DON'T GET LOST IN TRANSIT: A SIMPLE GUIDE TO INCOTERMS® 2020
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In the complex world of international shipping, a simple misunderstanding can cost your business thousands. Who is responsible for the cargo when it’s loaded onto the ship? Who pays the import duties? Who arranges the truck from the port to your warehouse?
This is where Incoterms® come in.
At Rock Global Logistics, we believe that knowledge is the key to smooth and successful supply chains. In this guide, we’ll demystify these essential rules so you can trade with confidence.
What Are Incoterms®, Exactly?
Incoterms®, or International Commercial Terms, are a set of 11 pre-defined, universally recognized rules published by the International Chamber of Commerce (ICC). They define the responsibilities of buyers and sellers in international trade transactions.
Think of them as a standardized code that clearly answers three critical questions:
Who is responsible for the goods at each stage of the journey?
Who pays for which transport and insurance costs?
Where does the risk transfer from the seller to the buyer?
By using the correct Incoterm®, you eliminate ambiguity, prevent disputes, and ensure both parties are on the same page from the start.
The 11 Incoterms® 2020 at a Glance
The latest version, Incoterms® 2020, categorizes the rules based on their suitability for different modes of transport.
Rules for Any Mode of Transport
EXW (Ex Works): The buyer bears all risk and cost, collecting the goods from the seller’s premises. This term places the maximum obligation on the buyer and minimum on the seller.
FCA (Free Carrier): A hugely important and flexible rule. The seller delivers the goods, cleared for export, to a carrier named by the buyer at a specified location.
CPT (Carriage Paid To): The seller pays for carriage to the named destination, but risk transfers to the buyer once the goods are handed to the first carrier.
CIP (Carriage and Insurance Paid To): Similar to CPT, but the seller must also take out insurance for the goods during transit.
DAP (Delivered at Place): The seller bears all risks and costs to deliver the goods to a named place, ready for unloading by the buyer. The buyer handles import clearance.
DPU (Delivered at Place Unloaded): The seller delivers and unloads the goods at the named destination. The buyer is responsible for import clearance.
DDP (Delivered Duty Paid): The seller bears maximum responsibility, delivering the goods to the named destination, with all duties and taxes paid.
Rules for Sea and Inland Waterway Transport
FAS (Free Alongside Ship): The seller places the goods alongside the vessel at the named port of shipment. The risk transfers at that point.
FOB (Free on Board): The seller is responsible for the goods until they are onboard the vessel. This is a critical transition point for risk and cost.
CFR (Cost and Freight): The seller pays the costs to bring the goods to the port of destination, but risk transfers once the goods are onboard the ship at the origin.
CIF (Cost, Insurance, and Freight): Similar to CFR, but the seller must also provide marine insurance for the goods during the sea voyage.
Why Choosing the Right Incoterm® is a Strategic Business Decision
Selecting an Incoterm isn't just a box-ticking exercise; it’s a core part of your logistics strategy.
Cost Control: The wrong term can lead to unexpected charges, like demurrage at a port or last-mile trucking fees you didn’t budget for.
Risk Management: Knowing exactly when liability shifts allows you to ensure you have the right insurance coverage in place at the right time.
Supply Chain Efficiency: Clear responsibilities prevent delays caused by confusion over who is supposed to arrange what.
Negotiation Power: Understanding Incoterms gives you a stronger position when negotiating contracts with your suppliers or customers.
Common Incoterms® Pitfalls to Avoid
Using Outdated Terms: Always specify "Incoterms® 2020" in your contracts and documents. Using older versions like 2010 can lead to confusion.
Mismatching Terms with Reality: Don't use FOB if you're shipping by air. Use FCA instead. Forcing a sea-term onto a truck shipment is a common and costly error.
Forgetting the Named Place: An Incoterm is useless without a specific, named location (e.g., "FCA Jebel Ali Port, Dubai, UAE").
Assuming "All-Inclusive": A term like CIF only covers cost, insurance, and freight to the destination port. It does not cover unloading, import duties, or trucking to your final warehouse. Many buyers are caught out by this.
Partner with Rock Global Logistics for Clarity and Confidence
Navigating Incoterms® can be daunting, but you don’t have to do it alone. The team at Rock Global Logistics are experts in international trade regulations. We help you:
Analyze your contracts to ensure the chosen Incoterm aligns with your business goals.
Manage the entire process, from export packaging to final delivery, regardless of the term used.
Mitigate risk by ensuring seamless handoffs and proper insurance coverage at every stage.
Let us handle the complexity, so you can focus on growing your global business.
Ready to ship with confidence? Contact the experts at Rock Global Logistics today for a consultation.
Disclaimer: This article is for informational purposes only and does not constitute legal or professional advice. Always refer to the full ICC Incoterms® 2020 rules for definitive guidance.