INCOTERMS 2020 Commentary Final

A COMMENTARY ON THE
INCOTERMS® 2020 RULES

bY RobeRt (bob) Ronai
MEMBER OF THE ICC’S INCOTERMS®
2020 DRAFTING GROUP
FOREWORD BY
Deepesh patel
TRADE FINANCE GLOBAL
Purchased by Alex Kanyama Zulu, alexkanyamazulu@gmail.com #14281760. Copyright 2020 Trade Finance Global
Published by TFG Publishing Limited
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This book is copyright and the intellectual property of the author. The views and opinions expressed in this book
are those of the author and not of the ICC.
Any excerpts quoted from the Incoterms® 2020 rules are the copyright of the International Chamber of
Commerce. Source: ICC website. The full text of the 2020 edition of the Incoterms rules is available at https://2go.
iccwbo.org/. The word “Incoterms” is a registered trademark of the International Chamber of Commerce.
Trade Finance Global and Bob Ronai acknowledges the hard work of all the members of the ICC’s Incoterms®
2020 Drafting Group, who have been a really wonderful group of people to work with.
2 | A COMMENTARY ON THE INCOTERMS® 2020 RULES

CONTENTS
For Starters 4
Foreword 4
In the Beginning 5
Layout of The Rules 10
And Now, The Rules 12
Why are there Two Groups of Rules? 13
A1 / B1: GENERAL OBLIGATIONS 16

A2 / B2: DELIVERY 18
A3 / B3: TRANSFER OF RISK 26
A4 / B4: CARRIAGE 30
A5 / B5: INSURANCE 36
A6 / B6: DELIVERY/TRANSPORT DOCUMENT 41
A7 / B7: EXPORT/IMPORT CLEARANCE 47
A8 / B8: CHECKING / PACKAGING / MARKING 52
A9 / B9: ALLOCATION OF COSTS 54
A10 / B10: NOTICES 62
EXW – Ex Works 67
FCA – Free Carrier 69
CPT – Carriage Paid To 73
CIP – Carriage and Insurance Paid To 75
DAP – Delivered at Place 76
DPU – Delivered at Place Unloaded 78
DDP – Delivered Duty Paid 79
FAS – Free Alongside Ship 80
FOB – Free on Board 82
CFR - Cost and Freight 85
CIF – Cost Insurance and Freight 86
A HORSE DESIGNED BY A COMMITTEE 87
IN CONCLUSION 92
A COMMENTARY ON THE INCOTERMS® 2020 RULES | 3

FOR STARTERS
At the very outset please understand that this e-book does
not include the actual Incoterms® 2020 rules themselves.
This Commentary does not replace the Incoterms® 2020
book, rather it is hoped that it encourages you to buy that
book which is available from the International Chamber of
Commerce (ICC) or their various National Committees as
publication 723. I absolutely recommend that you have that
publication, whether as a hard copy or the soft copy, in front of
you. This e-book is not a publication of the ICC, it is purely my
commentary on the rules while explaining important matters
in plain language so that you have a better understanding of
RobeRt (bob) Ronai the rules.

Member of the ICC’s Incoterms®
2020 Drafting Group
Bob Ronai
FOREWORD
The volume of world merchandise trade continues to grow,
despite macroeconomic and geopolitical uncertainty. As
the complexity of global supply chains increase, so does the
possibility of disputes and misunderstandings in the trade
of goods across different markets. In 1936, the International
Chamber of Commerce (ICC) created the first set of
international commercial terms: standardised, universally
accepted terms, to help facilitate the flow of global trade. The
ICC’s Incoterms® 2020 rules provide a clearer presentation
and format than in previous versions, as well as giving more
attention to insurance and security around transporting
goods.
As the leading trade finance platform, connecting companies

Deepesh patel to banks, funds and alternative finance houses, Trade Finance
Editorial Director
Global (TFG) are advocates of the ICC rules for the use
Trade Finance Global
of domestic and international trade terms. With so much
incorrect information published online, TFG aims to provide
practical guides to help businesses to navigate global trade.
TFG would like to express its gratitude to Bob Ronai, a

member of the drafting group from the ICC Commission on
Commercial Law and Practice for his contributions to ensure
TFG are correct in the provision of Incoterms® 2020 rules
information. We are delighted to be partnering with Bob and
supporting the Incoterms® 2020 Rules.
Deepesh Patel
4 | INTRODUCTION
IN THE BEGINNING
The ICC’s Incoterms® 2020 Drafting Group was formed in 2016 and comprised of:
David Lowe (Co-Chair) - UK

Christoph Martin Radtke (Co-Chair) – France
Charles Debattista (Special Adviser) – UK
Ercument Erdem – Turkey
Jian Baozhu/Virginie Jan – China
Burghard Piltz – Germany
Frank Reynolds – USA
Bob Ronai – Australia
Emily O’Connor (ICC Secretariat)
Florence Binta Diao-Gueye (ICC Secretariat)
I have to say that the members of the Drafting Group have been a fantastic group to work with,
and the long experience has been the most wonderful intellectual fun I have ever had. Our minds
were stretched every which way in working through the contributions and creating these rules. Are
they perfect? No, not yet but we went as far as we could given the time constraints of having the
rules finalised, polished and published in the 100th anniversary year of the International Chamber
of Commerce.
The members started their task at a three-day meeting in Paris in April 2017 by deconstructing the
2010 rules, removing any sentences or paragraphs which seemed problematic, and reconstructing
each rule in plain English and in logical order, where appropriate incorporating points raised by the
ICC’s many National Committees (NCs) in their wish lists. Then the first draft was returned to the NCs
for comment, and this process was repeated several times. What was notable to me as a DG member
was that many NCs lost track of the fact that the Incoterms® rules are universal so they could not
and should not address matters which concern only one part of the world. We found that having a
horizontal format of the rules, where each point was shown for each of the rules, then the next point
and so on, made it easier for the DG to keep consistent wording throughout.
This worked so well we decided to add this concept to the publication to allow users to compare
particular points across all the rules and see differences in treatment of particular issues much more
easily.
Once the wording of the rules was almost firm we started on the explanatory notes and rounding out
the introduction.

The Incoterms® 2020 rules are not just the result of the Drafting Group making up concepts and
words, they have been driven by the hundreds of members of ICC National Committees throughout
the world contributing their comments and recommendations. Once the Drafting Group completed
the final draft, it was again sent out to all the NC and then voted upon by them for acceptance at
the ICC’s Commission on Commercial Law and Practice meeting, and finally approved by the ICC’s
Executive Board.
After the words were set, the Drafting Group were presented with diagrams prepared by Asko Raty of
Finland. After a dozen or so revisions we were happy with them. ICC Paris then engaged an illustrator
to translate Asko’s diagrams into print-ready diagrams. During that time the colours were changed
to the ICC’s corporate colours as seen on the Incoterms® 2020 logo. The illustrator of course had no
idea about these rules so it was interesting as I worked with ICC Paris in getting the arrowheads into
the right place for example. Then the diagrams had to be placed into the right places in the book,
another interesting and challenging exercise.
Next was the design of the wall chart which I also worked on with ICC Paris. From that then came the
app.
The most obvious change on first glance is the new logo on the cover with new corporate colours.
If you flick through the pages you will find those colours repeated in the diagrams of which there
are now several more per rule. On the cover you will see even more clearly than the 2010 book that
these are the ICC RULES FOR THE USE OF DOMESTIC AND INTERNATIONAL TRADE TERMS in
upper case. Interestingly too the word Incoterms® takes pride of place with the 2020 less so than in
the previous book, and maybe it will help stop the incorrect use of the word such as INCO terms and
the like. Note too that the word is a registered trademark by the ICC and it is in fact an adjective not
a noun as well as in the plural not singular. Therefore there is no such thing as an Incoterm but there
is an Incoterms® rule.
The book starts out with a Foreword by John Denton AO, ICC Secretary General. Then there is an
Introduction, this time under the authorship of Charles Debattista who is the ICC’s Special Advisor
to the Incoterms® 2020 Drafting Group. He has written this in a conversational style making it much
easier for a user to read.
It comprehensively explains in considerable detail what the new rules do and do not do; describes the
basic fundamentals of what is covered by the rules; explains how a seller and buyer can choose the
best rule for their transaction; and the changes from the previous Incoterms® 2010 rules. There was
apparently some confusion in past editions as to whether information contained in the Introduction
formed part of the rules themselves, but now being under Charles’ name it is clear they are merely to
assist the reader in understanding how the rules work.
As with Incoterms® 2010, the new publication splits the eleven rules into two groups, the seven
“Rules for any mode or modes of transport” and the four “Rules for sea or inland waterway transport.”
The any mode/s rules are shown first as in reality the great majority of readers will be, or should be,
6 | INTRODUCTION
using these rather than the maritime rules. The book emphasises more strongly than before that the
maritime rules should not be used for container shipments even though these are carried by sea, and
it is hoped with the anticipated increase in readership that this incorrect usage will fade out.
The any mode/s rules include the two contentious ones, EXW and DDP, in which the mode of transport
used actually is irrelevant but which in these days of heightened border security are very difficult to
use in international trade. The EXW rule describes the minimum the seller must do, but the DDP rule
falls a tiny bit short of the maximum the seller could actually do in still omitting any responsibility to
unload the goods at the destination point. Yet the new DPU rule does include this responsibility.
It is very important at the outset to explain what the Incoterms® 2020 rules do and do not do. They
deal with matters only between the seller and the buyer, ie:
obligations,
risk and
costs.
They are not a substitute for a contract of sale between these two parties, they are rules for the
interpretation of eleven three-letter abbreviations used in these contracts and reflect business-to-
business practice.
The rules do not deal with such matters as:
whether there is even a contract of sale;

the law governing the contract;
the specifications and nature of the goods;
the method or time for payment;
remedies which can be brought by one party against the other for breach of the
contract and method of dispute resolution;
most consequences of delay or failure of one of the parties to carry out their
obligations;
sanctions and prohibitions;
tariffs and customs duties;
force majeure;
intellectual property rights;
business-to-consumer sales;
transfer of property, ownership or title of the goods sold;
Verified Gross Mass (VGM) declarations

Let’s now look at some of these matters which are not covered and see why.
Specification and nature of the goods:

Of course these will be stated, or should be stated, in the sales contract, such as technical specifications,
packaging, how they are to be packed into a container, whether they are to be refrigerated and what
temperature range, special handling, dangerous goods and so on.
The law governing the contract:

This is something often overlooked in contracts, or the stronger party might want to impose their
own country’s laws. Both parties should consult their legal experts before agreeing on anything, and
they might like to take as a guide where the particular Incoterms® 2020 rule shows delivery as taking
place.
The method and time for payment:

These should be stated in the contract, such as open account at 30 days, letter of credit at sight, or
whatever.
Tariffs and customs duties:

While these rules show who is to pay them, clearly the rules cannot deal with actual percentages or
values. Some contracts might even include rise and fall clauses covering variations, nevertheless that
is where these should be dealt with, in the contract.
Force Majeure:
An often overlooked matter, and yet sometimes contracts contain anything from one paragraph to
pages of information. Probably the easiest is to download the free current Force Majeure clause from
the ICC’s website and make reference in the contract to “ICC Force Majeure Clause 2003 and ICC
Hardship Clause 2003.” Simple but again do initially get legal advice from a lawyer who understands
international trade otherwise you might find you are educating them when you email them this free
document.
Business to consumer (B2C) sales:

These are typically transactions made via the internet on platforms such as E-bay and Weibo.
Consumers sitting at their computer, tablet or smartphone have no need to know, or interest in
knowing, about Incoterms® 2020 rules. Simply they look at the selling price, the delivery costs and
information whether they might need to pay certain import charges. Next thing they know once they
have paid is that the package ends up on their doorstep.
Transfer of property, ownership or title of the goods sold:

These matters are legal issues and should be clearly stated in the contract itself. They can vary with
the circumstances and local law.
8 | INTRODUCTION
Verified Gross Mass (VGM):
There was a lot of pressure on the Drafting Group to include mention of VGM in the various rules,
but it was agreed that VGM is not directly connected to the sales contract. Firstly, it only relates to
container shipments, not air, road, rail, bulk and breakbulk by sea shipments. The circumstances if
the seller or buyer or neither must make out this declaration vary, for example in an LCL transaction
it would usually be the consolidator, in an FCL covered by a forwarder’s house bill of lading it would
usually be the forwarder as shipper on the container line’s bill of lading.
As these rules are intended to be applied universally, regardless of where the seller and buyer might
be located, they do not specifically address country-based, or region-based matters, which rightly
belong in the contract itself.

