INCOTERMS 2020 International Trade Terms Practical Application Guide

INCOTERMS 2020 is the latest version of trade term rules published by the International Chamber of Commerce, clarifying the division of risk, responsibility, and costs between buyer and seller in goods delivery.

1. Common Terms Comparison

FOB (Free On Board): seller delivers goods on board, risk transfers when goods are on board, buyer handles transport and insurance. CIF (Cost, Insurance, Freight): seller handles transport and insurance, risk also transfers at loading. CFR (Cost and Freight): seller handles freight but not insurance. DDP (Delivered Duty Paid): seller bears maximum responsibility including import clearance and duties, risk transfers at destination delivery. EXW (Ex Works): buyer bears maximum responsibility.

2. Risk Transfer Essentials

The risk transfer point for FOB/CFR/CIF is "when goods are on board the vessel" (not past the ship's rail, amended in the 2010 version). Risk for DAP/DPU/DDP transfers at destination delivery. Risk for FCA transfers when goods are handed to the carrier. Clarifying risk transfer points is critical for handling cargo damage claims during transit.

3. Cost Allocation

Special attention: under DDP, the seller bears import country duties and VAT (if unable to obtain importer tax number, clearance difficulties may arise); under CIF, the seller only needs minimum insurance (ICC C clause, 110% insured value), buyers needing higher coverage must arrange additional insurance; under FOB, the buyer nominates the freight forwarder, and the seller may face risk of cargo release without bill of lading.

4. Selection Strategy

For exporters: prioritize CIF or CFR (control transport initiative,to facilitate control cargo rights and logistics costs); FOB may be used for creditworthy long-term customers; DDP should be used cautiously (requires understanding of import country regulations and tax burden, professional freight forwarder recommended); for new customers or high-risk countries, EXW or FCA is recommended (reduce seller risk). Contracts should specify the term version (INCOTERMS 2020) and named place.