Incoterms 2020. Who does what, and where.

What Incoterms are

Incoterms are rules published by the International Chamber of Commerce (ICC). The edition in force is Incoterms® 2020, applicable since 1 January 2020. They are written into the sales contract with the three-letter code, a precise place and the edition, for example: “FCA Brescia, via …, Incoterms® 2020”.

Each rule settles three things: who arranges and pays for transport, who handles export and import customs formalities, and at which point the risk of loss or damage passes from seller to buyer.

The 11 rules, in two groups

Any mode of transport, including multimodal

• EXW – Ex Works. The seller makes the goods available at its premises, not loaded and not cleared for export. Everything else is for the buyer.
• FCA – Free Carrier. The seller delivers the goods, cleared for export, to the carrier nominated by the buyer. If delivery takes place at the seller's premises, the goods must be loaded; if elsewhere, for example at the forwarder's warehouse, they only need to be made available ready for unloading.
• CPT – Carriage Paid To. The seller pays for carriage to the agreed destination, but risk passes to the buyer when the goods are handed to the first carrier.
• CIP – Carriage and Insurance Paid To. As CPT, plus insurance paid by the seller. Under Incoterms 2020 the required cover is the broad one, Institute Cargo Clauses (A) or similar, for at least 110% of the price.
• DAP – Delivered at Place. The seller brings the goods to destination, ready for unloading. Unloading and import clearance are for the buyer.
• DPU – Delivered at Place Unloaded. As DAP, but the seller unloads the goods. It is the only rule requiring the seller to unload, and it replaces the former DAT.
• DDP – Delivered Duty Paid. The seller bears everything, including import clearance, duties and taxes in the destination country.

Sea and inland waterway transport only

• FAS – Free Alongside Ship. The goods are delivered alongside the vessel at the port of shipment.
• FOB – Free On Board. Risk passes when the goods are on board the vessel at the port of shipment.
• CFR – Cost and Freight. The seller pays freight to the port of destination, but risk already passes on board at the port of shipment.
• CIF – Cost, Insurance and Freight. As CFR, plus insurance paid by the seller with minimum cover, Institute Cargo Clauses (C), for at least 110% of the price.

Responsibility table

Who does what under each rule. S = seller, B = buyer.

What changed with Incoterms 2020

• DAT became DPU: the place of delivery can be any place, not only a terminal.
• CIP now requires broad insurance cover (clauses A); CIF keeps minimum cover (clauses C). The parties may agree otherwise.
• FCA offers the option of an on-board bill of lading, useful when a letter of credit requires one.
• Seller and buyer may use their own means of transport under FCA, DAP, DPU and DDP.
• Security-related costs are allocated explicitly, and all costs of each rule are listed in a single article.

What it means when shipping from Brescia

Brescia has no seaport: goods reach ports and airports by road or rail. This matters when choosing a rule.

• Containers by sea: FCA rather than FOB. Under FOB risk passes only when the goods are on board at the port. A container, however, is usually handed to the carrier much earlier, in Brescia or at the terminal. For containerised goods the ICC points to FCA, CPT and CIP as more appropriate.
• EXW and proof of export. Under EXW the buyer handles the export declaration. Yet the Italian exporter needs proof that the goods left the European Union, also to support the VAT exemption. Under FCA export clearance stays with you, and so do the documents.
• DDP to non-EU countries. The seller pays import duties and taxes and must be able to handle them in the destination country, where the rules on who may clear goods differ from country to country. Check feasibility before accepting DDP.
• Air shipments. The maritime rules (FAS, FOB, CFR, CIF) should not be used for air freight: use FCA, CPT, CIP, DAP, DPU or DDP.
• A precise place. Always state an address, a terminal or an airport: that is where risk passes and costs are split. “FCA Italy” is not enough.
• Within the European Union there is no customs clearance, but the rule still decides who pays for transport and where risk passes.

When each rule makes sense

• EXW: when the buyer has its own forwarder and the goods stay in Italy or the EU. For non-EU exports, FCA is usually preferable.
• FCA: the most flexible choice for exports. You clear the goods and hand them to the buyer's carrier, at your premises or at an agreed warehouse.
• CPT: when you want to arrange the main carriage without bearing the transit risk.
• CIP: as CPT, when the buyer or the bank requires the seller to insure the goods.
• DAP: when the customer wants a delivered price and handles customs and unloading.
• DPU: when you must also unload at destination and are able to, for example machinery delivered to a site.
• DDP: when the customer wants a complete service and you can handle duties and taxes in its country.
• FAS: bulk or out-of-gauge cargo delivered alongside the ship. Not for containers.
• FOB: goods loaded directly on board. For containers, FCA is better.
• CFR: as FOB, but with freight paid by the seller. For containers, CPT is better.
• CIF: as CFR, with insurance. For containers, CIP is better.

Common mistakes

• Not stating the edition, or quoting one that does not exist (there is no “Incoterms 2025”).
• Using FOB or CIF for air or road shipments.
• Naming a vague place, such as a country or a city without an address.
• Confusing who pays with who bears the risk: under CPT, CIP, CFR and CIF the seller pays for carriage, but during transit the risk is already the buyer's.
• Assuming the Incoterm replaces the contract: ownership, payment and claims must be agreed separately.

Sources

1. ICC – International Chamber of Commerce, Incoterms® 2020