LAYOUT OF THE RULES
There are two sections of rules, firstly the seven Rules for Any Mode or Modes of Transport, then the
four Rules for Sea and Inland Waterway Transport. Each rule is headed with its three-letter abbreviation
and name in full and then the correct way to use it. This is the three letters followed by the relevant
location whether port or place and mention of Incoterms® 2020. Without mentioning the publication
you simply have three undefined letters, and that is why, for example, some people think FOB stands
for “freight on board”; clearly they have never read the Incoterms® rules in their whole career.
Immediately following is a new and comprehensive diagram. These are written to give users an
overview of certain aspects of the rule and include further specific diagrams. The colours used in the
diagrams and throughout the rules are standard and reflect two of the colours from the Incoterms®
2020 logo, blue for the seller and gold for the buyer. In some diagrams you will see a third colour,
green, to indicate that there are shared obligations.
The Explanatory notes for users are just that, an explanation and do not form part of the rules
themselves. They don’t cover every aspect of each rule, just pertinent and need-to-know matters.
They include several specific diagrams to more easily identify the points made in the Explanatory
notes. You will see in each of the delivery diagrams that one box representing the cargo is coloured
black showing where delivery occurs. If there are other boxes showing the cargo elsewhere they are
coloured grey. In the multimodal transport diagrams the cargo box is grey because it cannot be all
of the transport modes at once.
Then within each rule the seller’s and buyer’s obligations have been shown in a column for each. These
are still shown as ten articles for each and in a parallel format but the order has been changed from
the previous publication so the articles fall more or less in the same order as they are experienced
in practice. Reference to costs is still included wherever relevant but also summed up in a specific
article. The seller’s obligations are on the left side commencing with an A and the buyer’s matching
obligations are on the right commencing with a B.
They are:
A1/B1 General obligations
A2/B2 Delivery/Taking delivery
A3/B3 Transfer of risks
A4/B4 Carriage
A5/B5 Insurance
A6/B6 Delivery/transport document
A7/B7 Export/import clearance
A8/B8 Checking/packaging/marking
A9/B9 Allocation of costs
A10/B10 Notices
10 | INTRODUCTION
The language used is very deliberately in plain English rather than a legal expression, so that a reader
whose English is not their first language and doesn’t have a law degree can understand them. This
also makes translation into other languages an easier task.
For the first time ever these first two sections are followed by a new concept of Article-by-Article Text
of the Rules. The third section takes each article, for example A1 General Obligations and lists this
article for each of the eleven rules. It is then followed by the matching B1 General Obligations. These
headings appear in shaded boxes with the same colour scheme as used in the diagrams, blue for
the seller and gold for the buyer. This allows you to examine each article across the rules to easily
determine what bests suits your needs by comparing them. This does not mean that you can “mix ‘n’
match” articles from various rules to make your own rule!

AND NOW, THE RULES
RULES FOR ANY MODE OR MODES OF RULES FOR SEA AND INLAND WATERWAY
TRANSPORT TRANSPORT
EXW FAS
EX WORKS (insert named place of delivery) FREE ALONGSIDE SHIP (insert named port of
loading)
FCA
FREE CARRIER (insert named place of delivery) FOB
FREE ON BOARD (insert named port of loading)
CPT
CARRIAGE PAID TO (insert named place of CFR
destination) COST AND FREIGHT (insert named port of
destination)
CIP
CARRIAGE AND INSURANCE PAID TO (insert CIF
named place of destination) COST INSURANCE AND FREIGHT (insert named
port of destination)
DAP
DELIVERED AT PLACE (insert named place of
destination)
DPU
DELIVERED AT PLACE UNLOADED (insert
named place of destination)
DDP
DELIVERED DUTY PAID (insert named place of
destination)
12 | INTRODUCTION
WHY ARE THERE TWO GROUPS OF
RULES?
In the Incoterms® 1990 and 2000 publications the 13 rules were split into four groups:
Group E DEparturE Group D arrival

EXW Ex Works DAF Delivered at Frontier
DES Delivered Ex Ship
Group F Main carriaGE unpaiD DEQ Delivered Ex Quay
FCA Free Carrier DDU Delivered Duty Unpaid
FAS Free Alongside Ship DDP Delivered Duty Paid
FOB Free on Board
Group c Main carriaGE paiD

CFR Cost and Freight
CIF Cost, Insurance and Freight
CPT Carriage Paid To
CIP Carriage and Insurance Paid To
Then in Incoterms® 2010 there were some changes. The unloaded rule DEQ was renamed and
expanded as DAT and the not-unloaded rules DAF, DES and DDU were rolled up into DAP. When
you think about it, Delivered Duty Unpaid (DDU) was not a logical name, the E, F and C rules are
delivered duty unpaid.
The four groups became two groups:
RULES FOR ANY MODE OR MODES OF RULES FOR SEA AND INLAND WATERWAY
TRANSPORT TRANSPORT
EXW Ex Works FAS Free Alongside Ship

FCA Free Carrier FOB Free on Board
CPT Carriage Paid To CFR Cost and Freight
CIP Carriage and Insurance Paid To CIF Cost, Insurance and Freight
DAT Delivered at Terminal
DAP Delivered at Place
DDP Delivered Duty Paid

This separates the Rules for Sea and Inland Transport, what are often referred to as the maritime rules
from the Rules for any Mode or Modes of Transport, often referred to as the multimodal rules, that
cover transport not only by any mode but a combination of modes. Examples of the multimodal rules
coming into play would be for such as:
Airfreight where cargo is trucked to an airport before being carried on an aircraft then
carried by truck after unloading from the aircraft;
LCL (Less than Container Load) where cargo will be trucked from the seller’s premises to the
consolidator’s terminal, placed in a container then trucked to the shipping line’s terminal
and finally trucked or railed to the quay for loading on board the vessel, vice versa at the
other end.
The maritime rules very specifically refer only to a single mode by water, whether by ocean-going
ship or river barge or a combination of these, and port-to-port only. They are clear that no other
transport mode is involved.
The great majority of transactions will be covered by the multimodal rules, whether FCL or LCL in
containers, by air, by road or by rail, or indeed a combination of more than one of these as is very
usually the case.
If a freight forwarder is involved then almost invariably the transaction will be a multimodal one.
Beware: on various forwarders’ websites you will see charts laying out these rules. Most of them deal
only with costs, who pays what from which point, which is clearly not the whole picture. Many will
include the maritime rules interleaved with the multimodal rules and split into the old E, F, C and D
groups without a warning that the maritime rules should not be used for containers.
There was also a lot of speculation on the internet as to what rules were to be deleted and new ones
written into Incoterms® 2020. They were all dramatically wrong, copied from one man’s imaginative
but entirely incorrect blog which then went “viral”. EXW and DDP did not disappear, FCA is not split
into two separate rules, there is no such thing as CNI.
14 | INTRODUCTION
a1 / b1:
GeneRal obliGations

A1 / B1: GENERAL OBLIGATIONS
all RUles
a1 (General obligations)
In each of the eleven rules the seller must provide the goods and their commercial invoice as
required by the contract of sale and any other evidence of conformity such as an analysis certificate
RULES FOR SEA AND INLAND WATERWAY TRANSPORT

or weighbridge document etc that might be relevant and specified in the contract.
RULES FOR ANY MODE OR MODES OF TRANSPORT

Each of the rules also provides that any document can be in paper or electronic form as agreed to in
the contract, or if the contract makes no mention of this then as is customary. The rules do not define
what “electronic form” is, it can be anything from a pdf file to blockchain or some format yet to be
developed in the future.
b1 (General obligations)
In each of the rules the buyer must pay the price for the goods as stated in the contract of sale.
The rules do not refer to when the payment is to be made (before shipment, immediately after
shipment, thirty days after shipment, half now half later, or whatever) or how it is to be paid
(prepayment, against an email of copy documents, on presentation of documents to a bank under a
letter of credit, or other arrangement). These matters should be specified in the contract.
SUMMARY
There is no difference between any of the rules.
16 | A1 / B1: General Obligations

a2 / b2:
DeliVeRY

A2 / B2: DELIVERY
EXW – EX WORKS
a2
The seller delivers simply when the goods are placed at the disposal of the buyer at an agreed point,
which is usually the seller’s own premises or somewhere like their contracted manufacturer, on the
specifically agreed date or within the agreed period such as “by 31 March” or “within 90 days after
contract date.” This means that even though the goods are simply sitting within the seller’s premises
they have already been “delivered,” the act of delivery here is not a physical handing over by a
movement of the goods but a notional one achieved by the seller giving the appropriate notice to
the buyer.
When the buyer arranges a collecting vehicle, whether a carrier’s vehicle or, new for the 2020 rules,
the buyer’s own vehicle, to be at the named premises the seller has no obligation to load that vehicle.
According to this rule the buyer must load the vehicle but in most cases this is simply not practical
for a number of reasons. The seller most likely, for insurance and safety reasons, will not allow
non-employees into their warehouse or factory. The seller certainly would not allow a buyer to go
rampaging around the premises in a forklift that the buyer rolled off their vehicle, and to physically
move the goods off say a rack three metres up might need a specialised forklift. The seller might
even use an automated picking and despatch system. Usually the seller would be best placed to
load the buyer’s vehicle, but if this is the expectation then the contract should clearly state that they
do so at the buyer’s cost and risk. If the buyer is not prepared to take this risk then EXW is not the
appropriate rule to be used and the parties should consider the FCA rule instead where it is the
seller’s obligation and risk to load the collecting vehicle.
If the goods are going to be at a location other than the seller’s premises, such as a contracted
manufacturer, or if the seller has several places within their premises such as numerous despatch
docks, this information needs to be communicated to the buyer so their vehicle goes to the correct
location. Any restrictions at the site need to be communicated too. If for example the loading dock
needs to be accessed through a carpark it might be that a forty-foot container on a trailer can not be
brought close to that dock. Or there might be restrictions on truck size in a narrow roadway.
b2 (Delivery)
The buyer’s role in EXW is that they must take delivery when the seller has made the goods available
and has given their notice of this under A10. This usually will be when the goods are simply sitting
in the seller’s premises and may well be before the buyer’s collecting vehicle arrives at the seller’s
premises. The buyer should consider their exposure to risk from this point on and would be wise to
ensure that they have adequate insurance cover such as under Institute Cargo Clauses (A).
The delivery requirements of the EXW rule can be difficult to work with.
18 | A2 / B2: DELIVERY
FCA – FREE CARRIER
a2 (Delivery)
The seller delivers in one of two ways:
1) If the named place is the seller’s premises then when the goods have been loaded on the means
of transport provided by the buyer. This includes of course the buyer’s carrier but allows the buyer

to collect on its own vehicle such as in a domestic sale. The word “loaded” here would usually mean
safely placed on the vehicle, but for example if pallets or crates are loaded onto a truck then any
tying down or lashing will be the responsibility of the vehicle’s driver under safety and traffic rules.
If the goods are loaded into a container on the back of the vehicle it would reasonably be expected
that the seller would lash and secure the goods. As in EXW the seller would need to inform the buyer
of any specific locations such as its own warehouse, contract manufacturer or a particular loading
dock. Any restrictions at the site need to be communicated too. If for example the loading dock
needs to be accessed through a carpark it might be that a forty-foot container on a trailer can not be
brought close to that dock.
2) If the named place is not the seller’s premises then when the seller places the goods at the disposal
of the buyer or its carrier on the seller’s vehicle delivering the goods to that place but not unloaded.
Clearly the seller cannot be expected to provide the means to unload the goods into say a carrier’s
terminal nor would they be allowed to for safety, security and insurance reasons.
This delivery must be made on:
1. the agreed date or

2. at the time nominated by the buyer within the agreed period, or
3. failing these, at the end of the agreed period. Why at the end? Because before that the buyer
could still inform the seller of his desired time within the agreed period.
b2 (Delivery)
The buyer’s obligation is to take delivery when the goods have been delivered as described in A2.
Note that this rule does not discuss the means of transport at all, it merely mentions the carrier
regardless of how the carrier will arrange transport of the goods.

CPT – CARRIAGE PAID TO
CIP – CARRIAGE AND INSURANCE PAID TO
a2 (Delivery)
The seller delivers the goods by handing them over to its contracted carrier, on the agreed date or
within the agreed period.
There has in the past been some confusion because Incoterms® 2000 referred to “the first carrier” if
there were subsequent carriers. In practice there may well be several carriers contracted in turn by
the seller’s contracted carrier, such as the truck collecting the goods and taking them to the airport
terminal, the cargo handler contracted by the airline to move the goods to the aircraft and load them
onto it, the airline itself, and the repeat of these at the other end. But the only carrier of concern is that
carrier contracted to move the goods from the point of delivery to the destination.
Most importantly, delivery occurs when the seller passes the goods to their carrier to transport them,
not when the goods reach the destination
b2 (Delivery)
The buyer not only must take delivery when they have been handed to the seller’s carrier, but also
physically receive them at the named place, or point within that place, of destination.
DAP – DELIVERED AT PLACE
DPU – DELIVERED AT PLACE UNLOADED
DDP – DELIVERED DUTY PAID
a2 (Delivery)
The DAP and DDP rules require the seller to take on almost the maximum responsibility of placing
the goods at the disposal of the buyer at the agreed destination place, or point within that place, but

not unloaded from the arriving means of transport. This usually would be a truck but could be a train,
a barge or even a ship and unlikely though it might be a chartered aircraft.
The DPU rule goes one step further, requiring the seller to unload the goods from the arriving means
of transport. DPU is the old DAT rule but expanded to mean any place to avoid the misunderstanding
of the 2010 rule where many took it literally from its title to just mean a terminal, even though it
meant anywhere from an open field to a covered warehouse including the buyer’s warehouse.
A common mistake with DAP and DDP especially is the reverse of the misunderstanding with the
old DAT, to believe that the destination will always be the buyer’s premises, but this need not be
the case. The buyer could nominate say the site of a new factory they are building for their client,
it could be the container terminal in the destination country, or somewhere else. If it is the buyer’s
premises or a site they have nominated then usually they would have the equipment on hand to
unload the goods but sometimes the truck will have a crane mounted on it or even a forklift tucked
into the rear of it, or the goods are so specialised that the seller would need to also provide the
equipment to unload the goods making it DPU. If the destination is a terminal then it would be usual
that the seller’s carrier would unload the means of transport or arrange for that unloading, such as
the container from the truck delivering it from the quay, the goods from the chartered aircraft and so
on, again making it DPU not DAP.
The delivery must be made on the agreed date or within the agreed period.
b2 (Delivery)

