Logistics and delivery terms
Trade between exporters and importers should run as smoothly as possible. This is why recognised, standardised rules developed by the ICC are used.
The delivery terms are included in 90 per cent of all global purchase and sales agreements, helping you minimise the chance of misunderstandings and reduce the risk of potential disputes.
The rules were first introduced in 1936. Today, 500 experts from 40 countries continue to develop them to reflect modern trade and transport. Incoterms 2020 is the latest version and is used both nationally and internationally.
Not sure which clause to choose? Read this digital guide to using Incoterms.
Incoterms mainly govern three things
- Transfer of risk between buyer and seller
- Transport costs and how they are allocated
- Allocation of export and import formalities
Here you can find a simplified version of Incoterms 2020 (PDF)
Incoterms 2020 and transport insurance
In most cases, either the seller or the buyer will need transport insurance, regardless of the delivery terms.
Of the eleven Incoterms rules, CIP (Carriage and Insurance Paid To) and CIF (Cost, Insurance and Freight) cover cargo insurance. These rules set out the seller's obligation to provide insurance. Except when you use CIP or CIF, Incoterms leaves the parties to agree on insurance themselves. If you use either of these rules, you must insure the shipment. In practice, each party should arrange its own cargo insurance for the part of the journey during which it bears the risk. The agreed place of delivery determines who bears the risk of loss of or damage to the goods in transit.
- When using CIP as the delivery term, the seller must take out insurance under Institute Cargo Clauses (A) or a similar clause.
- When using CIF as the delivery term, the seller must obtain insurance with at least (C) Institute Cargo Clauses cover or similar.
Questions and answers about Incoterms 2020
Rules for any mode or modes of transport:
- EXW – Ex Works (…named place of delivery)
- FCA – Free Carrier (..named place of delivery)
- CPT – Carriage Paid To (..named place of destination)
- CIP – Carriage and Insurance Paid to (…named place of destination)
- DAP – Delivered At Place (…named place of destination)
- DPU – Delivered Place Unloaded (..named place of destination)
- DDP – Delivered Duty Paid (…named place of destination)
Rules for sea and inland waterway transport:
- FAS – Free Alongside Ship (..named place of destination)
- FOB – Free On Board (…named port of shipment)
- CFR – Cost And Freight (…named port of destination)
- CIF – Cost, Insurance and Freight (…named port of destination)
How to use FCA (Free Carrier) Incoterms 2020
- Refer to Incoterms 2020 in the order, order confirmation, invoice, purchase agreement, underlying contract, standard terms and conditions of sale or purchase, etc.
- Specify the place of delivery after the chosen term as precisely as possible, for example, FCA Akersgata 13, Oslo Incoterms 2020.
Choosing Incoterms is not about making a right or wrong choice, but about understanding the advantages and disadvantages that the different Incoterms may have for your business.
By understanding how the different delivery terms affect your logistics and making informed Incoterms choices, you can reduce costs and gain greater control over your entire value chain.
Three questions to ask yourself before you get started: (From Bring)
- Would your company like to take greater responsibility for the logistics chain and reduce costs as a result?
- Can your company consolidate purchases from multiple suppliers or combine shipments to different customers to reduce overall transport costs?
- Does your business have the time and resources needed to take greater ownership of its logistics?
If you answered yes to several of these questions, your company should consider taking greater ownership of its logistics.
When the seller has made the goods available to the buyer at the specified place and within the specified time, the buyer must take delivery of the goods.
The transfer of risk between the seller and the buyer determines which party bears the risk of damage to or loss of the goods during transit. Cargo insurance is the only type of insurance that normally covers the value of the goods.
Standard transport costs as agreed.
Formal responsibility for export and import customs clearance, documentation and other export and import formalities.