Incoterms 2020 in Global Trade from Switzerland

Global Shipping

The International Commercial Terms ("Incoterms") were introduced in 1936 by the International Chamber of Commerce ("ICC") in Paris to establish a commonly accepted legal framework for determining delivery costs, risks, and liability in international trade.

The 11 Incoterms are regularly incorporated in contracts for the delivery of goods and provide a common denominator to importers, exporters, insurers, and their lawyers.

The Incoterms 2020 entered into force on 01.01.2020 and can be grouped in the following way:

1. The "E" Rule – "Departure" (EXW) | The seller’s obligation is limited to placing the goods at the disposal of the buyer at the seller’s premises
2. The "F" Rules – "Main carriage not paid by the seller" (FCA, FAS, FOB) | The seller delivers the goods to the carrier at a place named by the buyer
3. The "C" Rules – "Main carriage paid by the seller" (CPT, CIP, CFR, CIF) | The seller arranges for transport, but does not bear the risk of loss or damage, or any extra costs, after shipment
4. The D Rules – "Arrival" (DAP, DPU, DDP) | The seller bears all costs and risks involved in transporting the goods to the named place of destination

ANY MODE OF TRANSPORT

EXW | Ex Works

"Ex Works" means the seller delivers the goods to the buyer:

• when it places the goods at the disposal of the buyer at a named place (like a factory or a warehouse), and
• the named place may or may not be the sellers premises.

For delivery to occur, the seller does not need to load the goods on any collecting vehicle, nor does it need to clear the goods for export.

There is an option to put the seller in charge of loading by adding "loaded upon the departing vehicle at the cost and risk of the seller" after EXW to the purchase order.

FCA | Free Carrier

"Free Carrier" means that the seller delivers the goods to the buyer in one or other of two ways.

First, when the named place is the seller’s premises, the goods are delivered:

• when they are loaded on the means of transport arranged by the buyer.

In the case of rail transport, when the goods constitute a wagon load, the seller has to load the wagon or container in the appropriate manner.

Delivery is completed when the loaded wagon is taken over by the railway or by a person acting on its behalf.

When the named place is another place, goods are delivered:

• when, having been loaded on the seller’s means of transport
• they reach the named other place and
• are ready for unloading from the seller’s means of transport and are
• at the disposal of the carrier or of another person nominated by the buyer.

> Under Incoterms 2020, Bills of Lading may be issued after loading.

CPT | Carriage Paid to

"Carriage Paid To" means the seller delivers the goods – and transfers the risks – to the buyer:

• by handing them over to the carrier
• contracted by the seller
• or by procuring the goods so delivered

The seller does not guarantee the goods will reach the place of destination in sound condition, in the stated quantity or indeed at all. This is because risk transfers when the goods are delivered to the buyer by handing them to the carrier; the seller must nonetheless contract for the carriage of the goods from delivery to the agreed destination.

CIP | Carriage and Insurance Paid to

Same as above. The seller must also contract for insurance cover against the buyer’s risk of loss of or damage to the goods from the point of delivery to at least the point of destination. This may cause difficulty where the destination country requires insurance cover to be purchased locally: in this case the parties should consider selling and buying under CPT. The buyer should also note that under the CIP Incoterms 2020 rule the seller is required to obtain extensive insurance cover complying with Institute Cargo Clauses (A) or similar clause, rather than with the more limited cover under Institute Cargo Clauses (C). It is, however, still open to the parties to agree lower cover.

DAP | Delivered at Place

"Delivered at Place" means that the seller delivers the goods – and transfers the risks to the buyer:

• when the goods are placed at the disposal of the buyer
• on the arriving means of transport ready for unloading
• at the named place of destination or
• at the agreed point within that place, if any such point is agreed.
  

DPU | Delivered at Place Unloaded

"Delivered at Place Unloaded" means that the seller delivers the goods – and transfers the risks to the buyer:

• when the goods once unloaded from the arriving means of transport
• are placed at the disposal of the buyer
• at the named place of destination or
• at the agreed point within that place, if any such point is agreed.

> Formerly this Incoterm was known as DAT (Delivered at Terminal)

DDP | Delivered Duty Paid

"Delivered Duty Paid" means that the seller delivers the goods – and transfers the risks to the buyer:

• when the goods are placed at the disposal of the buyer
• cleared for import
• on the arriving means of transport
• ready for unloading
• at the named place of destination or at the agreed point within that place, if any such point is agreed.

DDP requires the seller to clear the goods for export, where applicable, as well as for import and to pay any import duty or to carry out any customs formalities.

SEA AND INLAND WATERWAY

FAS | Free Alongside Ship

"Free Alongside Ship" means that the seller delivers the goods to the buyer:

• when the goods are placed alongside the ship (e.g. on a quay or a barge)
• nominated by the buyer
• at the named port of shipment
• or when the seller procures goods already so delivered.

The risk of loss of or damage to the goods transfers when the goods are alongside the ship, and the buyer bears all costs from that moment onwards.

FOB | Free on Board

"Free on Board" means that the seller delivers the goods to the buyer:

• on board the vessel
• nominated by the buyer
• at the named port of shipment.

CFR | Cost and Freight

"Cost and Freight" means that the seller delivers the goods to the buyer:

• on board the vessel.

The seller must contract for the carriage of the goods from delivery to the agreed destination. Thus, for example, goods are placed on board a vessel in Shanghai (which is a port) for carriage to Southampton (also a port). Delivery here happens when the goods are on board in Shanghai, with risk transferring to the buyer at that time; and the seller must make a contract of carriage from Shanghai to Southampton.

CIF | Cost, Insurance and Freight

"Cost, Insurance and Freight" means that the seller delivers the goods to the buyer:

• on board the vessel.

The seller must also contract for insurance cover against the buyer’s risk of loss of or damage to the goods from the port of shipment to at least the port of destination. This may cause difficulty where the destination country requires insurance cover to be purchased locally: in this case the parties should consider selling and buying under CFR. The buyer should also note that under the CIF Incoterms 2020 rule the seller is required to obtain limited insurance cover complying with Institute Cargo Clauses (C) or similar clause, rather than with the more extensive cover under Institute Cargo Clauses (A). It is, however, still open to the parties to agree on a higher level of cover.