SUMMARY
This is one of the most important concepts in the eleven Incoterms® 2020 rules and varies across the
rules. All of the rules except EXW have wording to the effect that either the seller actually delivers, or
procures the goods so delivered. A trader acting as an intermediary can buy the goods delivered by
its seller and then acting as a seller on-sells them so procured to a second buyer. EXW is excluded
because the first seller can only deliver once in that manner and if the buyer was a trader it cannot
again sell the goods in a manner requiring its buyer to collect the goods from it as EXW.
The point of delivery in EXW represents the absolute minimum for the seller, simply making the
goods available at the named place for the buyer to arrange collection. In FCA there is a choice
of two options to be agreed between the parties, either the seller is to deliver onto the collecting
means of transport at the named place which is typically the seller’s premises or the seller is to deliver
the goods to another place typically the premises or terminal of the buyer’s carrier but not unloaded.
In CPT and CIP the seller is simply required to hand the goods to its carrier in the country of export
though the buyer will want to know where that place is as risk transfers at that point. The D rules move
the delivery point and place from the seller’s country to a point and place within the buyer’s country,
in the case of DAP and DDP not unloaded and with DPU unloaded.
FAS – FREE ALONGSIDE SHIP
a2 (Delivery)
The seller has to place the goods alongside the vessel nominated or provided by the buyer on the
agreed date, or within the agreed period as notified by the buyer, or if there is no such time notified
then at the end of that period.
The way in which the goods are delivered will be dependent on the nature of the goods and the

custom of the port. For example, the goods might be, say, rolls of aluminium sheet in which case they
will likely have an outer sheath and strapping, they could be granite slabs strapped to pallets, they
could be timber logs, they could be a large item of complex machinery or some other product. They
could be sitting on the quay or they could be barged downriver to the vessel. But the critical point is
that the vessel must be present to be alongside of. Placing the goods on the quay for example before
the vessel berths is not delivery under FAS.
b2 (Delivery)
FOB – FREE ON BOARD
a2 (Delivery)
The seller delivers by placing the goods on board the vessel nominated or provided by the buyer
on the agreed date, or within the agreed period as notified by the buyer, or if there is no such time
notified then at the end of that period.
There is still a belief that the ship’s rail is the defining point, ie: before the notional vertical line above
the rail is the seller’s cost and risk and after is the buyer’s cost and risk. A court ruled that the delivery
point was when the goods were on the deck but that then caused the question was the notional
vertical line replaced with a notional horizontal one in line with the deck itself and what if the goods
were being placed below deck? This ship’s rail concept was removed in the Incoterms® 2010 version.
Typically then, “on board” is taken to mean when the goods are safely on the deck or in the hold. If
the cargo needs to be then further secured for transportation such as being lashed or separated with
some material or spread evenly throughout the hold for bulk goods like grain the seller and buyer
should agree in their contract what is needed and at whose cost and risk this is done.
b2 (Delivery)

CFR – COST AND FREIGHT
CIF – COST INSURANCE AND FREIGHT
a2 (Delivery)
The seller delivers by placing the goods on board the vessel on the agreed date, or within the
agreed period, or if there is no such time notified then at the end of that period, and in the manner
customary at the port.
Most importantly, delivery occurs when the seller loads the goods onto the vessel, not when the
vessel reaches the destination port.
b2 (Delivery)
The buyer must not only take delivery of the goods when the seller has delivered them on board the
vessel but also receive them from the carrier at the named destination port.
Most importantly, delivery occurs when the goods are released from the seller’s direct control, not
when the goods reach the destination.
The main difference in wording to FOB is simply that with CFR and CIF reference to the vessel being
nominated by the buyer is absent as is reference to the buyer nominating a loading point within the
load port. The contract for carriage and cost implications are dealt with in other articles.
The ship’s rail matter is the same as explained above with FOB.
SUMMARY
FAS requires the seller to deliver when the goods are alongside the vessel arranged by the buyer;
FOB when the goods are placed on the vessel arranged by the buyer; CFR and CIF when the goods
are placed on the vessel arranged by the seller.
The reason these rules are not suitable for containers is because with containers the seller arranges
for the goods in a container (FCL) to be received by the carrier at their premises or a terminal. At that
time the vessel will usually not even have arrived at the shipment port. Neither party has any control
of when the goods will be loaded on board. The buyer is not able to themselves arrange loading the
container on board the vessel.
More so with LCL cargo as neither party is in control even of which container the goods are placed
into. Clearly the seller is not in a position to themselves put the container on board the vessel.
a3 / b3:
tRansFeR oF RisK

A3 / B3: TRANSFER OF RISK
all RUles
a3
In all the rules the seller bears all risks of loss or damage to the goods until they have been delivered
in accordance with A2 described above. The exception is loss or damage in circumstances described
in B3 below, which varies dependent on the buyer’s role in B2.
EXW – EX WORKS
b3
The buyer bears all risks of loss or damage to the goods once the seller has delivered them as
described in A2.
Additionally, if the buyer fails to give notice as described in B10 below and if the goods have been
clearly identified as the goods described in the contract then the buyer bears all risks of loss or
damage from the agreed date or the end of the agreed period for delivery.
b3 (transfer of risk)
described in A2.
Additionally, if the buyer fails to have its carrier or another person give the required notice under B2,
or that person fails to take the goods from the seller, then the buyer bears all risks either from the
agreed date or time, or if no agreed date or time, then at the end of the agreed period.
For example, if the contract states the delivery must occur in June so the seller has the goods ready
at their premises to place on a truck provided by the buyer’s carrier, and that carrier informs the seller
that he will collect the goods on the 20th day of June but fails to do so, then buyer bears the risk of
loss or damage to the goods from the end of the contract period being 30th June.
described in A2.
If the contract provides for the buyer to inform the seller the time for dispatching the goods or the
point of receiving the goods within the destination place and the buyer fails to do so, then the buyer
26 | A3 / B3: TRANSFER OF RISK

bears the risk of loss or damage to the goods from the agreed date or the end of the agreed period.
For example, if the buyer does not inform the buyer where he is to send the goods, how can the seller
dispatch them? If the seller has clearly identified the goods then the risk transfers to the buyer either
on the agreed date or the end of the agreed period.
described in A2.
If the buyer fails to inform the seller exactly to where it is to deliver the goods, or if the buyer fails to
import clear the goods then it bears the risk of loss or damage to the goods from the agreed date or
agreed period for delivery.
For example, if the seller despatches the goods to the buyer and they are held indefinitely by the
importing country’s authorities because the buyer failed to obtain the necessary import permit, then
the buyer bears the risk.
described in A2.
If the buyer fails to inform the seller exactly to where it is to deliver the goods, or fails to assist the
seller with import formalities, then it bears the risk of loss or damage to the goods from the agreed
date or agreed period for delivery.
SUMMARY
The important thing to understand is that the point of transfer of risk is identical to the point of
delivery, whether that that occurs in the seller’s or buyer’s country.

described in A2.
If the buyer fails to inform the seller of where and when the vessel will be presented or if the vessel
fails to arrive on time, or it fails to take the goods, so that the seller cannot deliver, then the buyer
bears the risk of loss or damage to the goods from the agreed date or at the end of the agreed
period.
described in A2.
If the buyer fails to inform the seller of where and when the vessel will be presented or if the vessel
fails to arrive on time, or it fails to take the goods, so that the seller cannot deliver, then the buyer
bears the risk of loss or damage to the goods from the agreed date or at the end of the agreed
period.
described in A2.
If the buyer fails to inform the seller about the destination port or the point within that destination
port, then the seller is unable to deliver under A2 and the buyer bears the risk of loss or damage to
the goods from the agreed date or at the end of the agreed period.
SUMMARY
The important thing to understand is that the point of transfer of risk is identical to the point of
delivery, being at the port of loading.
28 | A3 / B3: TRANSFER OF RISK

a4 / b4:
CaRRiaGe

A4 / B4: CARRIAGE
EXW – EX WORKS
a4
In this rule the seller has no obligation to the buyer for arranging carriage of the goods.
The seller however does have an obligation to provide the buyer with any information in its
possession, including any transport-related security requirements, and requested by the buyer at its
risk and request.
b4
The buyer must arrange for the carriage of the goods, whether by the buyer itself or a contracted
carrier, at its own cost from the named place of delivery. This allows for the buyer itself to take delivery
of the goods such as might occur in a domestic transaction.
Note that as the seller in EXW is not responsible for loading the goods onto the vehicle the buyer
will bear the cost of loading which would typically need to be added into its contract with the carrier.
There is no point in the carrier’s truck turning up at the seller’s premises with no loading equipment
and the seller refusing to load.
a4 (Carriage)
In this rule the seller has no obligation to the buyer for arranging carriage of the goods.
The seller however does have an obligation to provide the buyer with any information in its
possession, including any transport-related security requirements, and requested by the buyer at its
risk and request.
The seller’s responsibility for any transport-related security requirements is only up to delivery, so if
the seller trucks the goods to the carrier’s premises then transport-related security requirements for
that leg only are the seller’s.
In some instances the seller and buyer can agree for the seller to contract for carriage, possibly
because it can obtain more favourable rates than the buyer could, but such carriage is at the buyer’s
risk and cost. While the rule states that the contract for carriage is to be “on the usual terms” it is most
likely that the two parties will agree in their contract exactly what those terms are.
b4 (Carriage)
The buyer must arrange for the carriage of the goods, whether by the buyer itself or a contracted
carrier, at its own cost from the named place of delivery. This allows for the buyer itself to take delivery
of the goods such as might occur in a domestic transaction. The exception is where, as stated in A4,
the contract for carriage is arranged by the seller.
30 | A4 / B4: CARRIAGE
Note that the contract of carriage needs to be specific as to where it commences. Remember that
in A2 there are two places the delivery can occur, either at the seller’s premises loaded onto the
collecting vehicle, or not unloaded from the seller’s vehicle at another place which is typically the
carrier’s premises.
a4 (Carriage)
The seller must contract for the carriage of the goods, or procure such contract if this is one leg of
a “string” sale. The contract must be from the place of delivery and maybe an agreed point within
that place. It must be made on “usual terms” and for the “usual route in a customary manner of the
type used by the carriage of the type of goods sold.” If the seller and buyer agree on specific matters
regarding the contract of carriage that is well and good, but if they don’t then the seller must arrange
it in the usual manner for those goods.
As the seller has to arrange the carriage it needs to know from the buyer if there is a specific point in
the place of destination to which the goods must be transported. For example, if the destination is
shown as simply “New Delhi, India” where in that large metropolis is the seller’s carrier to leave the
goods? It could be that it is to be the buyer’s premises, or a particular location say in a green-fields
building site, or the carrier’s premises, or the airport, or the container yard… the exact point should
be agreed upon. If it is not then it is the seller’s choice to select the point that best suits its purpose,
usually being the cheapest option such as a cargo terminal.
If the delivery at the destination is to occur after the buyer completes any necessary import formalities
then the cost of storage due to delays in those formalities being completed is for the buyer, always
assuming the seller has provided the buyer with necessary documents in time.
The seller must comply with any transport-related security requirements for the whole of the transport
to the destination.
b4 (Carriage)
The buyer has no obligation to the seller to arrange a contract of carriage.

a4 (Carriage)
The seller must arrange, or contract for, carriage to the named place of destination, and if there is an
agreed point within that destination then to that point. Cost of this carriage is for the seller. As the
seller has to arrange the carriage it needs to know from the buyer if there is a specific point in the
place of delivery to which the goods must be transported. For example, if the destination is shown as
simply “Budapest, Hungary” where in that large metropolis is the seller’s carrier to leave the goods?
It could be that it is to be the buyer’s premises, or a particular location say in an empty building site,
or the carrier’s premises, or the airport, or the container yard, or a particular quay on the river… the
exact point should be agreed upon. If it is not then it is the seller’s choice to select the point that best
suits its purpose, usually being the cheapest option such as a cargo terminal.
For DAP and DDP, if the delivery at the destination is to occur after the buyer completes any necessary
import formalities then the cost of storage due to delays in those formalities being completed is for
the buyer, always assuming the seller has provided the buyer with necessary documents in time. For
DDP it is the seller who bears the cost of any storage due to delays in import clearance.
b4 (Carriage)
The buyer has no obligation to the seller to arrange a contract of carriage.
SUMMARY
In EXW and FCA the seller does not arrange carriage, that is done by the buyer. In CPT, CIP, DAP, DPU
and DDP the seller arranges at its own expense carriage to the destination place
a4 (Carriage)
The seller has no obligation to contract for carriage. If the buyer requests the seller it must provide
the buyer, at the buyer’s risk and cost, any information known by the seller, including transport-
related security requirements, that the buyer needs to arrange carriage.
If agreed, the seller must contract for carriage on the usual terms, which are usually agreed in the
contract or determined by previous dealings between the parties, at the buyer’s risk and cost.

