What are Incoterms?

INCOTERMS 2020

What are Incoterms?

"Incoterms" are clauses, short for the term International Commercial Terms, which means international trade clauses. Incoterms define the rights and obligations of the contracting parties regarding the place, time, and method of delivery of goods, the timing and place of the transfer of costs and risks, and other elements (payment of costs, insurance, and taxes).

Why are Incoterms clauses so important?

Clauses are extremely important because they are recognized and accepted worldwide. In international trade, they are mandatory on every commercial invoice, as they significantly reduce risks and potential misunderstandings.

There are 11 Incoterms 2020 clauses, and they define the obligations of both the seller and the buyer.

Seller's obligations

• The seller makes the goods available to the buyer at the specified place and time as stipulated in the commercial contract for loading onto the means of transport provided by the buyer.
• The seller informs the buyer that the goods are available.
• The seller bears all costs and risks until the goods are available to the buyer within the agreed timeframe.
• At the buyer's request and expense, the seller provides assistance in preparing documents issued in the country of origin of the purchased goods.

Buyer's obligations

• The buyer takes delivery of the goods at the agreed time and place and pays the price as specified in the commercial contract.
• The buyer bears all costs and risks of the goods from the moment of taking delivery.
• The buyer is obligated to pay all incurred customs duties and taxes.
• The buyer also pays all costs related to obtaining necessary documents, including certificate of origin costs, and other fees.

The most important changes in Incoterms 2020

The most important changes are as follows:

NOVOST – V Incoterms 2020 so jasna pravila za porazdelitev obveznosti in s tem povezanih stroškov. Sedaj je natančno določeno, kdo nosi pri posamezni klavzuli stroške izvoznega carinjenja in kdo stroške uvoznega carinjenja (preglednica spodaj). Velja pravilo (izjema sta klavzuli EXW und DDP), da mora prodajalec nositi izvozne stroške in s tem povezana eventualna dovoljenja, kupec pa prevzame vse uvozne stroške in s tem povezana eventualna dovoljenja.  

NEW This also applies to EXW and FCA clauses, where the seller must assist the buyer in arranging the transport contract at the buyer's cost and risk. For all F clauses, it is now required that the seller can arrange the transport contract for the buyer only if specifically agreed upon, and no longer simply "if customary."

Clause	Export formalities	Import formalities	Transport contract	Place/point of delivery	Transfer of risk	Transfer of costs	Insurance contract	Means of transport
EXW (EX Works)	B	B	B	Seller’s warehouse	Place/point of delivery	Place/point of delivery		all
FCA (Free Carrier)	S	B	B	Place/point of delivery to the means of transport	Place/point of delivery	Place/point of delivery		all
FAS (Free Alongside Ship)	S	B	B	Alongside the ship at the port of departure	Place/point of delivery	Place/point of delivery		ladja
FOB (Free On Board)	S	B	B	Ship at the port of departure	On board the ship	On board the ship		ladja
CFR (Cost and Freight)	S	B	S	Ship at the port of departure	On board the ship	Namembno pristanišče		ladja
CIF (Cost Insurance and Freight)	S	B	S	Ship at the port of departure	On board the ship	Namembno pristanišče	S	ladja
CPT (Carriage Paid To)	S	B	S	Place of delivery to the first carrier	Place/point of delivery	Destination place		all
CIP (Carriage and Insurance Paid To)	S	B	S	Place of delivery to the first carrier	Place/point of delivery	Destination place	S	all
DPU (Delivered at Place Unloaded)	S	B	S	Destination place	Destination place	Destination place		all
DAP (Delivered at Place)	S	B	S	Destination place	Destination place	Destination place		all
DDP (Delivered Duty Paid)	S	S	S	Destination place	Destination place	Destination place		all

 * B = buyer     * S = seller

Source: https://www.ihk-berlin.de/Incoterms 2020

1.     EXW – Ex Works – Factory Delivery

• The buyer assumes almost all costs and risks. The seller’s task is to provide the buyer with access to the goods.
• Once the buyer has access, they assume responsibility and risk (including loading the goods).
• The risk transfers from the seller to the buyer at the seller's warehouse, offices, or any location where the goods are made available.
• NEW! The seller must assist the buyer in arranging the transport contract at the buyer's cost and risk.

2.     DAP – Delivered at Place

• The seller covers the costs and risks of transporting the goods to the agreed address. The goods are considered delivered when they arrive at the correct address and are ready for unloading.
• The responsibilities for export and import are the same as in the DPU (Delivered at Place Unloaded) clause.
• The risk transfers from the seller to the buyer when the goods are ready for unloading at the agreed address.
• NEW! In Incoterms 2020, the DAP clauses have been adapted to current business practices where more buyers and sellers use their own transport means. Thus, these clauses now permit transportation using the buyer's or seller's own vehicles. A transport contract can be arranged where it is allowed for the seller or buyer to organize the transport using their own means of transport.

