Every international sales contract has to answer three practical questions: where the goods are delivered, when the risk of loss or damage passes from seller to buyer, and who bears which costs. Incoterms® are standard rules published by the International Chamber of Commerce (ICC) that answer these questions with three-letter abbreviations understood worldwide. The current version is Incoterms® 2020, in force since 1 January 2020.
What Incoterms cover
Each Incoterms rule allocates the obligations of seller and buyer in a few core areas:
- Delivery: the point or place where the seller is deemed to have delivered the goods.
- Risk: when the risk of loss of or damage to the goods passes to the buyer.
- Costs: who pays for carriage, loading, unloading, insurance (where required) and other charges.
- Formalities: who handles export and import licences and customs clearance, and which documents must be provided.
What they do NOT cover
This is often misunderstood. Incoterms are not a complete sales contract. They do not deal with:
- transfer of title (ownership) to the goods;
- the price and the method of payment;
- the consequences of breach, damages, or relief for force majeure;
- the governing law and how disputes are resolved.
All of these must be written into the sales contract itself. Incoterms also do not replace the contract of carriage between the shipper and the shipping line.
Eleven rules in two groups
Incoterms® 2020 contain 11 rules, grouped by mode of transport.
| Group | Rules |
|---|---|
| Any mode (including multimodal) | EXW, FCA, CPT, CIP, DAP, DPU, DDP |
| Sea and inland waterway only | FAS, FOB, CFR, CIF |
Rules in the first group can be used for road, rail, air, sea or any combination. Rules in the second group only fit when the goods are genuinely delivered at a port, alongside or on board a vessel.
One important change in the 2020 version: the DAT rule (Delivered at Terminal) from Incoterms 2010 was replaced by DPU (Delivered at Place Unloaded). The new name makes clear that the destination does not have to be a terminal, as long as the seller unloads the goods there.
How to write a rule correctly
A rule written half-way invites disputes. The pattern recommended by the ICC is: rule + named place + version. Examples:
- FOB Tanjung Priok Incoterms® 2020
- FCA PT Contoh Ekspor warehouse, Jl. Contoh No. 1, Cikarang, Incoterms® 2020 (hypothetical example)
- CIF Rotterdam Incoterms® 2020
Name the place as precisely as possible, for example the terminal or the warehouse address, because that point decides when risk passes. Stating the version also matters, since parties may still agree to use an older version such as Incoterms 2010.
Common mistake: writing "FOB Indonesia" or "CIF price" without a port. An unclear place blurs the allocation of costs and risk as well.
Reading the first letter
The first letter gives a quick picture. The E rule (EXW) means the goods are made available at the seller's premises. The F rules (FCA, FAS, FOB) mean the seller hands the goods to a carrier chosen by the buyer, and the buyer pays the main carriage. The C rules (CPT, CIP, CFR, CIF) mean the seller pays the main carriage, but risk has already passed at the place of shipment, usually in the country of origin. The D rules (DAP, DPU, DDP) mean the seller bears the risk up to the destination.
The official Incoterms® 2020 text is published and sold by the ICC; refer to the official ICC publication for the actual wording of the rules. For a quick summary, open the Incoterms 2020 guide. The next lesson covers the four sea rules one by one.