The seller must comply with any transport-related security requirements but only up to delivery.
B4 (Carriage)
The buyer must contract for carriage, which includes the loading on board, from the port of shipment,
except if it is agreed that the seller makes the contract of carriage as described in A4.
a4 (Carriage)
The seller has no obligation to contract for carriage. If the buyer requests the seller it must provide
the buyer, at the buyer’s risk and cost, any information known by the seller, including transport-
related security requirements, that the buyer needs to arrange carriage.
If agreed, the seller must contract for carriage on the usual terms, which are usually agreed in the
contract or determined by previous dealings between the parties, at the buyer’s risk and cost.
The seller must comply with any transport-related security requirements but only up to delivery.
B4 (Carriage)
The buyer must contract for carriage from the port of shipment, except if it is agreed that the seller
makes the contract of carriage as described in A4.

a4 (Carriage)
The seller must arrange, or procure in case of a string-sale, a contract, for the carriage of the goods
from the agreed point of delivery in A2 to the named port of destination or, if agreed, to any point
(quay or wharf) in that port.
The contract of carriage must be made on usual terms which are appropriate to the type of goods
and by a vessel normally used for transporting the type of goods, by the usual route (often agreed in
the contract of sale) at the seller’s cost.
b4 (Carriage)
The seller has no obligation to the buyer to arrange a
SUMMARY
In FAS and FOB the seller does not arrange carriage, that is done by the buyer. In CFR and CIF the
seller arranges at its own expense carriage from the port of loading to the destination port.
a5 / b5:
insURanCe

A5 / B5: INSURANCE
EXW – EX WORKS
a5
The seller does not have the risk beyond the delivery point so it has no obligation to the buyer to
arrange a contract of insurance. However, if the buyer requests, at its risk and cost, the seller must
provide the buyer with information in its possession that the buyer needs to arrange its insurance. If
there is any information which the buyer requests that is not already known to the seller, logically the
seller can, and probably would, choose to assist.
Nevertheless, and this is not covered by the Incoterms® 2020 rules, a wise seller would investigate
taking out marine insurance on a contingency basis. If the goods are lost or damaged in transit, and
the buyer therefore refuses to pay for them, in essence breaching the contract, the seller will want to
have a fall-back of being able to claim on its own marine insurance.
b5
Despite having the risk of loss or damage to the goods from the delivery point, the buyer does not
have an obligation to the seller to insure the goods. Whether the buyer chooses to insure the goods
or bear the risk themselves is entirely their choice.
a5 (insurance)
The seller must arrange a contract of insurance at its own cost to cover the buyer’s risks. This cover
must be of the level provided by LMA/IUA Institute Cargo Clauses (A) or similar dependent on the
mode of transport used, often referred to generally as “all risks” as it covers all manner of risks with
specific exclusions.
If the buyer requests, the seller must also arrange, at the buyer’s cost, additional cover under the
LMA/IUA Institute War Clauses (Cargo) and Institute Strikes Clauses (Cargo) or similar dependent
on the mode of transport unless such cover is already included, as it usually is, with the “all risks”
insurance.
The amount of the insurance must be at least 110 percent of the invoice value and in the currency of
that invoice and contract. It must cover the goods for at least the duration from the point of delivery
described in A2 above to the named place of destination. Often in contracts of sale and letters of
credit the stipulation is the unnecessary wording “warehouse to warehouse.”
The seller must provide the buyer a separate contract or a certificate under an existing policy giving
the details of the shipment to enable the buyer, or anyone else having an insurable interest in the
36 | A5 / B5: INSURANCE
goods, to claim from the insurer. This document usually shows the seller as the insured and is then
endorsed by the seller on the back of the original/s in blank or with a specific endorsement.
The seller must also provide the buyer, at the buyer’s request, risk and expense, with information that
the buyer needs to arrange any additional insurance.
b5 (insurance)
Despite the buyer having the risk of loss or damage to the goods from the delivery point, the buyer
does not have an obligation to the seller to insure the goods. However, the buyer must provide the
seller, if it requests, with any information it needs to arrange any additional insurance requested
by the buyer under A5. For example, the seller might need to know the location of the destination
warehouse so its insurer can assess the risk and levy an appropriate premium.
a5 (insurance)
Despite the seller having the risk of loss or damage to the goods up to the delivery point, the seller
does not have an obligation to the buyer to insure the goods.
b5 (insurance)
Because the seller has the risk of loss or damage to the goods up to the delivery point, the buyer
does not have an obligation to the seller to insure the goods.
SUMMARY
In all multimodal rules the risk for the goods beyond the delivery point is for the buyer. The delivery
point in EXW, FCA, CPT and CIP is in the seller’s country, and it is only with CIP that the seller is obliged
to provide insurance at maximum cover for the buyer’s risk. In DAP, DPU and DDP the delivery point
is at the destination place usually in the buyer’s country and the seller has the risk up to that point and
therefore the seller has no obligation to the buyer to insure the goods.

a5 (insurance)
The seller does not have the risk beyond the delivery point so it has no obligation to the buyer to
arrange a contract of insurance. However, if the buyer requests, at its risk and cost, the seller must
provide the buyer with information in its possession that the buyer needs to arrange its insurance.
b5 (insurance)
Despite having the risk of loss or damage to the goods from the delivery point, the buyer does not
have an obligation to the seller to insure the goods. Whether the buyer chooses to insure the goods
or bear the risk themselves is entirely their choice.
a5 (insurance)
The seller must arrange a contract of insurance at its own cost to cover the buyer’s risks. This cover
must be of the level provided by LMA/IUA Institute Cargo Clauses (C) or similar clauses under other
insurance regimes. This type of cover is the minimum available for defined risks only. Anything which
is not defined is not covered.
If the buyer requests, the seller must also arrange, at the buyer’s cost, additional cover under the
LMA/IUA Institute War Clauses (Cargo) and Institute Strikes Clauses (Cargo) or similar unless such
cover is already included.
The amount of the insurance must be at least 110 percent of the invoice value and in the currency of
that invoice and contract. It must cover the goods for at least the duration from the point of delivery
described in A2 above to the named port of destination.
The seller must provide the buyer a separate contract or a certificate under an existing policy giving
the details of the shipment to enable the buyer, or anyone else having an insurable interest in the
goods, to claim from the insurer. This document usually shows the seller as the insured and is then
endorsed by the seller on the back of the original/s in blank or with a specific endorsement.
The seller must also provide the buyer, at the buyer’s request, risk and expense, with information that
the buyer needs to arrange any additional insurance.
b5 (insurance)
Despite the buyer having the risk of loss or damage to the goods from the delivery point, the buyer
does not have an obligation to the seller to insure the goods. However, the buyer must provide the
38 | A5 / B5: INSURANCE
seller, if it requests, with any information it needs to arrange any additional insurance requested by
the buyer under A5.
SUMMARY
In all maritime rules the risk for the goods beyond the delivery point is for the buyer. The delivery
point in all of them is in the seller’s country, and it is only with CIF that the seller is obliged to provide
insurance for the buyer’s risk.

a6 / b6:
DeliVeRY/tRanspoRt
DoCUMent
40 | A6 / B6: DELIVERY/TRANSPORT DOCUMENT

A6 / B6: DELIVERY/TRANSPORT DOCUMENT
EXW – EX WORKS
a6
Because the seller delivers when it makes the cargo available to the buyer to collect, the seller has no
obligation to provide the buyer with any delivery or transport document.
b6
Because the buyer receives the goods from the seller it must provide the seller with appropriate
evidence of having taken delivery. The form of that evidence is a matter to be agreed in the contract

of sale to suit both parties. It could be a signature on the seller’s copy of the invoice, it could be the
buyer’s simple receipt, it could be a freight forwarder’s cargo receipt, or some other of evidence
of having taken the goods.
a6 (Delivery/transport document)
The seller, at its own cost, must provide the buyer with the usual proof evidencing that the goods
have been delivered to the buyer or another person, most usually of course its carrier, in accordance
with A2. What form that proof takes is a matter for the parties to agree in their contract of sale. It could
be as simple as the buyer’s signature on a copy of the invoice through to a forwarder’s cargo receipt
or anything else agreed.
If the buyer requests, the seller must assist the buyer, at the buyer’s risk and cost, in obtaining a
transport document.
Where the buyer has instructed its carrier to issue a transport document to the seller under B6, for
example a bill of lading or air waybill, and it is in negotiable form such as a bill of lading consigned
to order and in multiple originals, the seller is obliged to present a full set of those originals to the
buyer. This will usually be along with other shipping documents presented to the seller’s bank under
a letter of credit issued by the buyer’s bank.
b6 (Delivery/transport document)
The buyer must accept the proof provided by the seller that goods have been delivered as described
in A2.
When the parties have agreed in their contract that the seller is to be given a transport document
stating that the goods were loaded, such as an “on board” bill of lading, the buyer must instruct its
carrier accordingly at the buyer’s cost and risk.

cpt – carriage paid to
cip – carriage and insurance paid to
The seller must provide the buyer with the usual transport documents for the transport contracted in
A4, if it is customary or the buyer requested it, and at the seller’s cost.
As CPT and CIP cover any mode or modes of transport, what form that document of transport takes
will be dependent on the mode/s used. If the modes include carriage by sea such as in FCL or LCL
transactions then it is usual for the seller to obtain a sea waybill or bill of lading. If the latter is issued in
a negotiable form and in several originals then a full set of those originals must be presented to the
buyer, sometimes through the seller’s bank to the buyer’s bank under a letter of credit. If the mode
includes the goods going by air then typically an air waybill will be issued and if requested the seller
will be given one “original for shipper” but this is not a negotiable transport document. Shipment
by truck might involve issue of a CMR in Europe or simply some form of consignment note or truck
waybill and these too are not negotiable. Shipment by rail similarly will usually be covered by some
form of rail consignment note that is not negotiable.
The transport document must cover movement of the contracted goods within the agreed period
for shipment. If it is agreed then this document must enable the buyer to claim the goods from the
carrier at the named place of destination, and in a string sale enable the buyer to sell the goods in
transit to a subsequent buyer by transferring that document. This would usually be in the form of a
negotiable bill of lading.
The buyer must accept the transport document provided by the seller so long as it is in conformity
with the contract.
The seller, at its own cost, must provide the buyer with any document the buyer needs to take over
the goods. What form this document takes will depend on agreement in the contract, and might
simply be in the form of a receipt which the buyer is to sign. However, it might, in the case of DAP
and DPU where the buyer must import clear the goods, be a copy of the seller’s transport document
to evidence the export and the date of shipment.

The buyer must accept the document provided in A6 as it actually takes no part in the transport
process.
SUMMARY
In EXW the seller has nothing at all to do with transport so all they are likely to require is a receipt
for the goods from whoever collected them. In FCA the seller usually will also only obtain a receipt
which they must use as proof of delivery, unless they have a payment agreement with the buyer
which involves the buyer instructing its carrier to issue a transport document to the seller. In CPT and
CIP the seller arranges carriage and obtains a transport document which it must give to the buyer.
In DAP, DPU and DDP the seller arranges carriage but as this is completed before delivery the buyer
does not usually require a transport document. The complication with DAP and DPU is that the buyer
must carry out import formalities and may require the transport document for this even if delivery is
at a time and point after these formalities are completed.

The seller, at its own cost, must provide the buyer with the usual proof that the goods have been
delivered in accordance with A2. What form it takes is likely to be agreed in the contract of sale
having regard to whether the goods are placed on the quay or brought to the vessel’s side by a
barge and the nature of the goods.
Unless this proof is a transport document, then the seller must assist the buyer, at the buyer’s request,
risk and expense, to obtain a transport document.
B6 (Delivery/transport document)
The buyer must accept the proof of delivery provided by the seller
The seller, at its own cost, must provide the buyer with the usual proof that the goods have been
delivered in accordance with A2.
Unless this proof is a transport document, then the seller must assist the buyer, at the buyer’s request,
risk and expense, to obtain a transport document. In practice it is often the seller who will arrange
with the buyer that the proof is an “on board” bill of lading showing the seller as shipper/consignor,
or it can be a simple mate’s receipt issued by the vessel’s master.
B6 (Delivery/transport document)
The buyer must accept the proof of delivery provided by the seller.
The seller, at its own cost, must provide the buyer with the usual transport document covering
transport to the agreed port of destination.
The transport document must cover the contracted goods within the agreed period for shipment.
If it is agreed then this document must enable the buyer to claim the goods from the carrier at the
named place of destination, and in a string sale enable the buyer to sell the goods in transit to a
subsequent buyer by transferring that document.

