comprehensive guide to international trade
Incoterms 2020
International business is an adventurous and complicated world that has its own rules and terms. One of the most important terms is Incoterms . It is known as the common language of international business . Incoterms is a set of rules and regulations compiled by the International Chamber of Commerce (ICC) that specifies the exact duties and obligations of the parties in an international transaction regarding the transportation and delivery of goods .
In this article, we intend to comprehensively and practically address Incoterms 2020 , the latest version of these rules .
Why is Incoterms 2020 important?
Using Incoterms 2020 in international transactions has many benefits, including :
- Avoiding misunderstandings and disputes :Incoterms 2020, by clarifying the duties and obligations of each party to the transaction, prevents misunderstandings and disputes between them .
- Risk reduction :Incoterms 2020 helps to reduce transaction risks by accurately specifying the point of transfer of goods risk from the seller to the buyer .
- More control over costs :By using Incoterms 2020, the parties to the transaction can more accurately predict and control the costs related to transportation and insurance .
- Facilitating international trade :Incoterms 2020 makes international trade easier and smoother by creating a common language between traders around the world .
Getting to know the eleven terms of Incoterms 2020
Incoterms 2020 includes eleven different terms, each of which is used for a specific type of transportation (land, sea, air) and at a specific stage of the goods supply chain (for example, loading place, final destination) .
In the following, we will briefly introduce each of these eleven terms and their duties :
Group E: Terms of delivery at the origin (Departure) in Incoterms 2020
Group E of Incoterms 2020 includes a single term called EXW (Ex Works). or delivered to the door of the factory . In this term, the minimum obligations are the responsibility of the seller and the most obligations are the responsibility of the buyer .
Things that the seller is responsible for in EXW :
- Preparation of goods for transportation :Packaging, marking and numbering of goods according to the agreement of the parties
- Providing the goods to the buyer :Delivery of the goods at the factory or warehouse to the buyer or the buyer’s preferred transport operator
Things that the buyer is responsible for in EXW :
- Transportation :Moving goods from the factory or seller’s warehouse to the final destination
- Insurance :Insuring goods against possible risks during transportation
- goods release from Customs :Performing customs formalities and paying customs fees and duties at the origin and destination
- Loading and unloading goods :Loading the goods at the factory or the seller’s warehouse and unloading them at the destination
Advantages of EXW:
- The simplest and cheapest Incoterms term :Due to the minimum obligations of the seller, this term has the least complexity and costs less for the buyer .
- More control over the shipping process :The buyer can have maximum control over the transportation process by choosing the transportation company and insurance of his choice .
Disadvantages of EXW:
- Most obligations are the responsibility of the buyer :The buyer is responsible for all the steps of transportation, insurance and customs clearance, which can be complicated and expensive .
- More risks for the buyer :Since the buyer is responsible for the goods from the beginning, if any problem or damage occurs during transportation, the buyer will bear the loss .
When to use EXW ?
- When the buyer is looking for the easiest and cheapest method of transportation .
- When the buyer wants to use the transport and insurance company of his choice .
- When the buyer has the necessary ability and expertise to carry out the steps of transportation, insurance and customs clearance .
Group F: Delivered terms in Incoterms 2020
Group F of Incoterms 2020 includes three terms as follows :
- FCA (Free Carrier): Delivery to carrier
- FAS (Free Alongside Ship): delivery alongside the ship ( this item is only used in sea transportation )
- FOB (Free on Board): Delivery on the ship’s deck ( this item is only used in sea transportation )
In terms of Group F , the seller’s obligations are greater than those of Group E and include the delivery of the goods to a specific point, such as a terminal, port or airport .
In the following, we will examine each of these terms :
- FCA (Free Carrier): delivery to the carrier
- FCAIt is in group F of Incoterms 2020 and means free carrier . In this term, the seller is responsible for transporting the goods to a certain point, such as the transportation terminal in the country of origin, and pays the costs related to transportation to that point .
Things that the seller is responsible for in FCA :
- Preparation of goods for transportation :Packaging, marking and numbering of goods according to the agreement of the parties
- Placing the goods at the disposal of the carrier :Delivery of goods at the location of the factory or warehouse to the transport operator desired by the buyer
- Paying the cost of transporting the goods to the point specified in the contract :Including freight, terminal and loading fees
Things that the buyer is responsible for in FCA :
- Choosing and paying transportation costs from the delivery point to the final destination :including freight, port charges, customs duties and insurance premiums
- Performing customs formalities at the origin and destination :Obtaining necessary permits for export and import of goods
- Loading the goods from the factory or the seller’s warehouse and unloading it at the final destination
- The risks and risks related to the goods are borne by the buyer from the moment of delivery to the carrier at the origin .
