Incoterms 2020: A guide for exporters and importers

barcelonaexportadmin on March 11, 2025

incoterms

Incoterms (International Commercial Terms) are terms and conditions established by the International Chamber of Commerce (ICC) that regulate the responsibilities and obligations of the parties involved in the international transport of goods. They are fundamental to understanding how costs and risks are distributed between seller and buyer throughout the supply chain. These terms, which are revised every ten years, are essential for companies that wish to expand their business operations globally, as they provide clarity and legal certainty in international trade.

In this article, we will explore in detail what Incoterms are, their history, their importance in international trade, and how their correct application can avoid misunderstandings and conflicts between the parties.

What are Incoterms?

Incoterms are a set of international rules used to define the responsibilities and obligations of the parties involved in an international trade transaction, specifically with regard to the transport of goods. They establish the conditions under which the products will be delivered, the risks that each party assumes and which costs will be covered by the buyer or the seller.

These terms cover everything from the delivery of the goods in the country of origin to their arrival at their destination, and cover various aspects such as loading, insurance, transport, tariffs and the necessary documentation. The implementation of Incoterms allows both buyers and sellers to clearly understand their obligations, thus reducing the risk of misunderstandings and legal disputes.

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History of Incoterms

The need for a set of uniform rules in international trade emerged in the first half of the 20th century, when trade between countries began to expand rapidly. In 1936, the International Chamber of Commerce (ICC) published the first version of Incoterms in order to simplify international commercial transactions.

Over the years, Incoterms have been revised and updated to adapt to changes in global trade and new transport technologies. The latest update to Incoterms occurred in 2020, and the current version is Incoterms 2020.

The 11 Incoterms 2020

The latest edition of Incoterms is that of 2020 and includes 11 terms that are divided into two categories: terms for any mode of transport (which can be applied to land, sea, air or multimodal transport) and terms for sea and river transport exclusively. The 11 Incoterms are described below, grouped according to their application.

Incoterms applicable to any mode of transport:

  1. EXW (Ex Works): This is the term with the least responsibility for the seller. The seller delivers the goods when they are made available to the buyer at their premises or at another agreed location. The buyer assumes all costs and risks from that point to their final destination.
  2. FCA (Free Carrier): In this case, the seller delivers the goods to the carrier or a person designated by the buyer at the agreed location. The seller is responsible for the costs until the goods are delivered to the carrier, but from then on, the risk and costs are borne by the buyer.
  3. CPT (Carriage Paid To): The seller pays for carriage to a specified location, but the risk transfers to the buyer once the goods have been delivered to the carrier. The buyer must bear the costs of insurance and other additional expenses from that point onwards.
  4. CIP (Carriage and Insurance Paid To): Similar to CPT, but in this case the seller must also take out insurance to cover the risks of transport to the agreed destination.
  5. DAP (Delivered at Place): The seller assumes all costs and risks until the goods are ready for unloading at the agreed place. The buyer is responsible for import duties and unloading.
  6. DPU (Delivered at Place Unloaded): This is the only term that requires the seller to assume responsibility for unloading the goods. The seller assumes the risks and costs until the goods have been unloaded at the agreed place.
  7. DDP (Delivered Duty Paid): In this case, the seller assumes maximum responsibility, covering all costs and risks associated with the delivery of the goods to their final destination, including import duties and other taxes.

Incoterms applicable to maritime and river transport:

  1. FAS (Free Alongside Ship): The seller delivers the goods alongside the ship at the agreed port of shipment. From that moment on, the risk and costs are transferred to the buyer, who is responsible for freight and other transport-related expenses.
  2. FOB (Free On Board): The seller is responsible for all costs until the goods cross the ship’s rail at the port of shipment. Once the goods are on board, the risk and costs pass to the buyer.
  3. CFR (Cost and Freight): The seller pays the costs and freight up to the port of destination, but the risk is transferred to the buyer once the goods cross the ship’s rail at the port of shipment.
  4. CIF (Cost, Insurance and Freight): The seller pays for transport and insurance to the port of destination, but the risk is transferred to the buyer when the goods cross the ship’s rail at the port of shipment.
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Importance of Incoterms in International Trade

Incoterms are essential in international trade for several reasons:

  1. Clarity and legal certainty: Incoterms establish clear rules that define the responsibilities of each party, which reduces the possibilities of conflicts and misunderstandings. In the event of a dispute, the parties can refer to these terms to resolve the problem efficiently.
  2. Risk reduction: By specifying the exact moments when risks are transferred from one party to another, Incoterms help mitigate the risks associated with the transport and delivery of goods.
  3. Alignment of expectations: By using Incoterms, buyers and sellers can ensure that both parties have aligned expectations regarding the costs, risks and responsibilities in the transaction.
  4. Regulatory compliance: Incoterms also help to ensure that parties comply with local and international laws and regulations relating to transport, customs and taxation.

Conclusion

Incoterms are an invaluable tool for companies involved in international trade. Clearly defining responsibilities, costs and risks from the outset of a transaction is essential to avoid conflict and ensure that the operation is efficient and successful. By understanding the various terms and applying them correctly, companies can navigate safely in the complex world of international trade and ensure long-lasting and fruitful business relationships.

If you want to learn more about them, sign up for one of our courses on exporting. We will be delighted to shed some light on this subject.