The buyer must accept the transport document provided by the seller if it is conformity with the
contract between them.
SUMMARY
In FAS and FOB the seller must prove to the buyer that the goods have been delivered, usually by
way of a mate’s receipt or similar, unless it is usual for the seller to be given a transport document. In
CFR and CIF the seller contracts the vessel and must provide the buyer with a transport document,
the form of the transport document will depend on agreement in the contract of sale and often will
depend on the method of payment for the goods. It can be a bill of lading consigned directly to the
buyer, it can be a bill of lading consigned to order or it can be a sea waybill.

a7 / b7
eXpoRt/iMpoRt
CleaRanCe
46 | A7 / B7 EXPORT/IMPORT CLEARANCE
A7 / B7: EXPORT/IMPORT CLEARANCE
EXW – EX WORKS
a7
EXW is more suited to domestic transactions rather than international transactions.
In domestic transactions the seller has no obligations as there are not likely to be any clearances
required.
In international transactions the seller has no obligation to arrange any export/transit/import

clearances. However if the buyer requests, at its own risk and cost, the seller must assist in obtaining
any documents and/or information which relate to formalities required by the countries of export/
transit/import such as permits or licences; security clearance for export/transit/import; pre-shipment
inspection required by the export/transit/import authorities; and any other official authorisations or
approvals.
b7 (export/import clearance)
In domestic transactions the buyer has no obligation to the seller as there are not likely to be any
clearances required.
In international transactions it is up to the buyer to carry out at its own cost all export/transit/import
formalities required by the countries concerned, such as any permits or licences; any security
clearances; pre-shipment inspection; and any other authorisations or formalities. Note the expression
“it is up to” the buyer because all of these occur after EXW delivery so if the buyer fails to do any of
these it is at its own risk as delivery has already occurred.
a7 (export/import clearance)
This rule, like all the multimodal rules, is suitable for both domestic and international transactions.
Where applicable, the seller must at its own risk and expense carry out all export clearance formalities
required by the country of export, such as licences or permits; security clearance for export; pre-
shipment inspection; and any other authorisations or approvals.
The seller has no obligation to arrange any transit/import clearances. However if the buyer requests,
at its own risk and cost, the seller must assist in obtaining any documents and/or information which
relate to formalities required by the country of transit or import such as permits or licences; security

clearance for transit/import; pre-shipment inspection required by the transit/import authorities; and
any other official authorisations or approvals.
Where applicable, the buyer must assist the seller at the seller’s request, risk and cost, in obtaining
any documents and/or information needed for all export-related formalities required by the country
of export.
Where applicable, the buyer must carry out and pay for all formalities required by any country of
transit and the country of import. These include licences and permits required for transit; import
licences and permits required for import; import clearance; security clearance for transit and import;
pre-shipment inspection; and any other official authorisations and approvals. They are the buyer’s
responsibility because they occur after delivery by the seller.
At first glance it might seem strange that both seller and buyer have responsibility for pre-shipment
inspections. To clarify, the seller is responsible if it is a requirement of the country of export, and the
buyer is responsible if it is a requirement of the country of transit/import.
Additionally, as the point of delivery in these rules is in the importing country, the seller must also
carry out and pay for any formalities required by any country of transit before that delivery occurs.
The seller has no obligation to arrange any import clearances. However if the buyer requests, at
its own risk and cost, the seller must assist in obtaining any documents and/or information which
relate to formalities required by the country of import such as permits or licences; security clearance
for import; pre-shipment inspection required by the import authorities; and any other official
authorisations or approvals.
of export as well as any formalities required by any country of transit.
Where applicable, the buyer must carry out and pay for all formalities required by the country of
import. These include licences and permits required for import; import clearance; security clearance
for transit and import; pre-shipment inspection; and any other official authorisations and approvals.
shipment inspection; all import clearance formalities required by the country of import and any other
authorisations or approvals.
Additionally, as the point of delivery in these rules is in the importing country, the seller must also
carry out and pay for any formalities required by any country of transit and the country of import.
of export as well as any formalities required by any country of transit and the country of import.
SUMMARY
The responsibilities of the seller increase with progression through the rules. From EXW where
the seller has no responsibility at all for any formalities; to FCA, CPT and CIP where the seller has
responsibility for export formalities but not for formalities in any country of transit and country of
import; to DAP and DPU where the seller has responsibility for formalities in the country of export
and any country of transit; finally to DDP where the seller is obliged to carry out all formalities in the
country of export, in any country of transit, and in the country of import. With DDP the seller might
find itself unwittingly, in the import process, being liable for VAT/GST in the country of import which
they might not be able to recover from the buyer.

The seller has no obligation to arrange any transit/import clearances. However if the buyer requests,
at its own risk and cost, the seller must assist in obtaining any documents and/or information which
relate to formalities required by the country of transit or import such as permits or licences; security
clearance for transit/import; pre-shipment inspection required by the transit/import authorities; and
any other official authorisations or approvals.
of export.
Where applicable, the buyer must carry out and pay for all formalities required by any country of
transit and the country of import. These include licences and permits required for transit; import
licences and permits required for import; import clearance; security clearance for transit and import;
pre-shipment inspection; and any other official authorisations and approvals. They are the buyer’s
responsibility because they occur after delivery by the seller.
At first glance it might seem strange that both seller and buyer have responsibility for pre-shipment
inspections. To clarify, the seller is responsible if it is a requirement of the country of export, and the
buyer is responsible if it is a requirement of the country of transit/import.
SUMMARY
For all four of the maritime rules the seller is responsible for export formalities and the buyer is
responsible for import formalities as well as any formalities required by any transit country.
a8 / b8:
CheCKinG /
paCKaGinG / MaRKinG

A8 / B8: CHECKING / PACKAGING / MARKING
EXW – EX WORKS
all RUles
a8
In all rules the seller must pay the costs of any checking operations which are necessary for delivering
the goods, such as checking quality, measuring the goods and/or packaging, weighing, counting the
goods and/or packaging.
The seller must also package the goods, at its own cost, unless it is usual for the trade of the goods
that they are sold unpackaged, such as in the case of bulk goods. The seller must also take into
account the transport of the goods and package them appropriately, unless the parties have agreed
in their contract that the goods be packaged and/or marked in a specific manner.
b8 (Checking/packaging/marking)
In all rules there is no obligation from the buyer to the seller as regards packaging and marking.
There can in practice however be agreed exceptions, such as when the buyer provides the seller with
labels, logos, or similar.
SUMMARY
There is no difference between any of the rules.
52 | A8 / B8: CHECKING / PACKAGING / MARKING

a9 / b9:
alloCation oF Costs

A9 / B9: ALLOCATION OF COSTS
EXW – EX WORKS
a9
The seller must pay all costs until the goods have been delivered under A2, except any costs the
buyer must pay as stated in B9.
b9
The buyer must pay all costs from the time the goods have been delivered under A2, reimburse the
seller for any costs they incurred providing the buyer with any assistance or information which the
buyer needed to arrange transport, insurance or export and import formalities.
rulEs For any MoDE or MoDEs oF transport
The buyer must pay any and all duties, taxes, other charges and costs of any customs and other
export formalities required if the goods are exported.
The buyer also must pay any additional costs incurred either if they have failed to take delivery
of the goods when they have been placed at their disposal or if they have failed to give the seller
appropriate notice provided the seller had clearly identified the goods as being the contract goods.
a9 (allocation of costs)
The seller must pay all costs until the goods have been delivered under A2, except any costs the
The seller has to pay any costs involved in providing the usual proof that the goods have been
delivered, so if the contract between the parties states that proof as being a bill of lading or an air
waybill then the carrier’s document fee is for the seller.
The seller pays any costs, export duties and taxes, where applicable, related to export clearance.
If the buyer is requested by the seller to provide information or documents to assist the seller in their
export formalities, then the seller must pay the buyer for these costs.
b9 (allocation of costs)
The buyer must pay the seller all costs relating to the goods from when they have been delivered,
other than those payable by the seller.
If the seller has been requested by the buyer to provide assistance in obtaining information or
documents needed for the buyer to effect carriage, import formalities, insurance and the transport
document, then the buyer must reimburse the seller’s costs.
Where applicable, the buyer pays any duties, taxes and other costs for transit or import clearance.
54 | A9 / B9: ALLOCATION OF COSTS

Additionally, and provided the seller has advised that the goods have been clearly identified as the
goods under the contract, the buyer pays any additional costs incurred if the buyer fails to nominate
who is to take the goods from the seller or that person fails to do so.
The seller must pay all costs until the goods have been delivered under A2, other than any costs the
Transport costs resulting from the contract of carriage, including costs of loading the goods and any
transport-related security, must be paid by the seller. The cost of providing to the buyer proof of the
goods being delivered are also for the seller.
If the contract of carriage includes unloading at the agreed destination, which would typically be the
case in most shipments, the seller must pay these. Additionally, any costs of transit included in the
contract of carriage must also be paid by the seller.
The seller must pay any costs involved in providing the usual proof that the goods have been
delivered, so if the contract between the parties states that proof as being a transport document
then the carrier’s document fee is for the seller.
The seller must pay any costs, export duties and taxes, where applicable, related to export clearance.
If the buyer is requested by the seller to provide information or documents in relation to export
clearance, then the seller must pay the buyer for these costs.
documents needed for the buyer to effect insurance and import formalities, then the buyer must
reimburse the seller’s costs.
Where applicable, the buyer must pay any duties, taxes and other costs for import clearance.
The buyer must pay for unloading costs unless they were paid by the seller under the contract of
carriage.
The buyer must pay for any costs of the country of transit unless they have been paid by the seller
under the contract of carriage.

CIP – COST AND INSURANCE PAID TO
If the contract of carriage includes unloading at the agreed destination, the seller must pay these.
Additionally, any costs of transit included in the contract of carriage must also be paid by the seller.
delivered, so if the contract between the parties states that proof as being a transport document
then the carrier’s document fee is for the seller.
The seller must pay any costs, export duties and taxes, where applicable, related to export clearance.
The seller must pay the costs of insurance.
If the buyer is requested by the seller to provide information or documents in relation to export
clearance or insurance, then the seller must pay the buyer for these costs.
documents needed for the buyer to effect import formalities, then the buyer must reimburse the
seller’s costs.
Where applicable, the buyer must pay any duties, taxes and other costs for import clearance.
The buyer must pay for unloading costs unless they were paid by the seller under the contract of
carriage.
The buyer pays for any costs of the country of transit unless they have been paid by the seller under
the contract of carriage.

If the contract of carriage includes unloading at the agreed destination, the seller must pay these.
delivered.
The seller pays any costs, export duties and taxes, where applicable, related to export clearance and
any transit clearance.
export formalities or arranging insurance, then the seller must pay the buyer for these costs.
documents needed for the buyer to effect import formalities, then the buyer must reimburse the
seller’s costs.
Where applicable, the buyer pays any duties, taxes and other costs for import clearance.
The buyer pays for unloading costs unless they were paid by the seller under the contract of carriage.
Additionally, and provided the seller has advised that the goods have been clearly identified as
the goods under the contract, the buyer pays any additional costs incurred if the buyer fails to give
notice in accordance with B10.

a9 / b9 (allocation of costs)
The only difference between DAP and DPU is that the seller pays for the unloading of the goods.
a9 / b9 (allocation of costs)
The only difference between DAP and DDP is that the seller must pay for all costs until the goods
have been delivered up to the time they have been delivered, including all import formalities. This
may well include VAT/GST.
SUMMARY
It can be seen that as we progress from EXW to DDP, the seller takes on more and more costs. In EXW
it is virtually nothing beyond “here it is, come and get it.” In FCA it is export formalities and loading
the goods, maybe even transporting the goods to the carrier’s premises. In CPT it adds the cost of
carriage, in CIP it adds the cost of insurance. In DAP it adds any costs in a country of transit, in DPU it
adds unloading costs, and in DDP it adds to DAP the cost of import formalities. This cost aspect tends
to be what sellers and buyers focus on most, often without considering where the delivery occurs
and thus where risk transfers.

The seller must pay all costs until the goods have been delivered under A2, meaning alongside the
vessel for FAS and loaded on board the vessel for FOB, except any costs the buyer must pay as stated
in B9.
rulEs For sEa anD inlanD WatErWay transport

delivered, so if the contract between the parties states that proof as being a bill of lading then any
document fee is for the seller.
documents needed for the buyer to effect loading on board, carriage, import formalities, insurance
and the transport document, then the buyer must reimburse the seller’s costs.
Additionally, and provided the seller has advised that the goods have been clearly identified as the
goods under the contract, the buyer pays any additional costs incurred if the buyer fails to nominate
the vessel, or the vessel fails to take the goods from the seller, or closes for cargo earlier than when
the buyer notified the seller.
The seller must pay all costs until the goods have been delivered under A2, on board the vessel,
except any costs the buyer must pay as stated in B9.

The seller must pay the costs of loading the goods on board the vessel, the freight costs and any
transport-related security costs.
If the contract of carriage includes transit costs, and/or unloading at the discharge port then these
costs are for the seller.
delivered, so if the contract between the parties states that proof as being a bill of lading then any
document fee is for the seller.
In the case only of CIF, the seller pays the cost of insurance covering the buyer’s risk.
documents needed for the buyer to effect insurance (only in the case of CFR), and transit and import
clearance then the buyer must reimburse the seller’s costs.
Additionally, and provided the seller has advised that the goods have been clearly identified as
the goods under the contract, the buyer pays any additional costs incurred if the buyer fails to give
notice, if the parties have agreed in the contract that the buyer is entitled to determine the time for
shipping the goods and/or the point of receiving the goods in the port of destination.
SUMMARY
In the F rules the seller pays all costs up to delivery either alongside (FAS) or on board (FOB) the
vessel and the buyer pays all costs beyond that point.
In the C rules the seller pays all costs up to delivery on board the vessel plus the cost of freight to the
destination port. Additionally, the seller pays the insurance in CIF for the buyer’s risk. The buyer pays
all other costs after delivery.

a10 / b10:
notiCes

a10 / b10: notiCes
EXW – EX WORKS
a10
The seller must give notice to the buyer which is needed for the buyer to take delivery of the goods.
The form of this notice should be included in the terms and conditions of the contract, detailing
whether a brief email or some manner of more formal notice is agreed.
b10
If the parties agree that the buyer is entitled to nominate a place of taking delivery within the named
place, and/or the time within any agreed period, the buyer must give the seller sufficient notice. This
means for example that if the agreed delivery place is a large bulk storage facility, the buyer may
nominate a particular area which is outside a restricted zone, in which it is not allowed to operate
its own equipment with its own personnel, so that it can load its vehicle. It also means for example
where the delivery period is a particular calendar month, and the buyer wants to take delivery on the
17th day of that month, the buyer must give sufficient notice of this to the seller. Both such matters
would usually be detailed in the sales contract.
a10 (notices)
Even though the buyer arranges its carrier or another person to take delivery of the goods, the seller
must give the buyer sufficient notice that either the goods have been delivered or that the carrier or
another person has failed to take delivery within the time agreed.
b10 (notices)
The buyer must notify the seller of a number of things so that the seller can deliver and carry out any
export formalities. These are contact details and location of the carrier or another person who the
seller is to deliver to; the selected time, if any, in the agreed delivery period, such as when a container
terminal is accepting cargo for a particular vessel, or when an airline requires cargo for a specific
flight; the mode of transport and any transport-related security requirements.
a10 (notices)
The C rules as we have seen before involve two distinct points. This is reflected by the requirement
that the seller must give the buyer notice that the goods have been delivered as required in A2, and
any notice the buyer will need enabling the buyer to receive the goods. The manner in which this
will be done is usually detailed in the contract, such as by a simple email and/or copies of shipping
documents being emailed.
62 | A10 / B10: NOTICES

b10 (notices)
If the parties agree in the contract that the buyer is entitled to determine the time for the seller to
deliver the goods, and possibly more importantly, the point within the named place of destination
where it will receive the goods, the buyer must give the seller sufficient notice. The contract will
usually detail how much notice is to be given, and this might vary with the mode/s of transport.
a10 (notices)
The seller must give the buyer any notice the buyer needs to receive the goods.
b10 (notices)
If the parties agree in the contract, the buyer must give the seller sufficient notice of when, and the
point within the place of destination, where they require delivery. The contract will usually detail how
much notice is to be given, and this might vary with the mode/s of transport.
SUMMARY
This article is probably the most straightforward of the ten articles. Clearly each party must give
the other party sufficient notice of what they have agreed to do. How much notice to give is usually
specified in the contract.

