Incoterms 2020 Explained – Complete Guide

What are Incoterms 2020?

Incoterms 2020, short for International Commercial Terms, are a set of predefined trade terms published by the International Chamber of Commerce (ICC). They are widely used in international trade and provide a common framework to clearly communicate the responsibilities, risks, and costs associated with the transportation and delivery of goods between buyers (importers) and sellers (exporters).

Incoterms are updated periodically to reflect changes in global trade practices. The most recent version is Incoterms 2020, which came into effect on January 1, 2020.

Classification of Incoterms 2020

Incoterms 2020 are classified into different categories based on the level of responsibility and risk involved in the transaction. The currently accepted Incoterms 2020 edition include 11 terms, which are grouped into two categories:

1. Incoterms 2020 for any mode of transport: These Incoterms 2020 can be used for any mode of transport, including road, rail, air, and sea transport. They are:

• EXW (Ex Works)
• FCA (Free Carrier)
• CPT (Carriage Paid To)
• CIP (Carriage and Insurance Paid To)
• DAP (Delivered at Place)
• DPU (Delivered at Place Unloaded)
• DDP (Delivered Duty Paid)

2. Incoterms 2020 for sea and inland waterway transport: These terms are specifically designed for use in transport by sea and inland waterway. They are:

• FAS (Free Alongside Ship)
• FOB (Free on Board)
• CFR (Cost and Freight)
• CIF (Cost, Insurance, and Freight)

Incoterms 2020 have specific meanings and defines the obligations and responsibilities of the buyer and seller in relation to the delivery of goods. For example, under EXW, the seller is responsible for making the goods available at their premises, while under CIF, the seller is responsible for arranging and paying for the transport and insurance of the goods to the port of destination.

List of all Incoterms 2020

Here's a list of all the Incoterms 2020 edition, along with a brief explanation for each:

1. EXW (Ex Works): The seller makes the goods available at their premises, and the buyer assumes all responsibilities and costs for transportation, export, and import formalities.

2. FCA (Free Carrier): The seller delivers the goods to the carrier or another party specified by the buyer at the seller's premises or another named location. The buyer assumes responsibility for transportation and associated costs from that point.

3. CPT (Carriage Paid To): The seller arranges and pays for the carriage of goods to a named destination, but the risk transfers to the buyer once the goods have been handed over to the carrier.

4. CIP (Carriage and Insurance Paid To): Similar to CPT, but the seller also procures insurance coverage for the buyer's risk of loss or damage during transit.

5. DAT (Delivered at Terminal): The seller delivers the goods at a named terminal, pays for transportation, and bears all risks until the goods are unloaded. The buyer is responsible for import formalities and associated costs.

6. DAP (Delivered at Place): The seller delivers the goods to a named destination, ready for unloading, and bears all risks and costs until that point. The buyer is responsible for import formalities and associated costs.

7. DDP (Delivered Duty Paid): The seller delivers the goods to a named destination, cleared for import, and bears all costs and risks, including duties and taxes.

8. FAS (Free Alongside Ship): The seller delivers the goods alongside the ship at a named port of shipment, and the buyer assumes responsibility for all transportation, export, and import formalities from that point.

9. FOB (Free on Board): The seller delivers the goods on board the ship at a named port of shipment and clears the goods for export. The buyer assumes responsibility for all transportation, import formalities, and associated costs from that point.

10. CFR (Cost and Freight): The seller arranges and pays for the carriage of goods to a named port of destination and clears the goods for export. The buyer assumes responsibility for import formalities, insurance, and associated costs from that point.

11. CIF (Cost, Insurance, and Freight): Similar to CFR, but the seller also procures insurance paid coverage for the buyer's risk of loss or damage during transit to the named port of destination.

How do Incoterms Help in International Trade

In summary, Incoterms play a crucial role in international trade by providing a standardized set of terms and a common language for buyers and sellers to define their responsibilities and liabilities. This helps to reduce the risks involved in cross-border transactions, such as disputes, delays, and misunderstandings. By clearly outlining the obligations of each party, Incoterms make global trade more efficient, smoother, and more predictable. Whether it's through the use of free carrier or delivered duty paid terms, businesses can leverage Incoterms to ensure compliance and minimize the risks associated with international trade.

Transportation Management System to Manage Incoterms

Compliance with Incoterms is essential for businesses engaged in international trade, and at Inecta Food ERP, we offer comprehensive ERP solutions to help businesses ensure compliance with these trade terms, including all the costs, additional terminal handling expenses, and insurance coverage requirements.

In addition, a transportation management system (TMS) can help businesses manage the complexities of Incoterms by providing a centralized platform for tracking and managing shipments, ensuring compliance with the relevant Incoterms, and automating the documentation process associated with each term.

By leveraging both ERP solutions and TMS, businesses can optimize their operations, reduce costs, and ensure compliance with the relevant Incoterms, enabling them to succeed in the highly competitive global marketplace. Contact us today to learn more about how our solutions can help you achieve greater success in international trade.

At Inecta Food ERP, we understand that compliance with Incoterms is essential for businesses engaged in international trade. Our comprehensive ERP solutions are designed to streamline your operations and ensure compliance with these important trade terms, including insurance cover, import and export requirements, third party carrier arrangements, and transportation costs.

Our TMS software is specifically tailored to the food and beverage industry, with features such as traceability, quality control, and recipe management, enabling you to manage your business more effectively and efficiently. If you're looking for a comprehensive ERP solution for your food and beverage business, we encourage you to explore Inecta Food ERP. With our expertise and cutting-edge technology, we can help you optimize your operations and stay ahead in the highly competitive global marketplace. Contact us today to learn more about how we can help you achieve greater success in international trade.