Incoterms 2020: the 11 Rules and Who Does What

What Incoterms are

Incoterms (International Commercial Terms) are a set of three-letter codes published by the ICC. Written into a sales contract or onto an invoice, they settle three things: who arranges and pays for transport and insurance, who is responsible for customs clearance, and when the risk of loss or damage passes to the buyer. Incoterms are not law and do not govern transfer of title or payment – they apply only if the parties refer to them, for example “FCA Warsaw, Incoterms® 2020”. The current version is Incoterms 2020 (ICC).

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Two groups of rules

• Rules for any mode of transport: EXW, FCA, CPT, CIP, DAP, DPU and DDP. They are also used for road transport between the UK and the EU.
• Rules for sea and inland waterway transport only: FAS, FOB, CFR and CIF. Where a container is handed to the carrier at a terminal rather than on board the ship, the any-mode rules fit better – ICC Academy describes FCA as well suited to container and multimodal transport (ICC Academy: FCA or FOB).

All 11 rules at a glance

The table is a summary; the full obligations are set out in the ICC publication. Under EXW the seller has no obligation to clear the goods for export (the buyer does, with the seller only assisting with documents), while under DDP the seller must handle import clearance in the destination country (ICC Academy: EXW or DDP). It is worth confirming the split in the contract.

What changed in Incoterms 2020

• DAT was replaced by DPU (Delivered at Place Unloaded) and moved after DAP.
• CIP now requires a higher level of insurance (Institute Cargo Clauses (A) or equivalent), while CIF keeps the minimum (Clause (C)).
• Under FCA the parties may agree that the buyer will instruct the carrier to issue an on-board bill of lading to the seller.

Incoterms and UK–EU customs clearance

• Who clears the goods: only under DDP does the seller handle import clearance and pay the import charges. For the UK the seller must then be able to act as importer or use a customs agent, and needs an EORI number and a VAT solution – which is why DDP can be costly without a well-organised process (see DDP or DAP for exports to the UK and margin-killing mistakes under DDP).
• Customs value: the rule affects what the invoice price includes (an EXW price, for example, excludes transport), and gov.uk states that using a particular Incoterm does not restrict the choice of valuation method (gov.uk: Incoterms). In the EU, transport and insurance costs up to the place where the goods enter the Union customs territory are in principle added to the customs value (Article 71 of the Union Customs Code). See how to calculate customs value.
• Documents: before shipping, agree with your counterparty who files the ENS, who is the importer and who holds the EORI number – ENS: what it is and when to file.

How to choose a rule

Choose a rule that fits the mode of transport and what each party can actually do: if you have no experience of import clearance in the buyer’s country, DAP is usually safer than DDP. A practical comparison of the most common rules is in Incoterms EXW, FCA, DAP – explained. Before you choose a rule, agree five points with your buyer: where the goods are to be delivered, who arranges transport, what insurance is needed and who pays for it, who handles customs clearance, and who pays customs duties and taxes. If the buyer is to handle clearance, check that it has an EORI number and the right documents – a rule only works if each party can actually do what it has agreed to. If in doubt, contact us before your first shipment.

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Watch the video: How to Understand International Trade Terms - Complete Guide

Our own summary based on ICC and gov.uk information; the parties’ detailed obligations follow from the full text of Incoterms® 2020 and from the contract.

Frequently asked questions