a10 (notices)
The seller must give the buyer sufficient notice that the goods have been delivered alongside the
buyer’s vessel, or that the vessel failed to take delivery once they were made available. This could
occur for example where the vessel departed without loading the goods from the quay or the barge.
While this rule does not make the requirement anywhere, it would be logical to include in the seller’s
notice any specific requirements the buyer’s vessel might need to make to take delivery of the
goods and load them onto the vessel. These matters would usually be specified in the sales contract
between the two parties.
b10 (notices)
The buyer must give sufficient notice to the seller of any transport-related security requirements and
the vessel’s name and loading point within the port of loading. These would usually be specified in
the contract.
a10 (notices)
The seller must give sufficient notice to the buyer that the goods have been delivered, meaning
loaded on board, or that the vessel failed to take the goods within the time agreed. Such a failure
could be for example where the agreed delivery period was March and the vessel arrived in the load
port on 31 March but only allowed loading on 1 April.
b10 (notices)
The buyer must give sufficient notice to the seller of any transport-related security requirements that
apply after loading of the vessel, and the vessel’s name and loading point within the port of loading.
These would usually be specified in the contract.
a10 (notices)
The seller must give the buyer notice that the goods have been delivered, meaning loaded on board
the vessel. The seller must also give the buyer any notice required by the buyer so that the buyer can
receive the goods. What that notice is will be agreed in the sales contract and might well also refer
to conditions contained in a charter party contract of carriage if relevant.
64 | A10 / B10: NOTICES

b10 (notices)
If the parties agree in the contract that the buyer is entitled to determine the time for the seller to ship
the goods, and possibly more importantly, the point within the named port of destination where it
will receive the goods, the buyer must give the seller sufficient notice. The contract will usually detail
how much notice is to be given.
SUMMARY
This article probably the most straightforward of the ten articles. Clearly each party must give the
other party sufficient notice of what they have agreed to do. How much notice to give is usually
specified in the contract.

What are the potential advantages
and disadvantages of each rule? Do
they work with letters of credit?
It all depends upon, firstly, whether you are the seller or the buyer; secondly, what level of expertise
you have in trading goods; and thirdly, what level of buying power you have. The Incoterms® 2020
rules, like the versions before them, relate not to the “warm and fuzzy” marketing aspects of a sale,
not to the technical descriptions of the goods, not even to the payment arrangements, but to the
essentials of who does what, when and at whose risk and whose expense. Without a good working
knowledge of these rules the sales and marketing people can still make a sale but it is the logistics
and often finance people who then have to tie all the loose ends together to make the sale into a
reality. After all, a sale is not a sale until the goods move from seller to buyer and are paid for.
Let’s now look at the advantages and disadvantages to both seller and buyer for each of the eleven
rules.

EXW – Ex Works
This rule’s first version came into force in the original Incoterms® 1936 and included in its heading
“Ex factory, ex mill, ex plantation, ex warehouse etc” in the English section of that book with German
and French translations included in the book. Its origin in common usages go back long before that.
All advantage would seem to be to the seller, it does nothing more than shout (or email) “come and
get ‘em” or words to that effect. However if the sales contract is not well-drafted, while the seller
might be expecting that the buyer is going to export the goods to an overseas market it could find
that the buyer is in fact unable to complete export formalities and tries to reduce its potential losses

by selling the goods into the seller’s home market at a discounted price.
It would seem at first glance that the buyer is disadvantaged by having to take all risks and arrange
and pay for everything. Assuming that it is in a good position to do so then it would likely find that it
can arrange all transport and formalities at the same costs as might be offered the seller were it of a
mind to do so, but without paying the seller any mark-up on these costs. Another possibility is that the
buyer is buying goods not only from one seller but a number of sellers and chooses to accumulate
them at another location then consolidate them into one larger more cost-effective shipment in one
or more shipping containers.
On the other hand, the buyer must be in a position, for an overseas sale, to carry out export formalities
in the seller’s country. Most countries require the exporter to be a legally registered entity in that
country to be able to carry out export formalities which generally means the buyer, usually an entity
legally registered in its own country, will not be able to do so. If the buyer tries to circumvent this by
using a buying agent, freight forwarder, friend or relative in the seller’s country to carry out export
formalities it calls into question whether that third party to the sale is really in a legal position to be
the exporter of record. Add to this the issues of the seller’s country’s taxation authorities looking at an
EXW sale as a local sale and therefore likely subject to VAT/GST – how will the overseas buyer be able
to recover the tax if it is of course not registered for VAT/GST in the seller’s country? The Incoterms®
2020 rules simply cannot deal with tax laws and regulations varying from country to country, as the
rules must be universal across all countries, continents, markets and legal/tax jurisdictions.
Another aspect of EXW that makes life difficult is that the seller has no obligation to load the buyer’s
means of transport. It is the buyer who must arrange this, and that introduces all manner of potential
problems. If the seller makes its goods available in its covered warehouse, it quite probably will be
subject to various occupational health and safety regulations plus a variety of insurance implications.
It therefore cannot allow the buyer or its carrier to turn up with its truck, a forklift and its own staff to
go rampaging through the seller’s warehouse. Even if the seller at the last minute places the goods
outside the doors of its warehouse while ever the buyer attempts to load on the seller’s grounds
there are likely to be similar problems.
If the buyer requires extra documents such as a certificate of origin, the seller must assist the buyer,
at the buyer’s request, risk and cost, to obtain it. There could be complications if the issuing authority

in the seller’s country will only show a registered company in that country as the exporter/shipper/
consignor because the seller is none of them.
EXW is therefore best kept for domestic trades where questions of export formalities, how to claim
refund of taxes and so on simply don’t come into the equation, and where in those rare occasions the
buyer is able to load the goods without all the local rules and regulations preventing it from doing so.
Now for letters of credit (LCs). This rule is extremely difficult to arrange payment by an LC. The banks
typically want to see a negotiable bill of lading for sea, an air waybill for air, a copy of a rail or road
transport document as appropriate. We have seen that the seller is not in any way responsible for
transport and is not entitled to receive any document of transport. To make a workable LC as far as
the seller is concerned it would need to call only for an invoice, possibly a packing list, and a copy
of the buyer’s receipt (not the original, that should rightly be kept by the seller). The seller has no
obligation to obtain a certificate of origin, that should be arranged by the buyer as exporter or their
carrier. The risk to the seller is that the buyer has already received the goods and if the seller is not
familiar with LCs and makes a mistake in its documents so they are not compliant and rejected, of
if the buyer or its bank are unscrupulous, they can claim a spurious discrepancy in the presented
documents, refusing to pay. An LC is no better than an open account, but in fact worse because it will
cost both parties in bank charges.
The transport document and any export formalities should not show the seller as exporter or consignor,
and a carrier doing this would be completely incorrect and making serious misrepresentations which
could come back to the detriment of the seller. For example if the carrier made an error in the export
formalities which was a serious breach of the export regulations the local authorities would likely
want to take action against the party declared as exporter; or if the buyer does not take the container
from the terminal at the destination the carrier could claim demurrage and detention from the seller
if it was named as shipper or consignor on the bill of lading despite not being a party to the contract
of carriage.

FCA – Free Carrier
The first version of this rule appeared in Incoterms® 1980 to take into account container and roll
on-roll off transport by sea as well as transport by air, road and rail. It absorbed the previous FOR/
FOT (Free on Rail/Free on Truck, “truck” referring to a railway wagon not a road transport vehicle)
appearing in the 1953 version to take into account the development of the rail freight network in
Europe post World War Two, and FOB Airport which had originally appeared in the 1976 version to
cater for the then new era of larger more powerful aircraft being able to carry cargo in addition to the
passengers’ baggage. For some strange reason, in the Incoterms® 1990 version FCA’s delivery article
was expanded to detail specific delivery procedures for rail transport, road transport (not mentioned

in any previous versions), inland waterway, sea transport, air transport, unnamed transport (!) and
multimodal transport. Sensibly Incoterms® 2000 revised this again to allow the current two options
of delivery: loaded at the seller’s premises; or not unloaded elsewhere, typically at the carrier’s
premises.
While initially seeming similar to EXW, FCA is in fact the more practical rule to use both in domestic
and in international cross-border trades where the seller wants to minimise its effort and costs.
The seller must load the goods onto the buyer’s means of transport. This means that in most cases
the buyer’s truck or its carrier’s truck backs up to the seller’s loading dock and the seller’s staff and
equipment complete the loading. Depending on local rules and regulations, it would usually then
be the truck driver’s responsibility to ensure that the load is secured on his truck, but this occurs after
the seller has loaded the goods.
FCA is available for both domestic and international transactions.
If the transaction is an international trade then the seller will need to complete any export formalities
required by its country’s authorities. This usually will mean that the buyer must inform the seller
of the means of transport from the seller’s country, whether by road, rail, air or sea. The seller will
usually need to know from the buyer the name and contact details of its carrier, the freight booking
information including reference number/s, and any relevant data such as truck registration, railcar
number, the flight details or the vessel’s details so that it can correctly declare both the date of export
and the means of export to its authorities. The seller can outsource this task to the buyer’s carrier if
they agree, at the seller’s cost.
Should the buyer fail to advise the seller about the carrier’s details, and fail to advise the booking
details either via their carrier or themselves, the buyer will have no recourse on the seller and likely
will have breached the contract. Similarly, if the buyer or its carrier fail to collect the goods at the
agreed time and place, the buyer likely will have breached the contract.
The seller will of course build into its selling price the estimated costs of loading the goods and
carrying out the export formalities, plus no doubt a positive margin of error in case they cost more
than initially anticipated, a margin to take into account its administrative costs and quite likely a profit

margin which after all it is entitled to do on any costs which are an input when determining its selling
price. The costs of all these and its original ex works price are hidden from the buyer, simply being
bundled into the one FCA price.
The seller is comforted by the knowledge that once it has delivered the goods, either at its own
premises or those of the buyer’s nominated person or carrier, its risk for loss or damage of the
goods has finished. If the truck used by the buyer’s carrier to collect the goods from the seller has an
accident at the first corner after leaving the seller’s premises and the goods are damaged, or even if
that truck has an electrical fault causing it to burst into flames at the seller’s loading dock immediately
after loading has been completed, and damaging or destroying those goods, nevertheless the seller
has delivered and is entitled to be paid for the goods.
In an export transaction using FCA the seller usually need not add VAT/GST to its sale, though it
might require some form of evidence of export from the buyer to justify this action to its country’s
tax authorities.
For the first time, Incoterms® 2020 introduces the requirement that if the seller requires it the buyer
must instruct its carrier to issue the seller with a transport document that the goods have been loaded.
While this addition is mentioned in the Explanatory Notes for FCA as specifically regarding issue of
a bill of lading typically for letter of credit purposes, in B6 it mentions “a transport document stating
that the goods have been loaded (such as a bill of lading with an on board notation)” which does not
preclude the seller and buyer agreeing in their contract that a copy of the bill of lading, copy of the
air waybill marked “original for shipper”, a copy of a road transport or rail document is to be provided
to the seller for other purposes such as reporting the transaction as an export for taxation purposes.
The shipper in such a document should usually still be shown as the buyer, not the seller as the seller
is not a party to the contract of carriage and does not want any of the liabilities of the shipper, but the
document ideally will evidence in some way that the goods were sourced from the seller.
What happens if the buyer refuses payment as a result of a dispute, or the documents under an
L/C are not compliant and the market price has collapsed, or the buyer becomes bankrupt during
transit? This is a matter outside of the Incoterms® 2020 rules but a prudent seller would investigate
obtaining contingency insurance for the marine risks because the risk will still be theirs.
The advantages to the buyer are several. It allows the buyer control of the carriage of the goods,
possibly consolidating them from multiple sales into economical transport units such as a full truck
load or a full container load (FCL). It allows the buyer control over its transport costs by negotiating
rates with its own carrier of choice and therefore no need to pay the seller a profit margin on its
freight costs. It also means that the buyer through its carrier (hopefully) has full knowledge of where
its goods are at any time.
The disadvantages that the buyer might feel are outweighed by the advantages include the risk of
loss or damage to the goods commencing at the earliest point in the seller’s country, but a prudent
buyer would maintain an open marine insurance policy under such as the Institute Cargo Clauses
(A) or (Air) with its warehouse to warehouse coverage. Another disadvantage might be seen as the

need to pay inland costs in the seller’s country, but any good forwarder should be able to use its local
office or agent in the seller’s country to accurately advise on these.
Another concern for the buyer could be that without the above on board bill of lading, it would not
have any evidence of the date of export. This might be important if the buyer’s country converts
the transaction’s value into local currency for value for duty using the exchange rate on the date of
export, ie, on board for a container shipment.
An interesting provision that has been in the Incoterms® rules ever since the 1990 version has been
that the seller must arrange for shipment at the buyer’s cost and risk on the “usual terms” if it is

