Incoterms 2020 Explained: Your Easy Guide to International Trade Terms
If you’re new to international trade or even just looking to brush up on your shipping knowledge, you’ve probably heard about Incoterms. But what exactly are Incoterms 2020, and why do they matter for your business? In this easy guide, we’ll break down everything you need to know about these essential shipping terms and how they help buyers and sellers worldwide.
What Are Incoterms?
Simply put, Incoterms are a set of international rules that explain the responsibilities of buyers and sellers during the shipment of goods. Created by the International Chamber of Commerce (ICC), these international trade terms define who pays for shipping, who handles insurance, and at what point the risk transfers from seller to buyer.
Think of Incoterms as a universal language that clears up confusion in global trade — so your shipments go smoothly and without surprises.
Why Are Incoterms 2020 Important?
The latest version, Incoterms 2020, came into effect in January 2020 and brought some important updates to make international shipping even clearer. Whether you’re an importer, exporter, or freight forwarder, understanding these rules is key to avoiding costly mistakes.
Some highlights include:
- DPU (Delivered at Place Unloaded) replaced the old DAT (Delivered at Terminal) term, making it clear delivery can happen anywhere, not just a terminal.
- Sellers now have new responsibilities under FCA (Free Carrier) when it comes to documents like bills of lading, especially useful for shipments using letters of credit.
- Increased insurance requirements under CIP (Carriage and Insurance Paid To) to better protect buyers.
- Clearer rules on security obligations during transport and customs clearance.
Common Incoterms You Should Know
Here are a few of the most common Incoterms you’ll see in contracts:
- EXW (Ex Works): The seller makes the goods available, and the buyer handles the rest, including shipping and customs.
- FOB (Free On Board): The seller loads the goods onto the ship, and the buyer takes over from there.
- CIF (Cost, Insurance, and Freight): The seller pays for shipping and insurance to the port of destination.
- DAP (Delivered At Place): The seller delivers the goods to the buyer’s location, but unloading is the buyer’s responsibility.
- DDP (Delivered Duty Paid): The seller takes care of everything — shipping, duties, and unloading.
How to Choose the Right Incoterm for Your Shipment
Choosing the right Incoterms depends on your specific trade needs:
- What kind of transportation will you use? (Sea, air, road, or multimodal)
- Who will handle customs and insurance?
- How much control or risk are you comfortable taking on?
Final Tips: Mastering Incoterms for Smooth Shipping
Mastering Incoterms 2020 will help you avoid misunderstandings and keep your international shipments on track. Always specify the exact Incoterm in your sales agreements — and if you’re unsure, consult with your logistics provider or trade expert.
