Thanks to Incoterms 2020, business will be able to avoid any possible disputes. But if you also know the international rules of Incoterms perfectly, you will be able to choose the most favorable transportation conditions for yourself.
What are Incoterms and how do delivery rules work
Incoterms 2020 are international official rules for world trade that greatly simplify international logistics.
The main aspects that determine the Incoterms rules (Incoterms groups):
- who bears the costs (seller or buyer);
- who draws up export documents;
- who insures the cargo;
- at what point do the risks of damage and loss of the cargo pass.
The answers to all these questions are specified in the contract in accordance with the Incoterms rules.
Incoterms groups in international logistics
There are 11 international Incoterms rules in total. They are the ones used in international trade purchase and sale contracts.
| Group E (Departure) | EXW (Ex Works) |
| Group F (Main Carriage Paid for by Seller) | FCA (Free Carrier)
FAS (Free Alongside Ship)
FOB (Free On Board) |
| Group C (Main Carriage Paid for by Seller) | CFR (Cost and Freight)
CIF (Cost, Insurance and Freight)
CPT (Carriage Paid to)
CIP (Carriage and Insurance Paid to) |
| Group D (Delivery) | DAP (Delivery to Place)
DPU (Delivery to Place Unloaded)
DDP (Delivery Duty Paid) |
Incoterms 2020: Main Changes and Current Rules
The changes in Incoterms 2020 cannot be called too significant, especially when compared with the Incoterms 2010 edition.
What new changes have occurred in Incoterms 2020:
- DAT replaced by DPU – delivery at destination with unloading;
- Incoterms CIP rules received expanded insurance;
- FCA now allows for a bill of lading with an onboard mark, which simplifies document flow;
- transportation security requirements have been strengthened;
- recognition of electronic documents has been deepened.
Changes in Incoterms 2020 primarily affect foreign economic activity, customs clearance and the logistics industry.
DAP, CIF and FCA: the most common delivery terms
Comparative table of the most common Incoterms rules:
| Name | Description | Explanation |
| DAP Incoterms | Delivered at Place | the seller delivers the goods to a designated place, and the buyer clears the import customs |
| CIF Incoterms | Cost, Insurance and Freight | applies to sea transportation
the seller pays for sea transportation and cargo insurance, but all risks pass earlier – after loading onto the vessel |
| Incoterms 2020 FCA | Free Carrier | the seller transfers the goods and provides export clearance |
How Incoterms affect the costs and responsibilities of the parties
Incoterms rules directly affect the cost of the transaction, because they determine which costs are included in the price of the goods and which are borne by the other party. The same product can have a different price depending on the basis of delivery.
Approximate formula
Price under Incoterms = Cost of goods + expenses borne by the seller under the selected term + his risks and administrative costs.
International Incoterms rules for export and import of goods
Most often for export from Ukraine, FCA, FOB, CPT and CIP are used. According to these Incoterms rules, the exporter controls the initial stage of logistics and export clearance.
And for import to Ukraine, FCA, CPT, CIP and DAP Incoterms are most often used. Thus, the Ukrainian importer usually carries out customs clearance of the goods independently.
It is worth remembering that Incoterms rules directly affect:
- customs value of goods;
- calculation of duty and VAT;
- cost of customs operations;
- list of documents for customs;
- distribution of risks between the parties.
The terms of the international Incoterms rules significantly simplify logistics planning, as they determine the areas of responsibility of each party to the agreement. Incoterms 2020 also has such significant advantages as transparency of trade terms, simplification of contracts and facilitation of customs clearance.
How to choose the right terms of delivery for international transportation
The choice of terms of delivery directly affects the final amount of the transaction, as well as the price of the goods.
The algorithm by which Incoterms rules are chosen:
- determine who will control the transportation;
- determine the type of delivery (for example, “to the door”);
- take into account the type of transport;
- assess the customs capabilities of the parties;
- take into account the risks related to the goods (if they are expensive or fragile);
- take into account the customs value.
In practice, for most modern international transportation (especially container and road), FCA, CPT, CIF and DAP are the most used and convenient terms of delivery.
To accurately understand which Incoterms rules to choose for delivery, it is better to contact the services of a logistics company.
Conclusion
Engaging logistics companies is a more effective solution than independently organizing transportation, as they provide professional support for all stages of delivery in accordance with Incoterms, reduce operational risks, and help optimize time and financial costs.