so agreed in the contract. Sellers should be wary of doing this, and it will depend on the mode
of transport and customary procedures in the relevant countries as to whether this is practical,
desirable or could have unfortunate legal consequences for the seller. The contract should lay out
very specifically what is required of the seller and limit their liability if they are to be declared as the
shipper or consignor. This provision seems a little at odds with how FCA is supposed to work and
presumably was added when the rules were written for a Europe-centred trade world where goods
can be trucked by the seller at the buyer’s cost and risk especially within a customs zone. Whether it
has a place now in the wider world of cross-border international trade so dependent on sea transport
is a good question but nevertheless the prevailing thought was to leave it in the FCA rule as “it can’t
hurt.”
at the buyer’s request, risk and cost, to obtain it.
If the parties want payment to be by LC the banks again will have problems. While the FCA Incoterms®
2020 rule now provides for the seller to be given a transport document by the buyer’s carrier, if
agreed in the contract, typically LCs include a latest shipment date. It is not the seller’s responsibility
to do anything beyond the delivery point, so for example in a container shipment the seller could
deliver on the last day of the shipment period meaning the container would not be loaded on board
for several days, and sometimes in peak seasons or bad weather, possibly not for two or three weeks
after that. The solution to this is to include in the contract that the LC must specify a place of receipt
(SWIFT MT700 tag 44A) and a place of delivery (tag 44B). Typically banks like to also show a port
or airport of loading (tag 44E) and a discharge port or destination airport. The contract should also
specify these so that if the buyer arranges transport from or to other ports then they will possibly be
in breach of the contract. The contract should drill down to the fine detail such as local port or airport
names which are likely to appear on the transport document, such as “BMT” for Bangkok Modern
Terminal instead of just “Bangkok”, or “Jan Smuts Airport” instead of just “Johannesburg airport”, or
broaden the scope with “any” such as “any port in Bangkok” or “any airport in Johannesburg.”
As well the seller has no control over when the container is loaded on board or the date of the flight,
so the LC should state a latest delivery date (tag 44C) or shipment period (tag 44D) with at least 21
days added to the agreed delivery date or last day of the agreed period to allow for delays outside
the seller’s control or responsibility.

It might be tempting for the carrier to name the seller as the shipper on the transport document as
mentioned above, but the seller should be aware that the LC rules (UCP600 article 14k) allow that the
shipper or consignor on any document need not be the beneficiary (seller). The shipper or consignor
in the case of a transport document under FCA should be the buyer, which then introduces a further
problem for a sea shipment if the LC requires the bill of lading be consigned to order and blank
endorsed – the seller is not the shipper so cannot endorse the bill of lading, so if the LC calls for a
negotiable bill of lading then there is no choice for the seller/beneficiary to be shown as shipper
whether it wants to be shown as a merchant on the bill of lading or not.
An FCA transaction does not easily lend itself to payment by LC, though it is possible with intelligent
thought by the seller and buyer and most importantly by the buyer’s issuing bank who will find
themselves well out of their comfort zone and outside of the typical attitude of “we’ve always done
it this way.”

CPT – Carriage Paid To
This rule was first published in Incoterms® 1980 as DCP (Freight Carriage Paid To). It was changed in
Incoterms® 1990 to the current CPT.
This rule has a number of advantages for the seller.
If the seller has large numbers of goods to despatch daily or on a regular basis, by using CPT it
chooses its own carrier and can easily coordinate loading of trucks at its despatch dock, whereas if it

were to use FCA with each buyer arranging their own carrier it could be chaos at the loading dock.
The seller might have better buying power for freight than the buyer, so in such a case the buyer
would usually benefit from lower rates built into the price even though the seller would be entitled to
add its margin. Additionally, the buyer is freed up from worrying about logistics in the seller’s country
and making a freight booking potentially on the other side of the world.
Despite the three letters “CPT” being followed by the destination place, delivery occurs when the
seller gives the goods to its carrier contracted to take them to that destination. It is at that delivery
point in the seller’s country that the risk transfers from the seller to the buyer.
The rule gives no definition of where a “place” might be, it will depend entirely on what the seller and
buyer have agreed. For a shipment by road it could be the buyer’s premises, by rail it could be the
nearest rail terminal or station to the buyer, because these two are usually used for domestic or intra-
customs zone transactions. For air it could be either the airline’s terminal or the forwarder’s terminal
at or near the destination airport, and for sea by containers as a full container load (FCL) it will usually
be the carrier’s terminal (CY = container yard) or for less than container load (LCL) the cargo will be
deconsolidated at a consolidator’s premises (CFS = container freight station). The destination for
air and sea in containers could even be the buyer’s premises too, but this is unusual and involves
the seller’s carrier taking hold of the goods again after they have been import-cleared and then
delivering them beyond where they sat while being import-cleared.
The disadvantage to the buyer is that they take on the risk when the goods are in the possession and
control of the seller’s carrier, which they will be from before the buyer might even be aware of the
delivery until they arrive at the destination place and the buyer takes possession of them.
The same situation regarding the on board date on a bill of lading for clearing a container shipment
might apply for CPT as well as FCA.
There is no obligation on either the seller or the buyer to insure the goods against the buyer’s risk, but
it would be prudent that a CPT buyer carries an open marine policy or takes out insurance specifically
for the shipment. The prudent seller will investigate the possibility of taking out contingency marine
cover, should the buyer default and the goods remain at the seller’s risk.

Arranging payment for a CPT transaction under LC is somewhat easier than FCA as the seller has
control of the carrier and what occurs in its country. The LC should still show the place of receipt
(SWIFT MT700 tag 44A) as that is where delivery occurred. The latest shipment date (tag 44C) or
shipment period (tag 44D) should again be extended by a suitable period such as 21 days as the CPT
rule does not deal with when the goods left the seller’s country but when the seller delivered them
to the carrier. The CPT seller will be in a position to obtain a transport document from its own carrier
showing the seller correctly as shipper or consignor. If shipment is by sea then the seller can obtain
an on board bill of lading even though the on board date will very likely be after the contracted
delivery date.
The seller can obtain a certificate of origin showing itself as the exporter/shipper/consignor.

CIP – Carriage and Insurance Paid To
CIP first appeared in Incoterms® 1980 as standing for Freight Carriage and Insurance Paid To, but
was shortened in the 1990 rules.
The only difference between CPT and CIP is that the CIP seller must contract for insurance against the
buyer’s risk. The level of cover has been changed in Incoterms® 2020 to be the maximum of Institute
Cargo Clauses (A), (Air) or similar, for 110% of the CIP value, or similar -- what is sometimes referred
to as an “all risks” cover.

If payment is by LC the seller should be careful about the wording as some issuing banks have either
not progressed beyond the 1970s or simply make up their own clauses. The LC should ideally call for
“One original of insurance policy or certificate for 110 percent of full CIP value of the goods shipped
covering Institute Cargo Clauses (A) or (Air), Institute War Clauses (Cargo) or (Air Cargo) and Institute
Strikes Clauses (Cargo) or (Air Cargo). Banks love to add nonsense clauses like “claims payable in X
country” which in the 21st century is outdated thinking as insurers no longer hand over cheques, they
pay electronically usually from wherever their head office is. Any wording such as “in the currency of
the draft” is equally nonsense as the insurer has no idea of what the draft is, and the LC rules require
the insurance to be in the LC currency anyway so it need not be said in the LC itself. Another favourite
of bankers who have never read the Institute Cargo Clauses (A) wording is to include in the LC a
requirement for the insurance document to state “from seller’s warehouse to buyer’s warehouse”
or words to that effect. ICC(A) article 8.1 is already clear as to the duration of coverage and such
words on the document either would not make a scrap of difference or could possibly lead to a
problem. Nothing more is needed than the above words, anything more is usually redundant and/or
dangerous and could lead to a discrepancy.

DAP – Delivered at Place
DAP was the new name given in the Incoterms® 2010 rules for the previous DDU (Delivered Duty
Unpaid) which first appeared in the 1990 rules. That was a misleading name because transactions
under the other rules other than DDP (Delivered Duty Paid) were duty unpaid at the time of delivery,
yet DDU itself actually meant that delivery occurred after the buyer had import cleared the goods
and paid the duty.
Also rolled into DAP were the old DAF (Delivered at Frontier, first appearing in Incoterms® 1967)
and DES (Delivered Ex Ship, originally “EXS” Ex Ship in the 1953 rules) which like DDU provided for
delivery not unloaded. These two were effectively redundant as by stating “at the named place of
destination” in DDU it included at the frontier or on the ship.
The DAP Incoterms® 2020 rule does not specify that the place of delivery must be the buyer’s
premises even though that is the common usage. Delivery of the goods is to take place by the seller
“placing them at the disposal of the buyer on the arriving means of transport ready for unloading
at the agreed point, if any, at the named place of destination.” This means that the seller and buyer
need to agree on precisely where that delivery is to take place because without such agreement how
can the seller know where precisely to deliver?
This rule is suitable for domestic trade as well as transactions within a customs union. It can be
impractical and/or problematic for cross-ocean trade.
In cross-ocean transactions the buyer must import-clear the goods so typically they will be held in
a customs bonded warehouse or terminal until those formalities have been completed. Up until
the time they go into customs control in the importing country they are at the seller’s risk, but while
they are under customs control they are at the buyer’s risk. If the buyer has a problem, say with an
incorrectly issued import permit which delays clearance or even leads to a refusal to clear, the buyer’s
actions prevent the seller from delivering.
Once import clearance has been completed, and assuming the delivery point was not the customs
warehouse or terminal where the goods were waiting for that clearance, the goods need to be released
to the seller’s carrier or its agent to then continue the goods’ journey to the named destination.
Apart from when the goods are held waiting for import clearance the seller has the risk of loss or
damage to the goods. The seller has no obligation to the buyer to provide insurance and the buyer
has no insurable risk in the goods until delivery at the named place. The seller of course would be
prudent to insure the goods but it can choose to self-insure meaning take the risk itself.
The seller needs to be very careful pricing a DAP sale, taking into account all possibilities and
potential problems especially with transport within the buyer’s country after release from the customs-
controlled warehouse or terminal.

Unlike all the preceding rules, the DAP seller is also responsible for any formalities which might occur
in any country of transit, particularly important if the sale is to a final destination in a land-locked
country and the sea shipment initially goes to a port in an adjacent country.
The seller is not required to give the buyer any transport document, but where the shipment is
containerised by sea the import authorities might require a transport document showing the date
of export to calculate the value for duty in their local currency. This will be dependent on how that

importing country values goods for import.
What advantages are there to the seller over say CIP? Probably none. The disadvantages to the
seller are that the goods are at its risk right to the destination, except during any import clearance.
If the goods are lost in transit then the seller, assuming they cannot replace the goods before the
contracted delivery date, would be in breach of their contract. If the goods are damaged in transit
the seller would likewise be in breach of contract if they cannot make good that damage, at their cost
and risk, within the contracted delivery period. The contract might have hidden in it a rather onerous
liquidated damages clause, the kind of thing about which many people’s eyes glaze over and they
disregard at their peril.
DAP transactions are largely incompatible with payment by the typical letter of credit. With delivery
only occurring at the very end of the transport chain, an LC calling for presentation of say a bill of
lading consigned to order and blank endorsed would be a contradiction to DAP. Even more so if the
issuing bank was of the habit of requiring bills of lading consigned to their order which they then
endorse to their applicant (the buyer) so the buyer can take hold of the goods. There is nothing
to secure the seller’s position of the buyer not taking hold of the goods until the issuing bank has
honoured the drawing under the LC as, after all, the seller’s truck is sitting in the buyer’s nominated
delivery place merely waiting for unloading. Imagine how totally strange it would be for the seller
to arrive at the buyer’s receiving dock, obtain some form of delivery receipt from the buyer, send it
back to their office overseas, present it to their bank who sends it to the issuing bank who hopefully
honours the presentation. In the meanwhile, the truck is sitting blocking the receiving dock for a
couple of weeks with the driver having set up camp in the truck’s cabin until his office back home tells
him they have received payment and he can now let the buyer unload!

DPU – Delivered at Place Unloaded
This rule started out life in 1953 as EXQ (Ex Quay) and was renamed in Incoterms® 1990 as DEQ
(Delivered Ex Quay), requiring the seller to deliver the goods unloaded from the vessel onto the
quay (wharf). Clearly this referred only to goods directly loaded onto the vessel such as bulk and
break-bulk cargo. In Incoterms® 2010 this rule was replaced by an expanded one to cover any mode
of transport, DAT (Delivered at Terminal) where a “terminal” was described in the Guidance Note (as
“information that is particularly helpful” according to the Introduction in that book) but not in the rule
itself, as including “any place, whether covered or not, such as a quay, warehouse, container yard or
road, rail or air cargo terminal.” Clearly it was envisaged that it referred to delivery into some form
of transport terminal for the buyer to collect them, after any import clearance formalities had been
completed.
Fairly late in discussions for the Incoterms® 2020 rules there were representations from a very small
number of National Committees to expand this rule to cover delivery to the destination outside a
terminal and where the seller arranged unloading. This could occur for example with specialised
capital machinery being delivered to a site where the seller was also responsible for assembly and
installation. Thus, at almost the last minute, was borne DPU (Delivered at Place Unloaded). When the
Drafting Committee revised DAT to DPU it received support from an increased number of National
Committees.
This rule differs from DAP in only one point, that in DAP the seller delivers at the nominated place not
unloaded and in DPU unloaded.
In hindsight, a very good question would be, should this rule exist at all? Why was A2 not split into
two delivery options, as occurs with FCA? Then there would have only been 10 Incoterms® 2020
rules.
The comments regarding letters of credit in DAP apply equally here.

