INCOTERMS 2020-

STRUCTURE, EXPLANATION
& LEVERAGING

By
Dr. Ram Singh
Professor & Head
(MDPs)
International Trade Operations
Indian Institute of Foreign Trade
New Delhi
Email: [email protected]
 INCOTERMS 2020
• The Incoterms first set out in 1936 were subsequently revised in
1953, 1967, 1980, 1990, 2000 2010 and 2020. However earlier
references to unpublished Incoterms dates backs as early as
1923 in USA. They were six in numbers.
• ICC (International Chamber of Commerce) Official Rules for the
Interpretation of Trade terms.
• Purpose is to provide a set of international rules for
the interpretation of the most commonly used trade terms.
• There are 11 categories of Incoterms 2020 describing where
costs & risks lie between seller and buyer.
• International Commercial Terms (INCOTERMS) are also referred
as shipping terms, delivery terms; Infoterms or sometimes as
trade terms.
Background - Introduction
• Incoterms are the most ‘commonly accepted terms’ ( not
legislation) of sale in international business
• Incoterms have been adopted by most countries; however
India is not the signatory country so far; but Incoterms
are popular in India and are widely used and if once
incorporated into sales contract; have arbitrary & quasi
judicial sanction.
• Defines the responsibilities and risks between exporter
& Importer in an International Sales Transaction.
• To help parties to avoid misunderstandings, with all the
waste of time and money that this entails
• They are used as part of the overall sales agreement.
 Changing Landscape of
Incoterms Rules
Incoterms 2000 Incoterms 2010 INCOTERMS 2020

• Incoterms are 13 • Incoterms are 11 • Incoterms are 11

• There are 7 Multimodal & • There are 7 Multimodal & • There are 7 Multimodal &
6 Water Transport 4 Water Transport 4 Water Transport
Incoterms. Incoterms. Incoterms.
• Not valid for Domestic • Has equal force of law if • More clarity on String
Sales incorporated in domestic Sales/ Sales on High Sea
• Does not recognize sales contract. This for land Locked

electronic Communication clause is Not relevant to countries.

• Confusion during String India • Have all elements of

sales especially on High • Guidance Notes Incoterms 2010

Sea. incorporated like on • Have new incoterms DPU

• Silent Terminal Charges as DAT stands

on Information
Duties for Insurance cover • Recognizes Electronic abolished.

• Security related Communication • Far more clarity on

INCOTERMS 2020 helps a lot!
• Determining Price of the goods (what is included)
• Inspection of the goods – obligations and limitations:
• Delivery periods, conditions (contract of carriage?!);
• Where exactly the goods to be delivered to the Buyer;
• Transfer of risk (Insurance?);
• Who will be responsible for export clearance and who for
import clearance and the cost (duty, GST/ Transit Levies and
Charges);
• Who will pay what in relation to the delivery of goods;
• What documents must be surrendered by the Seller.
STRUCTURE OF
INCOTERMS
 Organization of Incoterms 2020

Incoterms are divided into four (4) categories:

 “E” term – Seller makes the goods available to the buyer at
the
seller’s premises or other place named by the seller.

 “F” terms – Seller is responsible to deliver the goods to the export

shipment point and carrier designated by the buyer

 “C” terms – Seller is responsible for contracting carriage of goods

to the place of destination, but does not assume risk of loss or
damage to goods, or additional costs due to events occurring after
shipment

 “D” terms – Seller is responsible for all costs and risks associated
with delivering goods to the named place in the country of
destination
 The Structure of Incoterms
 4 groups of terms
Group E Departure
EXW Ex Works (…
named place)
Group F Main carriage unpaid
FCA Free Carrier (…named place)
FAS Free alongside Ship (…named port of shipment)
FOB Free On Board (…named port of shipment)

Group C Main Carriage Paid

CFR Cost and Freight (…named port of destination)
CIF Cost Insurance and Freight (…named port of destination)
CPT Carriage Paid To (…named place of destination)
CIP Carriage Insurance Paid To (…named place of
destination)
Group D Delivered
DAP Delivered at Place (…..named place of destination)
DPU Delivered at Place Unpaid (….named place of destination)
DDP Delivered Duty Paid (…named place of destination)
 Incoterms Classified by Use of Transport

All modes of transport Sea and inland waterway

including multi-modal transport only
 EXW – Ex Works
 FAS – Free Alongside Ship
 FCA – Free Carrier
 FOB – Free Onboard
 CPT – Carriage Paid To
 CIP – Carriage and  CFR – Cost and Freight