Important points about FCA:
- In terms of FCA , the risk of the goods is transferred to the buyer from the moment of delivery to the carrier at the origin .
- In this term, the seller is not responsible for obtaining insurance to compensate for possible damages during transportation. The buyer can take insurance by paying the insurance premium .
- FCA is commonly used for sea, air and land transportation .
- FAS (Free Alongside Ship): Delivery alongside the ship ( used only in sea transportation )
- FASIt is in group F of Incoterms 2020 and means delivery alongside the ship . In this term, the seller is responsible for transporting the goods to the port of origin and placing them alongside the ship. Also, the seller must pay the costs related to loading the goods on the ship .
Things that the seller is responsible for in FAS :
- Preparation of goods for transportation :Packaging, marking and numbering of goods according to the agreement of the parties
- Shipping the goods to the port of origin :Moving goods from your factory or warehouse to the port of origin
- Placing goods next to the ship :Unloading the goods from the vehicle and placing them next to the ship in the designated place
- Paying the cost of loading the goods on the ship
Items that the buyer is responsible for in FAS :
- Selection and payment of sea transportation costs :including freight, port charges, customs duties and insurance premiums
- Performing customs formalities at the origin :Obtaining the necessary permits to export goods
- Loading the goods on the ship (if the seller does not pay)
- The risks and risks related to the goods are borne by the buyer from the moment they are placed alongside the ship .
Important points about FAS:
- In terms of FAS , the risk of the goods is transferred to the buyer from the moment they are alongside the ship .
- In this term, the seller is not responsible for obtaining insurance to compensate for possible damages during sea transportation. The buyer can take insurance by paying the insurance premium .
- FAS is usually used for sea shipments, but it can also be used for ground and air shipments .
3. FOB (Free on Board): delivery on the ship deck ( used only in sea transportation )
· FOB which stands for Free on Board It means delivery on board the ship , it is one of the common terms in Incoterms 2020. In this term, the seller has specific duties and responsibilities for transporting the goods to the destination port .
Things that the seller is responsible for in FOB :
· Preparation of goods for transportation : Including packaging, marking and numbering of goods according to the agreement of the parties
· Shipping the goods to the destination port : Moving goods from your factory or warehouse to the destination port
· Loading goods on the ship deck at the destination port : Unloading the goods from the vehicle and placing them on the ship’s deck in the designated place
· Submission of documents related to transportation : Including bill of lading, certificate of origin and invoice
Items that are the responsibility of the buyer in FOB :
· Selection and payment of sea transportation costs from the destination port to the final destination : including freight, port charges, customs duties and insurance premiums
· Performing customs formalities at the destination : Obtaining the necessary permits for importing goods
· The risks and risks related to the goods are the responsibility of the buyer from the moment they are placed on the ship’s deck .
Important points about FOB:
· In the term FOB , the risk of the goods is transferred to the buyer from the moment they cross the fence of the ship .
· In this term, the seller is not responsible for obtaining insurance to compensate for possible damages during sea transportation. The buyer can take insurance by paying the insurance premium .
· FOB is usually used for sea shipments, but it can also be used for land and air shipments .
Group C: Main Carriage Paid terms in Incoterms 2020
Group C of Incoterms 2020 includes 4 terms which are :
1. CFR (Cost and Freight): cost and fare to the destination ( used only in sea transportation )
2. CIF (Cost, Insurance and Freight): cost, insurance and freight to the destination ( used only in sea transportation )
3. CPT (Carriage Paid To): Transportation to the destination terminal
4. CIP (Carriage and Insurance Paid To): Carriage and insurance to the designated place
In terms of group C , the seller’s obligations are more than group F and include the main transportation of the goods to the final destination .
Next, we will examine each of these terms :
1. CFR (Cost and Freight): cost and fare to the destination ( used only in sea transportation )
CFR It is in group C of Incoterms 2020 and it means cost and freight . In this term, the seller is responsible for transporting the goods to the destination port and paying for the transportation costs .
Things that the seller is responsible for in CFR :
· Preparation of goods for transportation : Packaging, marking and numbering of goods according to the agreement of the parties
· Placing the goods at the disposal of the carrier : Delivery of goods at the location of the factory or warehouse to the transport operator desired by the buyer
· Paying the cost of transporting the goods to the destination port : Including freight, port charges and loading
· Submission of documents related to transportation : Such as bill of lading, certificate of origin and invoice
Things that the buyer is responsible for in CFR :
· Customs clearance at the destination : Performing customs formalities and paying customs fees and duties
· Obtaining insurance to compensate for possible damages during sea transportation
· Loading the goods at the origin and unloading them at the destination port
Important points about CFR:
· In CFR terms , the risk of the goods is transferred to the buyer from the moment they cross the ship fence at the port of origin .
