In January 2020, the International Chamber of Commerce (ICC) released the latest edition of Incoterms®. Updated every 10 years, these 11 terms of trade for the sale of goods are the foundational guidelines for business-to-business transactions
While use of Incoterms 2010 is still acceptable, the rules introduced earlier this year are becoming standard in the industry. The revisions in Incoterms 2020 are important to note, as they reflect changes in contractual obligations between a buyer and a seller in a commercial transaction.
To help familiarize yourself with some of these updated international trade terms, we are defining and explaining all 11 rules in a series of blog posts. Here are the first four terms:
- EXW: Ex Works (Named Place)
Under the Ex Works term, the seller has fulfilled their obligation once the goods are available to the buyer. In this case, the goods are considered delivered once they are at the disposal of the buyer at the seller’s premises. It is the only rule in which the buyer is tasked with the export clearance and loading on the collecting vehicle. Of all the rules, the EXW term places the least amount of risk on the seller, leaving the buyer with the majority of the responsibility.
- FCA: Free Carrier (Named Place of Delivery)
FCA determines that the risk transfer occurs when the seller loads the goods on the buyer’s transport or when the seller delivers the goods to a named place of delivery. Once the goods are available to the buyer, the buyer takes on the risk and responsibility. This term provides the most practical minimal seller obligation, but unlike the EXW term, FCA tasks the seller with export clearance. Under the 2020 updates, the buyer can instruct its carrier to issue a bill of lading with the onboard notation to the seller (in a letter of credit requirement scenario) if both parties agree to these terms in the sales contract.
- CPT: Carriage Paid to (Named Place of Destination)
CPT tasks the seller with arranging and delivering the goods to the first means of transport or named place of delivery. Under CPT, the seller is responsible for covering the cost of the transportation of goods. Once the seller exports and loads the goods, the risk transfers from the seller to the buyer. This term carries a minimal risk for the seller.
- CIP: Carriage and Insurance Paid to (Named Place of Destination)
Unlike the EXW, FCA, and CPT terms, which do not require the seller or buyer to purchase insurance, CIP requires the seller to provide insurance coverage. The 2020 revisions now require the seller to purchase a higher level of insurance (ICC (A)). The seller is also responsible for transportation costs to the named place of delivery. Once the seller provides the contracted carrier with the goods, the risk transfers to the buyer.
For more information on the remaining set of Incoterms, keep an eye out for our upcoming articles. You can also check out our Incoterms infographic here . If you’re wondering how these revisions may impact your cargo coverage, contact us today.