Insurance Paid To  CIF – Cost, Insurance, and

 DAP – Delivered
Freight
At Place
 DPU- Delivered at Place
Unpaid
 DDP – Delivered Duty
Paid

*Beautiful Incoterms; Mode Neutral; can be used with any mode of transport
 Four Groups of Incoterms

Less More
Res. 1) “E” Res.
group
2) “F”
Seller Buyer
group
3) “C” group
More Less
4) “D” group Res.
Res.
 EXW
EX WORKS (…..Named Place of Delivery)
 The “E”-term is the term in which the seller’s obligation
is at its minimum.
 The buyers all the costs and risks involved in taking the
goods from sellers; Premises to the desired destination.
 Seller's obligation is to make goods available at his
premises (Works; Factory; warehouse). This Terms
represents minimum Obligation for the seller.
 Term can be used irrespective of mode of Transport in
Trade Operations.
 EXW
Ex Works …(Named Place of Delivery)
SELLER

BUYER
Seller/ Export Delivered Loading Onboard Discharging Delivery at Import
Exporter Documents at named Port Ship Port of named place ofDocuments
Buyer/ Importer
Premises Formalities place of: Shipment
of Rail Arrival destination: Formalities Premises
Frontier/ Plane Frontier/
Terminal/ Terminal/Qua
Quay y
Seller’s Buyer’s Risks
Risks

Seller’s Buye’rs
Cost Cost
 Dr. Singh Anecdotes
 Best Use of EXW: EXW Incoterms can be best
Used for Domestic Sales / Exports Sales when
buyer has better logistical expertise or if
exporter has monopoly / ignorant of market
conditions; Deemed Export sales; risk averse
situations.
 Let us Check Up:
 Incoterms 2020

The “F” –terms require the seller to deliver goods for

carriage as instructed by the buyer.
 FCA

 FAS

 FOB
 FCA
FREE CARRIER (…..Named Place)

 Seller delivers when goods, cleared for export, to the

carrier nominated by the buyer at a named place.
 Term may be used irrespective of the mode of transport.
 Seller is obligated to load goods on arriving vehicle if it
arrives within the Date of Shipment at the agreed point or
place.
 If the vehicle don't arrive on agreed date; seller should
handover the documents to person nominated by buyer.
 FCA – Free Carrier (….Named Place)
SELLE BUYE
R R

Seller/ Export Delivered at Loading Onboar Dischargi Delivery at Import Buyer/

Exporter Documen named Port of d Ship ng Port of named place Documen Importer
ts place of: Shipme Rail Arrival of destination: ts
Premis Formaliti Frontier/ nt Plane Frontier/ Formaliti Premis
es es Termina Terminal/Qu es es
l/ ay
Seller’s Quay Buyer’s
Risks Risks

Seller’s Buyer’s
Cost Cost
 Dr. Singh Anecdotes
 Best use of Incoterms FCA: Can be best used in
Deemed Exports & Restricted Exports. Incoterms
FCA can be best used when buyer want to
maximize his control on Trade supply chain or
buyer is risk averse. FCA are best suited for Air
shipments under Group F.
 Let us Check Up:
 FAS -FREE ALONGSIDE SHIP
(…named port )
Seller delivers when goods, cleared for
export, are placed alongside the
vessel.
 Seller obliged to clear goods for export.

 The buyer bears all costs and risks of loss or

damage to the goods from that moment.
 Terms can be used for sea or inland waterway
transport only.
 FAS – Free Alongside (…..Named Port)

SELLE BUYE
R R

Seller/ Export Delivered at Loading Onboar Dischargin Delivery at Import Buyer/

Exporter Document named Port of d Ship g Port of named place of Document Importer
s place of: Shipmen Rail Arrival destination: s
Premise Formalitie Frontier/ t Plane Frontier/ Formalitie Premise
s s Terminal Ship’s Ship’s Terminal/Quay s s
/ Quay Rail Rail
Seller’s Risks Buyer’s Risks