· In this term, the seller is not responsible for obtaining insurance to compensate for possible damages during sea transportation. The buyer must take insurance by paying the insurance premium .
· CFR is usually used for sea shipments, but it can also be used for ground and air shipments .
2. CIF (Cost, Insurance and Freight): cost, insurance and freight to the destination ( used only in sea transportation )
CIF It is in group C of Incoterms 2020 and it means cost, insurance and freight . In this term, the seller is responsible for transporting the goods to the destination port, paying the shipping costs, and also obtaining basic insurance to compensate for possible losses during sea transportation .
Things that the seller is responsible for in CIF :
· Preparation of goods for transportation : Packaging, marking and numbering of goods according to the agreement of the parties
· Placing the goods at the disposal of the carrier : Delivery of goods at the factory or warehouse to the buyer’s preferred carrier
· Paying the cost of transporting the goods to the destination port : Including freight, port charges and loading
· Obtaining basic insurance to compensate for possible losses during sea transportation : This insurance usually covers major transportation risks such as fire, drowning, accident and theft .
· Submission of documents related to transportation : Such as bill of lading, certificate of origin, invoice and insurance policy
Things that the buyer is responsible for in CIF :
· Customs clearance at the destination : Performing customs formalities and paying customs fees and duties
· Loading the goods at the origin and unloading them at the destination port
Important points about CIF:
· In CIF terms , the risk of the goods is transferred to the buyer from the moment they pass the ship’s rail at the port of origin .
· In this term, the seller is required to obtain basic insurance to cover possible damages during sea transportation. This insurance is usually sufficient to cover the main transportation risks, but the buyer can upgrade the insurance coverage by paying a higher premium .
· CIF is usually used for ocean shipments, but it can also be used for land and air shipments .
- CPT (Carriage Paid To): transportation to the destination terminal
CPT It is in group C of Incoterms 2020 and means transport to the designated place . In this term, the seller is responsible for transporting the goods to a certain point, such as a port, airport or terminal in the destination country, and also pays the costs of transportation .
Things that the seller is responsible for in CPT :
- Preparation of goods for transportation :Packaging, marking and numbering of goods according to the agreement of the parties
- Placing the goods at the disposal of the carrier :Delivery of goods at the location of the factory or warehouse to the transport operator desired by the buyer
- Paying the cost of transporting the goods to the place specified in the contract :Including freight, port charges and loading
- Submission of documents related to transportation :Such as bill of lading, certificate of origin and invoice
Items that are the responsibility of the buyer in CPT :
- Customs clearance at the destination :Performing customs formalities and paying customs fees and duties
- Obtaining insurance to compensate for possible damages during transportation
- Loading the goods at the origin and unloading them at the place specified in the contract
Important points about CPT:
- In terms of CPT , the risk of the goods is transferred to the buyer from the moment of delivery to the carrier at the origin .
- In this term, the seller is not responsible for obtaining insurance to compensate for possible damages during transportation. The buyer can take insurance by paying the insurance premium .
CPT is commonly used for sea, air and land shipments .
4. CIP (Carriage and Insurance Paid To): Carriage and insurance to the designated place
CIP It is in group C of Incoterms 2020 and means transportation and insurance to the designated place . In this term, the seller is responsible for transporting the goods to a certain point, such as a port, airport or terminal in the destination country, and in addition, he is required to obtain basic insurance to compensate for possible losses during transportation .
Things that the seller is responsible for in CIP :
· Preparation of goods for transportation : Packaging, marking and numbering of goods according to the agreement of the parties
· Placing the goods at the disposal of the carrier : Delivery of goods at the location of the factory or warehouse to the transport operator desired by the buyer
· Paying the cost of transporting the goods to the place specified in the contract : Including freight, port charges and loading
· Obtaining basic insurance to compensate for possible damages during transportation
· Submission of documents related to transportation : Such as bill of lading, certificate of origin, invoice and insurance policy
Things that the buyer is responsible for in CIP :
· Customs clearance at the destination : Performing customs formalities and paying customs fees and duties
· Loading the goods at the origin and unloading them at the place specified in the contract
Important points about CIP:
· In CIP terms , the risk of the goods is transferred to the buyer from the moment of delivery to the carrier at the origin .
· In this term, the seller is required to obtain basic insurance to compensate for possible damages during transportation. This insurance usually covers major transportation risks such as fire, drowning, accident and theft .
· CIP is commonly used for sea, air and land shipments .
Group D: Frontier Delivery terms in Incoterms 2020
Group D of Incoterms 2020 includes 3 terms which are :
1. DAP (Delivered at Place): Delivery at the designated place
2. DPU (Delivered at Place Unloaded): Delivery at the designated place with unloading
3. DDP (Delivered Duty Paid): Delivery with payment of customs duties
In terms of group D , the seller’s obligations are more than those of group C and include the transportation of goods to the border of the destination country .
