11 Terms of Delivery easily explained under Incoterms 2020

Contents of DELIVERY TERMS as per Rules of INCOTERMS 2020

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                FAS  Free Alongside Ship                 FOB  Free On Board           CFR  Cost and Freight             CIF  Cost Insurance and Freight


Our team of www.exportimport.com   is happy to extract and publish articles related to International Commercial Terms 2020 based on the publications of International Chamber of Commerce.  There are many posts related to Inco Terms 2000 and Inco Terms 2010 in this website.   However, you may prefer to read and implement Inco Terms 2020 for their movement of goods under Trade.  The Inco terms of delivery of goods are rules, not Laws.  So in order to get legal validity, these rules has to be mentioned under sale contract between buyer and seller by specifically mentioning as the delivery terms under the said sale contract is subject to Inco Terms 2020, Inco terms 2010 or Inco Terms 2000 whichever is applicable.  However, henceforth we suggest the exporters, importers and other traders to use latest revision of Inco Terms 2020 for their movement of goods.  We are trying our best to provide right information about International Commercial Terms 2020 in this web posts.  However, as mentioned in our disclaimer clause of this website, you may read and understand the exact terms and definitions mentioned by International Chamber of Commerce before entering in to a mutual delivery terms of Contract between buyer and seller. 

According to ICC, the Inco Terms 2020 rules specifically states to explain,  what the Incoterms 2020 rules do and do NOT do and how they are best incorporated.  The ICC revised Incoterms 2020 to set out the important fundamentals of the Incoterms rules: the basic roles and responsibilities of seller and buyer, delivery, risk, and the relationship between the Incoterms rules and the contracts surrounding a typical contract of sale for export/import and also, where appropriate, for domestic sales.  The Incoterms 2020 is designed to  explain how best to choose the right Incoterms rule for the particular sale contract.  The ICC also  set out the central changes between Incoterms 2010 and Incoterms 2020.

For the purpose of sale and purchase of goods, the Incoterms  has been designed in three letter trade terms of delivery to incorporate in to the  sale contract of Buyer and Seller.  The Inco Terms explains the obligation, risks and cost to be taken care by Buyer/Seller under each terms of delivery of goods mentioned. Please note, Inco terms are not sale contract between exporter and importer or buyer and seller.  The Inco Terms can be included in the sale contract between importer and exporter. Incoterms becomes part of the contract between buyer and seller, if Inco Terms incorporated in the Sale Agreement mutually agreed.

 

The Inco terms clarifies on the obligations, risks and costs to be absorbed by buyer and seller in each terms of delivery mentioned. i.e. Who organizes carriage, who has to arrange insurance of goods?, who obtains shipping documents, licenses etc, points at which the risk of movement of goods transfer to buyer or seller, which party is responsible for which costs, for example transport, packaging, loading or unloading costs, and checking or security-related costs.

 

Inco Terms do not deal with:

 Incoterms are not contract of sale as they are rules.  It has to be made as a part of sale of contract by mentioning specifically in the sale contract between buyer and seller, say  “The terms of delivery mentioned in this sale contract is subjected to  Incoterms 2020”.

The Inco terms does not play the role of specification of goods selling.  The quality of goods or specification of goods  selling  has to be clearly mentioned in the sale agreement between buyer and seller, say in the Purchase order, Letter of Credit or separately  as a Sale contract preferable.

Incoterms also does not cover the payment related rules.  The time of payment, Place of payment, method of payment or currency of payment are not dealt with International Commercial Terms.

Inco Terms 2020 also does not cover the remedies which can be sought for breach of the contract of sale.  Any dispute between importer and exporter (buyer and seller) has to be sorted out separately with Court of Law or Arbitration.

According to ICC, the International Commercial Terms 2020  (Inco terms 2020) does not handle most consequences of delay and other breaches in the performance of contractual obligations.  For example, under DDP terms, the risk of delivering goods to the buyer’s place is with Buyer.  However, it does not mean that the risk in delay under customs clearance at port of destination is at seller’s side, unless otherwise stated in sale contract.  Because, the delay in  statutory obligations under Customs clearance  does not come under Inco Terms, thereby need to separately state in sale contract between buyer and seller.

Also the Incoterms 2020 are rules and don’t deal with the effect of sanctions;  the imposition of tariffs; export or import prohibitions;  force majeure or hardship; intellectual property rights; or  the method, venue, or law of dispute resolution in case of such breach.

 

Most importantly, it must be stressed that the Incoterms 2020 rules do not deal with the transfer of property/ title/ownership of the goods sold.

 

In order to avoid problems and disputes later, the parties need to make specific provision by incorporating in their contract of sale neither do the Incoterms rules provide the law applicable to the contract. There may be legal regimes which apply to the contract, whether international, like the Convention on the International Sale of Goods (CISG); or domestic mandatory law relating. 

 

How to apply Inco Terms to  Sale Contract between Buyer and Seller?

 

The rules of Inco Terms can be applied to the sale agreement between importer and exporter (buyer and seller) by clearly mentioning the words, “(choose Inco terms rules)  (named port, place or point) Incoterms 2020.)”

 

For example, if the buyer and seller mutually agreed CFR SINGAPORE as terms of delivery of goods and entering in to a   sale contract,  CFR SINGAPORE INCOTERMS 2020 is mentioned. 