Seller’s Cost Buyer’s Cost

 Dr. Singh Anecdotes
 Best Use of Incoterms FAS: Incoterms FAS are
best used in case of Inland water Transport;
however can be used with equal ease in Sea
Transportation. Should not be used from country
hinterland (place). Should also be avoided in
case of Charter Party Contracts.
 Let us Check Up:
 FOB – FREE ON BOARD
(…named port of shipment)
 Seller delivers when goods, cleared for export,
pass the ship’s rail at the named port of shipment.
 The buyer bears all costs and risks of loss or damage to
the goods from that point.
 Term can be used for sea or inland waterway transport
only.
 If intent is not to deliver goods across the ship’s rail, use
FCA.
 FO
Free On Board…(named port of shipment)
B SELLER BUYE
R

Seller/ Export Delivered Loading Onboard Discharging Delivery at Import Buyer/

Exporter Documents at named Port of Ship Port of named place of Documents Importer
Premises Formalities place of: Shipment Rail Arrival destination: Formalities Premises
Frontier/ Plane Frontier/
Terminal/ Terminal/Quay
Quay
Seller’s Buyer’
Risks s
Risks
Seller’s Cost Buyer’s
Cost
 Dr. Singh Anecdotes
 Best Use of Incoterm FOB: Most suitable for
Both the parties in ideally competitive
situation. Due Care should be taken for not
using it from “Place”. Should be avoided as
possible for Air Transport. Give buyer the
control on supply Chain. Establish Ideal
business relationships.
 Let us Check Up:
 Incoterms 2020
 The “C” –terms require the seller to
contract for carriage at his expense – to a
specified point.
 CFR
 CIF
 CPT
 CIP
 CFR – COST AND FREIGHT
(…..Named Port of Destination)

 Seller delivers when goods, cleared for export, pass

the ship’s rail at the named port of shipment.
 The seller pays the costs and freight necessary to
bring goods to port of destination, but the buyer
bears the risk of loss and additional costs occurring
after delivery.
 Term can be used for sea or inland waterway
transport.
 If intent is not to deliver goods across the ship’s rail,
use CPT
 CF
Cost and Freight …(named port of
destination) R BUYE
SELLER R

Seller/ Export Delivered Loading Onboa Dischargin Delivery at Import Buyer/

Export Documen at named Port of rd Ship g Port of named place of Documen Import
er ts place of: Shipme Rail Arrival destination: ts er
Premise Formaliti Frontier/ nt Plane Frontier/ Formaliti Premises
s es Termin Terminal/Qu es
al/ Quay ay
Seller’s Buyer’s
Risks Risks

Seller’s Buyer’s
Cost Cost
 Dr. Singh Anecdotes
 Best Use of Incoterms CFR: CFR Incoterms is
suitable for Bulk Cargo like Coal; Cotton Bales;
Iron Ore. Also suitable for ‘stand alone shipments’
or when buyer has his own means of
Transportation. Suitable for FCL Cargo.
Suitable for Charter party contracts.
 Let us Check Up:
 CIF – Cost Insurance & Freight
(….Named Port of Destination)
Seller delivers when goods, cleared for export, pass the ship’s
rail at the named port of shipment.
 The seller pays the costs and freight necessary to bring goods
to port of destination, but the buyer bears the risk of loss and
additional costs occurring after delivery.
 The seller procures marine insurance, against buyer’s
risk of loss. Seller is required to obtain insurance only on
minimum cover.
 Term can be used for sea or inland waterway transport.
 If intent is not to deliver goods across the ship’s rail, use CIP.
 CIF
Cost, Insurance and Freight …(named port of destination)
SELLER BUYER

Seller/ Export Delivered Loading Onboard Discharging Delivery at Import Buyer/

Exporter Documents at named Port Ship Port of named place of Documents Importer
Premises Formalities place of: Shipment
of Rail Arrival destination: Formalities
Frontier/ Plane Frontier/ Premises
Terminal Terminal/Quay
/ Quay
Seller’s Buyer’s Risks
Risks

Seller’s Buyer’s Cost

Costs
 Dr. Singh Anecdotes
 Best Use of Incoterms CIF: Most suitable for port to
port Shipment; widely used in global trade. Buyer
must take care of risk mitigating mechanism.
Should be avoided when goods are to be delivered
across ship rail (country hinterland). Ideal for
competitive business relations. Suitable for both FCL /
LCL Cargo. Ideal for Containerized Cargo.
 Let us Check Up:
 CPT – CARRIAGE PAID TO
(…..Named Place of Destination)