In the following, we will examine each of these terms :
- DAP (Delivered at Place): Delivery at the designated place
DAP which stands for Delivered at Place It means on-site delivery and is one of the terms of Incoterms 2020. In this term, the seller has more duties and responsibilities compared to other Incoterms Group C terms and is committed to transporting the goods to the buyer’s desired destination and delivering it there .
Things that the seller is responsible for in DAP :
- Preparation of goods for transportation :Including packaging, marking and numbering of goods according to the agreement of the parties
- Carrying out export customs formalities :Obtaining the necessary permits to export goods from the country of origin
- Shipping the goods to the desired destination of the buyer :Including choosing a shipping company, paying shipping and insurance fees, and doing other things related to shipping
- Delivery of goods at the buyer’s desired destination :Moving the goods from the vehicle and placing it in the designated place
Things that the buyer is responsible for in DAP :
- Payment of import customs fees :Including customs duties, duties and taxes
- Loading the goods from the vehicle at the buyer’s desired destination (in case of non-payment by the seller)
- The risks and risks related to the goods are borne by the buyer from the moment of delivery at the intended destination .
Important points about DAP:
- In the DAP term , the risk of the goods is transferred to the buyer from the moment of delivery at the desired destination .
- In this term, the seller is responsible for obtaining insurance to compensate for possible losses during transportation .
DAP is commonly used for sea, air and land transportation .
- DPU (Delivered at Place Unloaded): Delivery at the designated place with unloading
DPU which stands for Delivered at Place Unloaded means delivery at destination after unloading and is one of the newest terms of Incoterms 2020. In this term, the seller has more duties and responsibilities compared to other terms of Group C of Incoterms and is committed to transporting the goods to the buyer’s desired destination and unloading it there .
Things that the seller is responsible for in DPU :
- Preparation of goods for transportation :Including packaging, marking and numbering of goods according to the agreement of the parties
- Carrying out export customs formalities :Obtaining the necessary permits to export goods from the country of origin
- Shipping the goods to the desired destination of the buyer :Including choosing a shipping company, paying shipping and insurance fees, and doing other things related to shipping
- Unloading the goods at the buyer’s desired destination :Moving the goods from the vehicle and placing it in the designated place
Items that are the responsibility of the buyer in DPU :
- Payment of import customs fees :Including customs duties, duties and taxes
- The risks and risks related to the goods are borne by the buyer from the moment of delivery at the intended destination .
Important points about DPU:
- In terms of DPU , the risk of the goods is transferred to the buyer from the moment of delivery at the desired destination .
- In this term, the seller is responsible for obtaining insurance to compensate for possible losses during transportation .
- DPU is commonly used for sea, air and land transportation .
- DDP (Delivered Duty Paid): Delivery with payment of customs duties
DDP which stands for Delivered Duty Paid means delivery on site with customs duties paid and is one of the newest terms of Incoterms 2020. In this term, the seller has the most obligations among all Incoterms terms and is committed to transporting the goods to the buyer’s desired destination, performing import customs formalities and paying all related customs duties and taxes .
Things that the seller is responsible for in DDP :
- Preparation of goods for transportation :Including packaging, marking and numbering of goods according to the agreement of the parties
- Carrying out export customs formalities :Obtaining the necessary permits to export goods from the country of origin
- Shipping the goods to the desired destination of the buyer :Including choosing a shipping company, paying shipping and insurance fees, and doing other things related to shipping
- Carrying out import customs formalities :Obtaining the necessary permits for the goods to enter the destination country
- Payment of all customs duties, duties and taxes related to the import of goods
- Delivery of goods at the buyer’s desired destination :Moving the goods from the vehicle and placing it in the designated place
Things that the buyer is responsible for in DDP :
- No obligation
Important points about DDP:
- In terms of DDP , the risk of the goods is transferred to the buyer from the moment of delivery at the desired destination .
- In this term, the seller is responsible for obtaining insurance to compensate for possible losses during transportation .
- DDP is commonly used for sea, air and land transportation .
Important points in using Incoterms 2020 :
· Before choosing any of the Incoterms terms, carefully read and check the terms and obligations of each one .
· In your contract, clearly and clearly state the desired Incoterms term .
· Use a reliable shipping company to move your goods .
· Insure your goods during shipping .
· Be fully aware of the rules and regulations related to customs clearance in the destination country .
Conclusion
Incoterms 2020 is an essential tool for international traders to help them clearly and accurately define their duties and obligations in transactions. By using these rules, it is possible to prevent misunderstandings and disputes between the parties to the transaction, minimize risks and make international trade easier and smoother .
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