the carrier or another person nominated by the buyer at the seller‘s
premises or another named place.
NOTES:
1. In all cases, except EXW, seller is required to clear the goods for export, where applicable. Hence, seller
pays for the export clearance cost.
However, the seller has no obligation to clear the goods for import or any import duty or carry out any
import customs formalities, except on DDP.
2. Named place is either (1) seller‘s premises or
(2) any other location designated by the buyer in the seller‘s side (country of exportation).
3. Delivery is completed:
a. If the named place is the seller’s premises, when the goods have been loaded on the means of
transport provided by the buyer. (General Case)
b. In any other case, when the goods are placed at the disposal of the carrier or another person
nominated by the buyer on the seller‘s means of transport ready for unloading. (Exception Case)

3. Carriage Paid To (CPT) + (Named Place) + Incoterms®

Means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed
place (if any such place is agreed between the parties) and that the seller must contract for and pay the costs of
carriage necessary to bring the goods to the named place of destination.
NOTES:
1. When CPT, CIP, CFR or CIF are used, the seller fulfills its obligation to deliver when it hands the goods
over to the carrier and not when the goods reach the place of destination.
This rule has two critical points, because risk passes and costs are transferred at different places.
2. The default position is that risk passes when the goods have been delivered to the first carrier at a point
entirely of the seller‘s choosing and over which the buyer has no control.
CONDITIONS:
a. If several carriers are used for the carriage to the agreed destination; and
b. The parties do not agree on a specific point of delivery.

4. Carriage and Insurance Paid To (CIP) + (Named Place) + Incoterms®

Means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place
(if any such place is agreed between the parties) and that the seller must contract for and pay the costs of carriage
necessary to bring the goods to the named place of destination.
NOTE: The seller also contracts for insurance cover against the buyer‘s risk of loss of or damage to the goods
during the carriage.
The buyer should note that under CIP the seller is required to obtain insurance only on minimum cover.
Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the
seller or to make its own extra insurance arrangements.
5. Delivered at Place Unloaded (DPU) + (Named Place) + Incoterms®
Means that the seller delivers when the goods, once unloaded from the arriving means of transport, are placed at
the disposal of the buyer at a named port or place of destination.
NOTES:
1. Requires the seller to clear the goods for export and procure contract of carriage but has no obligation to
clear the goods for import.
2. The seller bears all risks involved in bringing the goods to and unloading them at the terminal at the named
port or place of destination.
3. Delivery constitutes when the goods are at the named destination terminal unloaded.

6. Delivered at Place (DAP) + (Named Place) + Incoterms®

Means that the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of
transport ready for unloading at the named place of destination.

7. Delivered Duty Paid (DDP) + (Named Place) + Incoterms®

Means that the seller delivers the goods when the goods are placed at the disposal of the buyer, cleared for
import on the arriving means of transport ready for unloading at the named place of destination.
NOTE: DDP represents the maximum obligation for the seller.
MARINE-RESTRICTED or SEA AND INLAND WATERWAYS INCOTERMS®

1. Free Alongside Ship (FAS) + (Named Place) + Incoterms®

Means that the seller delivers when the goods are placed alongside the vessel (e.g., on a quay or a barge)
nominated by the buyer at the named port of shipment.
NOTE: The risk of loss of or damage to the goods passes when the goods are alongside the ship, and the buyer
bears all costs from that moment onwards.

2. Free On Board (FOB) + (Named Place) + Incoterms®

Means that the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment
or procures the goods already so delivered.
NOTE: The reference to ―procures‖ here caters for multiple sales down a chain (‗string sales‘), particularly
common in the commodity trades.

3. Cost and Freight (CFR) + (Named Place) + Incoterms®

Means that the seller delivers the goods on board the vessel
or procures the goods already so delivered.
NOTE: When CPT, CIP, CFR or CIF are used, the seller fulfills its obligation to deliver when it hands the goods
over to the carrier in the manner specified in the chosen rule and not when the goods reach the place of destination.
The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of
destination.

4. Cost, Insurance and Freight (CIF) (Named Place) + Incoterms®

Means that the seller delivers the goods on board the vessel
or procures the goods already so delivered.
NOTE: The seller must contract for and pay the costs and freight necessary to bring the goods to the named
port of destination. The seller also contracts for insurance cover against the buyer‘s risk of loss of or damage
to the goods during the carriage.