 Seller delivers the goods, cleared for export, to the

carrier.
 The seller pays the costs of carriage necessary
to bring goods to named destination, but the
buyer bears the risk of loss and additional
costs occurring after ‘delivery’ at seller
Country.
 Term may be used irrespective of mode of
transport.
 CPT - Carriage Paid To
(…….Named Place of Destination)
SELLER BUYE
R

Seller/ Export Delivered at Loading Onboar Dischargin Delivery at Import Buyer/

Exporte Document named Port of d Ship g Port of named place of Document Importer
r s place of: Shipmen Rail Arrival destination: s
Premise Formalitie Frontier/ t Plane Frontier/ Formalitie Premise
s s Terminal Terminal/Qua s s
/ Quay y
Seller’s Risks Buyer’
s
Risks

Seller’s Cost Buyer’

s
Costs
 Dr. Singh Anecdotes
 Best Use of Incoterms CPT: suitable for
Most Warehouse to widely used
Warehouse
when intent is toShipment;
get cargo in country hinterland at dry
ports; buyer must take care of mitigating
risk mechanism to protect himself
from never
itself. Should 1st be used at port town suchwarehouse
as JNPT/
Kolkata/ Chennai. Ideal for Break bulk; LCL cargo.
 Let us Check Up:
 CIP – CARRIAGE AND INSURANCE PAID TO
(…..Named Place of Destination)

 Seller delivers the goods, cleared for export, the carrier.

 The seller pays the costs of carriage to named
destination, but the buyer bears the risk of loss and
additional costs occurring after delivery.
 The 2020
 Term may be used irrespective of mode of transport.
 CIP – Carriage and Insurance Paid to
(…Named Place of Destination)
SELLER BUYE
R

Seller/ Export Delivered at Loading Onboar Dischargin Delivery at Import Buyer/

Exporter Document named Port of d Ship g Port of named place Document Importer
s place of: Shipmen Rail Arrival of destination: s
Premise Formalitie Frontier/ t Plane Frontier/ Formalitie Premise
s s Terminal Terminal/Qua s s
/ Quay y
Seller’s Risks Buyer’s Risks

Seller’s Cost Buyer’s

Cost
 Dr. Singh Anecdotes
 Best Use of Incoterms CIP: Notable Change has
been made so as to facilitate the break bulk cargo
for end to end journey.
 Most suitable for Warehouse to Warehouse Shipment;
widely used when intent is to get cargo in country
hinterland at dry ports; buyer must take care of risk
mitigating mechanism to protect himself from 1st
warehouse itself. Should never be used at port town
such as JNPT/ Kolkata/ Chennai. Ideal for Break
bulk; LCL cargo.
 Let us Check Up:
 Incoterms 2020
 The “D” –terms obligate the seller to contract
for Carriage as well Insurance at his expense –
to a specified port; point or place and deliver
the goods to the buyer. Incoterms are:
 DAP
 DAU
 DDP
 DAP-Delivered At Place
(……Named Place of Destination)
 Seller bears the responsibility and risks to deliver
the goods to the named place.
 Seller is advised to obtain contracts of
carriage that matches the contract of sale.
 Seller is required to clear the goods for exports.
 Importer is responsible for effecting
customs clearance and paying any customs
duties.
 DAP
Delivered At Place…(named place of destination)
SELLER BUYER

Seller/ Export Delivered Loading Onboard Discharging Delivery at Import

Exporter Documents at named Port Ship Port of named place ofDocuments
Buyer/ Importer
Premises Formalities place of: Shipment
of Rail Arrival destination: Formalities Premises
Frontier/ Plane Frontier/
Terminal/ Ship’s Ship’s Terminal/Qua
Quay Rail Rail y
Seller’s Risks Buyer’s
Risks

Seller’sCo Buyer’s Cost

st
 Dr. Singh Anecdotes
 If the seller incurs unloading cost at place of destination;
unless previously agreed he is not entitled to recover any
such costs.
 Parties are advised to specify as clearly as possible the
point within the agreed place of destination; because
risks transfer at this point from seller to buyer.
 If the intent is to deliver the goods duly cleared from
customs ( Import Duty & Procedure); DDP should be used.
 Let us Check Up:
 DPU – DELIVERED AT PLACE UNPAID
(…named place of destination)
 Seller delivers goods to the buyer, not cleared for
import,
however unloaded, at the named place of destination.
 Seller bears all costs and risks (except duty) to bring goods to the
named place of destination.
 Term may be used irrespective of mode of transport.
 It is introduced for the first time in Incoterms 2020.
 DPU is an extension of DAP as it includes the unloading cost at
destination, thus first terms mandating unloading as sellers cost.
 Terms is mainly for containerized trade as world trade is getting
more and more containerized.
 It addresses the changing dynamics of world trade profile, e-
commerce, postal, courier and online.
 DP
Delivered at Place Unpaid…(named place of
destination) U BUYE
R
SELLER