3.     DDP – Delivered Duty Paid

• The seller assumes almost all obligations in the shipping process. The seller covers all costs and risks of transporting the goods to the agreed address, ensures the goods are ready for unloading, fulfills export and import obligations, and pays all duties.
• The risk transfers from the seller to the buyer when the goods are ready for unloading at the agreed address.
• NEW! In Incoterms 2020, the DDP clauses have been adapted to current business practices where more buyers and sellers use their own transport means. Thus, transportation using the buyer's or seller's own vehicles is now permitted under these clauses. A transport contract can be arranged allowing the seller or buyer to organize the transport using their own means of transport.

4.     CIP – Carriage and Insurance Paid To

• NEW! Under Incoterms 2020, the rules for CIF (Cost Insurance and Freight) and CIP (Carriage and Insurance Paid To) specify different minimum insurance coverage, reflecting current business practices. For CIP, the seller must obtain insurance for the cargo at least with "A" (All risks) coverage under Institute Cargo Clauses, unless otherwise agreed. For CIF, the seller must insure the cargo with at least "C" coverage under Institute Cargo Clauses.
• If the buyer requires insurance, it is their responsibility.
• The risk transfers from the seller to the buyer when the buyer’s carrier receives the goods.

5.     DPU – Delivered at Place Unloaded kraju

• The seller is responsible for the costs and risks of delivery to the agreed terminal, which can be an airport, warehouse, road, or container port. The seller arranges customs clearance and unloads the goods at the terminal.
• The buyer arranges import customs clearance and all associated duties.
• The risk transfers from the seller to the buyer at the terminal.
• NEW! Klavzulo DAT (Delivered at Terminal) je nadomestila klavzula DPU (Delivered at Place Unloaded). Poimenska sprememba, ker se je ožji pomen »terminal« nadomestil s širšim pomenom, to je »kraj«, tako da je lahko kraj dobave z razložitvijo blaga s prevoznega sredstva vsak kraj, ne samo terminal. To je lahko letališki terminal, pristaniški terminal ipd. 
• NEW! In Incoterms 2020, the DPU clauses have been adapted to current business practices where more buyers and sellers use their own transport means. Thus, these clauses now permit transportation using the buyer's or seller's own vehicles. A transport contract can be arranged where the seller or buyer is allowed to organize the transport using their own means of transport.

6.     FCA – Free Carier

• The seller's task is to deliver the goods to the buyer’s carrier at the agreed location. The seller is also obligated to handle the export customs clearance.
• The risk transfers from the seller to the buyer when the buyer’s carrier receives the goods.
• NEW! In Incoterms 2020, the FCA clauses have been adapted to current business practices where more buyers and sellers use their own transport means. Thus, these clauses now permit transportation using the buyer's or seller's own vehicles. A transport contract can be arranged where the seller or buyer is allowed to organize the transport using their own means of transport.
• NEW! Regarding the FCA (Free Carrier) clause, Incoterms 2020 introduces a new provision for issuing a bill of lading (B/L). The bill of lading can indicate that the goods are loaded on board the ship, even if the goods were delivered to the carrier at a land point. This allows the seller to obtain a B/L from the carrier if needed, for instance, for a documentary credit.

7.     CPT – Carriage Paid to

• The seller has the same obligations as under the FCA (Free Carrier) clause, with the difference that the seller bears the costs of delivery. Under the FCA clause, the seller is responsible for handling the export customs clearance.
• The risk transfers from the seller to the buyer when the buyer’s carrier receives the goods, or under EXW – Ex Works (Factory).

8.     FAS – Free Alongside Ship

• Prodajalec prevzame vse stroške in tveganje, dokler blago ni dostavljeno k ladji. Kupec nato prevzame tveganje ter poskrbi za izvozno in uvozno carinjenje.
• The risk transfers from the seller to the buyer when the goods are delivered to the ship.

9.     FOB – Free on Board

• The seller assumes all costs and risks until the goods are delivered on board the ship. The seller also arranges export customs clearance. The buyer assumes all obligations once the goods are on board.
• The risk transfers from the seller to the buyer when the goods are delivered on board the ship.

10.  CFR – Cost and Freight

• The seller has the same obligations as under the FOB (Free on Board) clause but must also cover the costs of delivering the goods to the port. As with the FOB clause, the buyer assumes all obligations once the goods are on board the ship.
• The risk transfers from the seller to the buyer when the goods are on the ship.

11.  CIF – Cost Insurance and Freight

• NEW! Under Incoterms 2020, the rules for CIF (Cost Insurance and Freight) and CIP (Carriage and Insurance Paid To) specify different minimum insurance coverage, reflecting current business practices. For CIP, the seller must obtain insurance for the cargo at least with "A" (All risks) coverage under Institute Cargo Clauses, unless otherwise agreed. For CIF, the seller must insure the cargo with at least "C" coverage under Institute Cargo Clauses.
• If the buyer requires insurance, it is their responsibility.
• The risk transfers from the seller to the buyer when the goods are on the ship.