 

Let us provide some more examples to make it clear:

 

Suppose a buyer from New York would like to deliver goods to No.86, ZYZ street, Swindon road, New York.  He contracts delivery terms as DPU with the Exporter at Shanghai.   Here, the terms of delivery in their Sale Contract to be mentioned as “DPU, No.86, ZYZ street, Swindon road, New York, Inco Terms 2020”

 

Why Year of Inco Terms to be mentioned in Sale Contract?

 

As long as, the relationship between buyer and seller continues well, no issue on the transaction.  However, if dispute arises, the sale contract plays a vital role on each terms and conditions.  The dispute between importer and exporter may solve between them, Arbitration or a Court of Law.  International Chamber of Commerce revises Inco Terms time to time and modifies the definition of each revision of Inco Terms.   There could be problems that may be difficult to solve, if the year of Inco Terms version not mentioned in the sale agreement.  The parties involved to solve the problems need to be able to determine, which version of Inco Terms rules applies to their Sale Contract.

 

It is not necessary to mention trade mark “ ® ”  after year as mentioned in ICC Incoterms®.  For example, you may mention ‘CFR SINGAPORE INCOTERMS 2020’ instead of  ‘CFR SINGAPORE INCOTERMS® 2020’. 

 

Let us discuss an example based on past experience of exporters and importers who used previous version of Inco Terms rules:   The sale agreement between exporter and importer says FOB MUMBAI; According to Inco Terms, the buyer has to present ship for loading cargo at the port of buyer’s country.   As you know, there is more than one sea port in Mumbai.  Here, it is uncertain as to where the buyer must present the ship to the seller for the shipment and the transport of the goods and as to where the seller must deliver the goods.   So it is best to avoid these types of issues by being a geographically specific as possible in naming the port, place, or point as the case may be in the chosen Inco Terms.  Say in our example, if the port of loading contracted at JNPT MUMBAI, it is best to mention port of loading as JNPT MUMBAI, INCO TERMS 2020.

We can discuss with another example.  If the contract between buyer and seller is CIP HOUSTON, the carriage and insurance is paid up to Houston by seller, as per Inco Terms.  Here the contract does not say, where in Houston the cargo to be delivered by seller.  So, it is best to avoid these types of issues by being as geographically specific as possible in naming the port, place or point as the case may be in the chosen Inco Terms followed by year of Inco terms, ICC versioned. 

Who uses International Commercial Terms (Inco Terms)?

Inco terms are used directly by buyers and sellers.  Under international trade, it is used by exporters and importers.   However Inco Terms are used indirectly by Insurance companies, Banks and Carriers.  Carriers include Shipping companies, Freight Forwarders, IATA agents, local transporters etc.   Banks use Inco Terms for payment purpose.

11 Delivery terms under Inco Terms 2020

Under international commercial terms 2020, there are 11 modes of delivery terms of transport. The buyers and sellers had been widely using Inco Terms 2000 and Inco Terms 2010.  However, after introduction of revised version of Inco Terms 2020 by International Chamber of commerce most of the traders all over world switched over to accept Inco Terms 2020 as their contract of carriage and incorporating in their sales contract to move their goods.  

 According to ICC, the Inco Terms 2020 are designed as two sets of rules for transport of goods.  07 rules of Delivery Terms as RULES FOR ANY MODE OR MODES OF TRANSPORT  and 04 rules of Delivery Terms as RULES FOR SEA AND INLAND WATERWAY TRANSPORT.

Out of 11 modes of Inco Terms 2020, ICC has categorized 07 Omni Model Transport modes for movement of delivery of goods and 04 modes of transport used as marine restricted.  All 11 modes of transport used for delivery are designed in three letter words.   Although ICC framed delivery terms under three letter words, the terms read with named place after these three letter words.

 

Click below to read  11 Incoterms 2020:

 

RULES FOR ANY MODE OR MODES OF TRANSPORT

 

Click below to read:

 

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

 

RULES FOR SEA AND INLAND WATERWAY TRANSPORT

 

FAS  Free Alongside Ship

 

FOB  Free On Board

 

CFR  Cost and Freight

 

CIF  Cost Insurance and Freight

 

 

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Understand the meaning of FOB under Incoterms     FAS terms of delivery under Incoterms 2020     Explaining DDP in simple language under Incoterms 2020     DAP, Simply explained under Incoterms 2020     Describe DPU under Incoterms 2020     How to define CIP under Inco Terms 2020     What does CPT mean under Inco Terms 2020?     Meaning of FCA under Incoterms 2020     EXW,Ex Works under Inco terms 2020     Inco Terms, Different stage where risks and costs transfer from Seller to Buyer     Parties involved to use Incoterms directly and indirectly     Is it necessary to use trade mark of Incoterms under Sale contract     Mention year of Inco Terms under Sale contract     Inco Terms and Sale Contract between buyer and seller     Inco Terms 2020 Rules for Delivery of Goods         Buyer or Seller? Who pays Insurance under DAP Inco terms?     Who is responsible to pay Insurance under DPU Inco terms?     Who is liable to arrange insurance under CPT terms?     Under FCA Inco terms, Insurance is paid by buyer or seller?     Under EXW Ex works, who arranges Insurance?     04 Categories of Inco Terms 2020     D Category of Delivery terms under Incoterms 2020


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