Seller/ Export Delivered Loading Onboa Dischargin Delivery at Import Buyer/

Expor Documents at named Port of rd Ship g Port of named place of Documents Impor
ter Formalit place of: Shipme Rail Arrival destination: Formalit ter
Premis ies Frontier/ nt Plane Frontier/ ies Premises
es Termi Ship’ Ship Terminal/Q
nal/ s ’s uay
Seller’s Quay Rail Rail Buyer’
Risks s
Risks
Seller’s Buyer’s
Cost Cost
 Dr. Singh Anecdote
 Suitable for Containerized Trade, Postal Trade,
Courier Trade and is suitable for E-commerce
Trade. Offer solution to end to end journey
except Import Duty at destination. Suitable for
finished cargo requiring specific logistics
solution. Brings clarity in end to end logistics to
f Hazmat Cargo
 DDP – DELIVERED DUTY PAID (…named
place of destination)
 Seller delivers goods to the buyer, cleared for
import, and not unloaded, at the named place of
destination.
 Seller bears all costs and risks, including import
duty, to bring goods to the named place of
destination.
 Term may be used irrespective of mode of
transport. If delivery is to take place at the port,
DAT (2010) should be used.
 DD
Delivered Duty Paid…(named place of
destination) P BUYE
R
SELLER

Seller/ Export Deliver Loading Onboa Dischargi Delivery at Import Buyer/

Export Documents ed at Port of rd ng Port of named place Documents Import
er Formalit named Shipme Ship Arrival of destination: Formalit er
Premis ies place of: nt Rail Frontier/ ies Premises
es Frontier/ Plane Terminal/Quay
Termin Ship’s
al/ Ship’s
Quay Rail Rail
Seller’s Risks Buyer
’s
Risks
Seller’s Cost Buyer’s Cost

45
 Dr. Singh Anecdote
 Best Use of Incoterm DDP: Immense care should be
taken to check local Import policy / Authorisation
requirements. Rate of Duties should also be checked in.
Attitude of Customs Authority in Customs Clearance /
Corruption etc. Ideal for Vender managed Inventory
situations / Consignment Sales when seller has better
logistical knowledge.
 Also know as Domino in Francophone
Franco
Countries.
 Let us Check Up:
Knowledge Bytes:
Incorporating
Incoterms in Trade
Contracts
 FI (Free In)

 In the international ocean freight terminology

the word “Free” means “Not included”. I.e. if
FI, then the shipper is responsible for the
coast of loading goods onto a vessel for the
international shipping overseas.

 FO (Free Out)

 FO is the international shipping term in

ocean freight that indicates that the
consignee (recipient) is responsible for the
cost of unloading cargo from the vessel at
the destination.
 FIO (Free In and OUT)

 The international shipping term used in

the ocean freight industry means that the
carrier is NOT responsible for the cost of
loading and unloading gods onto/from the
vessel.
 Free into Store (FIS)
 An unofficial trade term indicating that the
seller's price includes all costs up to
delivery to the buyer. This is similar in
effect to DDP.
 Mode of Transport and Appropriate
Incoterms - Any Mode of Transport
 EXW – Ex Works
 FCA – Free Carrier
 CPT – Carriage Paid To
 CIP – Carriage and Insurance Paid To
 DAT- Delivered at Terminal
 DAP- Delivered at Place
 DDP – Delivered Duty Paid
 Mode of Transport and Appropriate Incoterm –
Maritime and Inland Waterway Transport Only

 FAS – Free Alongside Ship

 FOB – Free Onboard
 CFR – Cost and Freight
 CIF – Cost, Insurance, and Freight
 In Summary

 Buyer’s Objective: maximize control of

supply chain, use FOB, FCA, or FAS
 Must name a place after the INCOTERM
 INCOTERMS are negotiable!
 INCOTERMS should appear on all
commercial documents
 Establish a close relationship with a forwarder
Thank You for Your Patience
 Thank You

धनयव
ाद Merci

Gracias Dank
e
Schon

Thank You
谢谢