What Are Incoterms 2020 Rules – A Guide to International Trade

Why Incoterms 2020 rules are essential in international trade

Incoterms 2020 rules (International Commercial Terms – Incoterms®) are a standardized set of international trade rules that define the obligations of buyers and sellers regarding costs, risks, and responsibilities during the transport of goods.

Without clearly defined terms, misunderstandings easily arise: Who pays for transport? Who bears the risk if the goods are damaged in transit? That’s why Incoterms rules help both parties have a clear framework for cooperation.

What are Incoterms 2020 rules?

Incoterms (short for International Commercial Terms) were first introduced in 1936 by the International Chamber of Commerce (ICC). Since then, they have been regularly updated to keep pace with developments in global trade.

The latest version, Incoterms 2020 rules, came into effect on January 1, 2020, introducing several important changes compared to the previous 2010 version.

Main changes in Incoterms 2020

1. New rule: DPU (Delivered at Place Unloaded)

DPU (Delivered Place Unloaded) replaces the old DAT (Delivered at Terminal) rule. The seller is now responsible for unloading the goods at the agreed location, which offers greater flexibility in choosing the delivery location.

2. Improvements in FCA (Free Carrier)

The FCA rule now allows for a Bill of Lading to be issued after the goods have been loaded onto the ship, thus providing additional documentation important for financial transactions.

3. Changes in insurance for CIF and CIP

The seller under the CIF (Cost Insurance and Freight) and CIP (Carriage and Insurance Paid To) rules must now provide a higher level of insurance, which increases the buyer’s protection.

4. Flexibility in transportation

The DAP, DPU, and DDP rules now allow the use of the seller’s or buyer’s own means of transport, eliminating the need to engage a third party.

5. More precise definition of costs

In the Incoterms® 2020 rules, all costs are clearly specified to reduce ambiguities.

Classification of Incoterms 2020 rules

Incoterms® 2020 rules are divided into two categories:

1. Rules for all types of transport:
   • EXW (Ex Works)—the buyer picks up the goods at the seller’s premises and bears all costs and risks.
     
     
   • FCA (Free Carrier)—the seller delivers the goods to the carrier at the agreed location.
     
     
   • CPT (Carriage Paid To)—the seller pays for transport to the destination, but risk transfers when the goods are handed to the carrier.
     
   • CIP (Carriage and Insurance Paid To)—similar to CPT, with the seller also required to arrange insurance.
     
   • DAP (Delivered at Place)—the seller bears all costs to the agreed place of delivery.
     
   • DPU (Delivered at Place Unloaded)—the seller delivers and unloads the goods at the agreed location.
     
   • DDP (Delivered Duty Paid)—the seller covers all costs, including customs duties and taxes.
     
     
2. Rules for sea and river transport:
   • FAS (Free Alongside Ship)—the seller delivers the goods alongside the ship; the buyer bears all further costs.
     
   • FOB (Free On Board)—the seller covers costs up to loading the goods on the ship.
     
   • CFR (Cost and Freight)—the seller pays for transport, but risk transfers to the buyer once the goods are loaded.
     
   • CIF (Cost, Insurance, and Freight)—same as CFR, with additional insurance arranged by the seller.

For more details on maritime transport, see: Maritime Transport – The Backbone of Global Trade.

The best Incoterms for buyers and sellers

For buyers:

• DDP (Delivered Duty Paid)—the seller bears all costs and risks, including customs duties and taxes. The buyer receives the goods at their doorstep with no extra hassle.
  
• CIF (Cost, Insurance, and Freight)—the seller provides transport and insurance to the destination port; the buyer only needs to take delivery of the goods.
  
• CIP (Carriage and Insurance Paid To)—similar to CIF, but applicable to all modes of transport, not just maritime.

These terms are “buyer-friendly,” as they place maximum responsibility on the seller.

For sellers:

• EXW (Ex Works)—the seller is minimally involved; the goods are picked up at the seller’s warehouse, and the buyer arranges everything else.
  
• FCA (Free Carrier)—the seller delivers the goods to the agreed location, after which the buyer assumes all costs and risks.
  
• FAS (Free Alongside Ship)—the seller delivers the goods alongside the ship; the buyer takes over from there.

These terms are “seller-friendly,” as they reduce the seller’s responsibility and costs.

Neutral / balanced terms

• CFR (Cost and Freight)—the seller pays for transport to the destination port, but risk transfers to the buyer once the goods are loaded.
  
• FOB (Free On Board)—the seller covers costs up to loading; from that point on, the buyer is responsible. Commonly used in maritime trade.

How Incoterms rules help in practice

1. Transparency—clear allocation of costs.
   
2. Fewer misunderstandings—responsibilities are precisely defined.
   
3. Faster negotiations—standardized terms speed up contract agreements.
   
   
4. Lower risk—reduces the chance of financial losses and legal disputes.

Most common mistakes in applying Incoterms 2020 rules

• Insufficient communication between buyer and seller.
  
  
• Using outdated versions (e.g., Incoterms 2000 or 2010).
  
  
• Choosing a term that doesn’t match the mode of transport.
  
  
• Assuming Incoterms cover everything—they only define costs and risks, not ownership of the goods.
  
  

Tips for successful application of Incoterms 2020 rules

1. Choose the rule that suits your business needs.
2. Clearly state the Incoterms in the contract, including the chosen place of delivery.
3. Understand the obligations of both parties to avoid disputes.
4. Check regularly for policy updates.

FAQ – Frequently asked questions about Incoterms rules

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Conclusion

The Incoterms® 2020 rules provide clear guidelines for regulating international trade, reducing risks and increasing efficiency. Updates such as DPU rules and new insurance standards make trade transactions even easier.

Whether you are a buyer or a seller, knowing and correctly applying Incoterms® rules is essential for success in the global marketplace. Learn, plan and use Incoterms® 2020 to optimize your international business.