International trade is complex, and it is important that both buyer and seller know exactly who is responsible for what part of the transportation process. This is where the Incoterms® rules play an essential role. In this blog, we explain what the 11 Incoterms® 2020 rules mean and how they can help you make clear agreements about responsibilities and costs.
What are Incoterms®?
Incoterms® (International Commercial Terms) are standardized trade terms used worldwide in international sales and purchase agreements. These rules determine who bears the costs and risks, who is responsible for transportation, and who deals with issues such as customs clearance and insurance. The rules provide clarity between buyer and seller and help avoid misunderstandings or disputes.
The 11 Incoterms® 2020 rules
As of 2020, there are 11 Incoterms® rules. These are divided into two groups: rules specific to sea and inland waterway transport, and rules suitable for all forms of transport. Below is an overview of all Incoterms® so you can make an informed choice for your logistics processes.
EXW (Ex Works)
With EXW, the buyer assumes virtually all responsibility. The seller makes the goods available at their location (such as a factory or warehouse), after which the buyer is responsible for transportation, export formalities, and all risks. This is the Incoterm that requires the buyer to do most of the work.
FCA (Free Carrier) – Freight-free to carrier
FCA offers a slightly better balance between buyer and seller. The seller is responsible for delivering the goods to a carrier, usually chosen by the buyer. Once the goods are turned over to the carrier, the risk passes to the buyer.
FAS (Free Alongside Ship) – Vrachtvrij langszij schip
Bij FAS levert de verkoper de goederen naast het schip in de haven van verzending. Vanaf dat moment is de koper verantwoordelijk voor het laden van de goederen en alle kosten en risico’s die daarbij komen kijken.
FOB (Free On Board) – Freight free on board
FOB is a commonly used Incoterm for ocean transportation. The seller bears the costs and risks until the goods are loaded aboard the vessel. From then on, responsibility lies with the buyer, including transportation and insurance.
CPT (Carriage Paid To) – Freight paid up to
With CPT, the seller pays the cost of transportation up to an agreed destination. However, the risk passes to the buyer as soon as the goods are handed over to the carrier. This means that the buyer is responsible from then on, even if the seller pays for further transportation.
CIP (Carriage and Insurance Paid To) – Freight and insurance paid up to
Similar to CPT, but here the seller also pays for minimum insurance for the goods in transit. This provides additional protection for the buyer, which is particularly important for long shipping chains or expensive goods.
CFR (Cost and Freight) – Cost and freight
Under CFR, the seller pays the cost of transportation to the destination, but the buyer bears the risk once the goods are loaded aboard the ship. This means that if something goes wrong en route, the buyer is responsible, even if the seller has paid for the transportation.
CIF (Cost, Insurance and Freight) – Cost, insurance and freight
Like CFR, but with an important difference: the seller also pays for minimum insurance for the goods in transit. This provides the buyer with additional security in sea transport.
DAP (Delivered At Place) – Delivered at destination
With DAP, the seller delivers the goods to an agreed location, and the buyer is responsible for unloading the goods. The risk remains with the seller until the goods arrive at the destination.
DPU (Delivered at Place Unloaded) – Delivered at destination and unloaded
DPU is the only Incoterm where the seller is responsible for unloading the goods at the agreed location. This is convenient for buyers who do not have the means to arrange unloading themselves. The seller bears the risk until the goods are unloaded.
DDP (Delivered Duty Paid) – Delivered Duty Paid
DDP is the most comprehensive Incoterm for the buyer. The seller bears all costs and risks, including customs clearance and import duties, until the goods arrive at the agreed location. This is the easiest option for the buyer, but it brings additional responsibilities for the seller.
Why do Incoterms® matter?
Incoterms® provide clear agreements between buyer and seller so that both parties know exactly who is responsible for what part of the transportation process. This prevents misunderstandings and helps to avoid problems if something goes wrong en route. At Van der Helm Logistics, we very often work with Incoterms® rules because they ensure a structured and transparent logistics process. Depending on your specific shipment and destination, we help you choose the right Incoterm, so you always know where you stand.
Conclusion
Whether you transport goods by sea, land, air or rail, choosing the right Incoterms® rule is essential for a smooth logistics process. At Van der Helm Logistics, we understand that each customer has unique needs and are happy to help you make the right choices so that your logistics operations always run smoothly.
Want to learn more about how we can support you in choosing the right Incoterms® for your shipments? Contact us today and let our experts help you.
