Incoterms 2020
Incoterms is a set of international trade terms that unambiguously divide costs, risks and delivery obligations between the seller and the buyer. The 2020 edition is the current one. Let us break down all 11 terms and how the choice of basis affects customs value and payments.
Why Incoterms are needed
The delivery basis answers three questions: who organizes and pays for transport, where the risk of loss of the goods passes and who handles customs. Without a clear term, the parties often argue over who pays for freight, insurance or demurrage.
Two groups of terms
| Term | Meaning and group |
|---|---|
| EXW | Ex Works; any transport |
| FCA | Free Carrier; any transport |
| CPT / CIP | Carriage (and insurance) paid to; any transport |
| DAP / DPU / DDP | Delivered at place / unloaded / duty paid; any transport |
| FAS / FOB | Alongside / on board ship; sea only |
| CFR / CIF | Cost and freight (and insurance); sea only |
Terms for any transport
Seven terms — EXW, FCA, CPT, CIP, DAP, DPU, DDP — are suitable for any mode of transport and multimodal shipments. From EXW (maximum obligations on the buyer) to DDP (maximum on the seller), responsibility gradually shifts from the buyer to the seller.
Terms for sea transport
Four terms — FAS, FOB, CFR, CIF — are intended only for sea and inland waterway transport. They cannot be correctly applied to containerized cargo handed over at a terminal: for containers FCA or CPT is better. Sea bases are covered in more detail in Incoterms in sea transport.
What changed in the 2020 edition
The term DAT was renamed DPU (delivered at place unloaded). For CIP the mandatory insurance level was raised (broad cover), while CIF kept the minimum. FCA gained an option to note the on-board loading in the bill of lading, and transport security requirements were spelled out more clearly.
How Incoterms affect customs value
Customs value on import is counted up to the border of Ukraine. If under the basis part of the transport is paid by the buyer (for example EXW, FCA), these costs are added to the customs value. So the choice of term is directly linked to the methods of determining customs value.
Distribution of risks and costs
It is important to distinguish the moment of risk transfer and the moment of cost transfer — they do not always coincide. For example, under CIF the seller pays freight to the port of destination, but the risk passes to the buyer already on loading onto the vessel. These nuances matter for cargo insurance.
Common mistakes in choosing the basis
Typical mistakes are using FOB for containers, not specifying the geographical point precisely or choosing DDP without considering that a non-resident seller cannot pay Ukrainian payments. The basis is agreed already at the stage of the foreign-trade contract.
Frequently asked questions
Help with choosing Incoterms
Trans-Hope helps choose the delivery basis for a specific deal and assesses its impact on customs value and payments. These questions are handled at foreign trade consulting. Send your delivery terms — we will suggest the optimal term.