DDP – Delivered Duty Paid
This rule was originally published in Incoterms® 1967 and has continued largely unchanged in its
intent.
The seller must deliver the goods as in DAP, but this time all import clearance formalities are at the
cost and risk of the seller. This may well work fine with domestic transactions or transactions within a
customs union, but for cross-ocean international trade it can be particularly problematic.

As the opposite of EXW where the buyer must be able to carry out the export clearance formalities,
with DDP the seller must be able to carry out the import clearance formalities. The importing country’s
rules might require an importer to be a registered commercial entity in that country, there might
need to be an import permit being issued and as the seller is highly unlikely to be a registered or
recognised commercial entity in the importing country (not through another related entity that is
itself registered there) there are likely to be all sorts of problems. Add to these, if the importing
country charges VAT/GST on imports, unless otherwise agreed in the contract and permitted by that
tax regime, the seller will pay these taxes and may not be able to recoup them.
Depending on the way the importing country determines their local currency equivalent to calculate
the value for duty, if that happens to be the date of export, what document will the seller have as
evidence of this by way of an on board notation? Will it be able to produce a bill of lading or sea
waybill consigned to itself evidencing this?
Some customs regimes are now considering that the buyer from the DDP seller is liable for any
shortfall of duty and any fines, even though they were not involved or named in the import clearance
formalities, as it is easier to penalise them than chase a foreign seller.
Again in hindsight, this rule probably does not go far enough. EXW requires the buyer to load the
vehicle at the point of delivery, yet DDP does not require the seller to unload at the delivery point.
Possibly A2 should also have allowed two variations, one not unloaded, the other unloaded?
The same comments regarding LCs in DAP and DPU apply to DDP.

FAS – Free Alongside Ship
First published in the original Incoterms® 1936, in common usage its origins go back in time probably
to the days of sailing ships. This first version was silent about export formalities. In the 1953 rules it
was made clear that the seller had to render the buyer assistance in obtaining an export licence and
authorisation to export the goods. This continued in the 1990 version, but in Incoterms® 2000 the
responsibility for carrying out export formalities switched quite logically to the seller.
FAS, because of its origins, is only suitable where the seller can actually place the goods alongside
RULES FOR SEA OR INLAND WATERWAY TRANSPORT
the vessel, either on the quay (wharf) or on a barge brought to the vessel’s side. It should not be used
for shipment of containers, whether FCL or LCL, as the goods are typically delivered by the seller to
the carrier at an inland point such as a container yard (CY for FCLs) or container freight station (CFS
for LCL consolidations).
This rule gives the seller the advantage to simply place the goods alongside the vessel which is to
take the goods.
The potential disadvantage to the seller is that it may have scheduled the goods to be put alongside
on a particular date only to get there and find no vessel to be alongside of. Possibly the vessel’s
berthing was delayed due to congestion at the load port or possibly the vessel was delayed in transit
by bad weather. Nevertheless, until the vessel is in a position for the goods to be truly considered as
alongside, the risk of loss or damage to the goods remains the seller’s.
Another disadvantage for the seller is that unless the parties agree that the seller will be given a
transport document, typically the bill of lading, the seller has to assist the buyer in obtaining the
transport document. So if all the seller receives is a mate’s receipt, then he would have to tender that
to have a bill of lading issued to the buyer.
If the bill of lading is issued to the seller, it should ideally endeavour to check if it is entitled to be named
as the consignor/shipper under the contract of carriage, to avoid any unforeseen consequences.
Such a bill of lading would more correctly be a “received for shipment” bill of lading as there is no
requirement for the seller to load the goods on board the vessel.
The advantage to the buyer is that it provides the vessel to load, and is in control from that point on.
The buyer needs to ensure that the vessel has the means to load the goods from the quay or barge,
or that suitable lifting equipment is available on the quay or barge. Loading is at the buyer’s risk and
cost.
at the buyer’s request, risk and cost, to obtain it. There could be complications if the issuing authority
in the seller’s country will only show a registered company in that country as the exporter/shipper/
consignor as the seller is only the exporter but not the shipper or consignor.

Paying for an FAS shipment by letter of credit could be problematic if there is no arrangement made
for the buyer to receive a bill of lading which has been issued as marked “on board”. If the parties do
not expect the loading to occur on the same day as the goods are alongside, then they should be
careful to allow a margin on the latest shipment date.

FOB – Free on Board
“Free on Board” has been in use since the sailing ship days. It was of course included in the first
version of Incoterms® in 1936 and has remained identical in concept throughout the later versions.
The requirement is that the buyer must contract for the vessel or space on the vessel, and the seller
must load the goods onto that vessel.
Interestingly the delivery requirement was that the seller must simply deliver the goods on board but
the cost split was that the seller bears all costs and risks until the goods have passed over the ship’s
rail which for decades caused confusion and lawyers’ fees. How do the cost and risks get split at the
point while the goods are suspended above the ship’s rail? The 2010 version finally aligned the cost
and risks matter with delivery, eliminating mention of the ship’s rail.
It must be pointed out that the peculiarly North American concept of “FOB shipping point, freight
prepaid”, “FOB destination” and “FOB destination, freight prepaid” have no place in international
trade or domestic trade anywhere else. As the Incoterms® 2010 and now 2020 rules are very much
intended to apply to both international and domestic trade it is hoped that all manner of strange
local rules will die out.
An interesting provision that has been in the Incoterms® rules ever since the 1990 version has
been that the seller must arrange for shipment at the buyer’s cost and risk on the “usual terms”
if it is so agreed in the contract. Sellers should be wary of doing this, and it will depend on the
customary procedures in the relevant countries as to whether this is practical, desirable or could
have unfortunate legal consequences for the seller. The contract should lay out very specifically what
is required of the seller and limit their liability if they are to be declared as the shipper or consignor.
This provision seems a little at odds with how FOB is supposed to work. Whether it has a place now
in the world of sea transport is a good question.
Unfortunately, sellers and buyers commonly treat FOB as merely a price point – the seller doesn’t
pay the freight and the buyer does. Freight forwarders treat it as a way that they know local charges
in the export country are paid by the seller, freight is marked as “collect” on the transport document
and paid by the buyer. Often their instruction forms to be completed and signed by the seller will
only show three or four options and FOB always features, whether the goods are being transported
by container or by air. The simple fact is that in the vast majority of transactions handled by freight
forwarders, being LCL, FCL or air, FOB should not be an option for any of them.
Incoterms® 1990 in its preface for FOB stated “When the ship’s rail serves no practical purpose,
such as in the case of roll-on/roll-off or container traffic, the FCA term is more appropriate to use.”
In the Incoterms® 2000 rules FOB had a one paragraph preface which included “If the parties do
not intend to deliver the goods across the ship’s rail, the FCA term should be used.” Then the 2010
version strengthened this concept by splitting FAS, FOB, CFR and CIF off into their own section as

“Rules for Sea or Inland Waterway Transport” and included an even stronger explanation “FOB may
not be appropriate where goods are handed over to the carrier before they are on board the vessel,
for example goods in containers, which are typically delivered at a terminal. In such situations, the
FCA rule should be used.” Now in the 2020 version’s Explanatory Notes for Users the matter is even
more clearly explained as “This rule is to be used only for sea or inland waterway transport where
the parties intend to deliver the goods by placing the goods on board a vessel. Thus, the FOB rule
is not appropriate where goods are handed over to the carrier before they are on board the vessel,
for example where goods are handed over to a carrier at a container terminal. Where this is the case,
parties should consider using the FCA rule rather than the FOB rule.”

Why this apparent set against using FOB for container shipments? Everybody does it, why don’t the
rules accommodate it? The answer is that the delivery point in the FOB Incoterms® 2020 rule is when
the goods are delivered on board the vessel by the seller. This is almost always impossible for the
seller to do when the goods are containerised. When the seller sells goods which will be shipped as
a full container load (FCL) it either packs the container provided by the buyer’s carrier at its premises,
or delivers the goods to a facility nominated by the buyer’s carrier where they will be packed into
the container. From there the container may well be moved to a terminal or container yard (CY)
contracted by the shipping line in the port, awaiting arrival of the vessel to be loaded. If the goods
are less than a container load (LCL) they will be picked up from the seller by the buyer’s carrier or
delivered by the seller to a container freight station (CFS) nominated by the buyer’s carrier where
they will be consolidated with other goods into a container, which then moves as just described. The
seller has no direct control of, or knowledge of, what is happening to the goods once they leave the
seller’s possession and are in the possession and control of the buyer’s carrier. The seller certainly
cannot deliver the goods on board the vessel.
What are the advantages for the seller to use the FOB Incoterms® 2020 rule? The most obvious is that
when the goods have been delivered on board the buyer’s vessel the seller has not only physically
done what it has to do but it might seem also has no further costs, risk of loss or damage to the goods
or responsibilities. Well, that is not quite correct. The seller must at its own cost still provide the buyer
with proof that the goods have been delivered on board, whether that be a mate’s receipt, some
other form of receipt or a transport document such as a bill of lading. The seller must also assist the
buyer with any information or documents the buyer will need for its import clearance formalities, at
the buyer’s request, risk and cost. The most usual such document is the certificate of origin but in
practice it is unusual for the seller to charge the buyer with the relatively insignificant cost of this.
Despite the seller not having risk of loss or damage after delivery, a prudent seller would look at the
agreed payment arrangements which are of course outside the coverage of Incoterms® 2020. What
would happen if the buyer refused payment because it knew that the vessel had sunk? Or the market
for that commodity had a sudden downturn? What would happen if the buyer simply went bankrupt
during the voyage? Clearly the seller would still have the risk of loss or damage to the goods, so the
seller might like to investigate a contingency policy for marine cover.
The benefit to the buyer is that it has control of the goods on the vessel it has arranged, and it has
control of the costs as well. The buyer has the risk of loss or damage to the goods from the point

where they are delivered on board, and depending on the nature of the goods and their packaging,
if any, it would be wise to detail in the contract precisely what this means. For example, with bulk
product poured into the holds it would likely include the word “trimmed” to indicate that the load is
evenly poured throughout the hold and relatively level at the top to distribute the weight correctly;
for drums of product it might include agreement that dunnage, often scrap material, be provided
to prevent the drums moving and sliding, and that they be lashed to hold them in place – what part
does the seller have to play in these?
Banks in their letter of credit applications are just as much at fault as forwarders for misleading their
clients. Their LC application forms almost invariably state three or four three-letter terms marked
as “Incoterms” and again FOB features prominently. Buyers feel obliged to tick the FOB box even
though their goods are containerised or by air. Where does that leave the seller and buyer then when
they have agreed with each other to use the correct rule of FCA but their bank insists on stating FOB
because that is what is on their form and “we have always done it this way” or “this is our standard
procedure”?
Banks cope very well with a true FOB Incoterms® 2020 transaction because it fits the way their
application forms were designed decades ago, it fits very well with the way the LC rules, UCP600, were
written, and it fits very well with the SWIFT message standards for transmitting an LC in their MT700
format. Nice and neat, a port of loading, a port of discharge, a latest on board date, a requirement
for a “full set of clean on board bills of lading marked freight collect….”

CFR - Cost and Freight
Like FOB this is rule has its origins back in the sailing ship days. It was abbreviated as “C&F” until
Incoterms® 1990 when it was changed to CFR. In the days of telexes in the 1970s and 1980s
traders found that the ampersand sign “&” was not an international symbol in their telex messages
so common usage then became “CNF” as the phonetic version of C&F. SWIFT also had problems
with the ampersand in letters of credit, and quite possibly early computer programmers did too –
imagine every rule being all alphabetical characters except one which has its middle character as an
alphanumeric symbol but could be sometimes just an alphabetical character, better to make them

all uniform.
Even though “everybody does it”, this rule is not suitable for container transport, for the same reason
as given above in FOB.
As with FOB, CFR is often treated as just a price point, the seller arranges and pays for carriage. Of
course, there is more to it than that.
This rule can be advantageous for the seller. It is now responsible to arrange carriage, often by
chartering the vessel, and must pay the cost of carriage. As the cost of carriage is an input to the
selling price the seller most likely will add a margin of error and a profit margin, all built in to its CFR
price. Like FOB, the seller’s risk for loss or damage to the cargo ceases once the goods are on board
the vessel, and like FOB it would be prudent for the seller and buyer to agree in their contract as to
how the goods are to be stowed.
The disadvantage to the seller is that it will usually have to pay the freight before obtaining the bill of
lading, and thus typically before payment is received from the buyer.
Just as with FOB, while under Incoterms® 2020 the seller has no risk beyond delivery, if the buyer
defaults for whatever reason the seller will be at risk and would be prudent to investigate some form
of contingency insurance.
For the buyer the advantage is that it does not have to arrange carriage and avoids possibly paying
a deposit on that to the vessel owner.
The buyer might consider it a disadvantage that it bears the risk for loss or damage of the goods
from delivery, and typically, as with FOB, it would take out appropriate insurance or have arranged
an annual policy.
This rule works well with letters of credit because as with FOB the banks still think the way things
were done forty or fifty years ago. The bill of lading clause will require the document to state “freight
prepaid.”

CIF – Cost Insurance and Freight
This rule too dates back to the early days of international shipping an is largely unchanged since
then.
The difference between CIF and CFR is that while the risk of loss or damage at delivery becomes
the buyer’s, the seller is obliged to take out insurance for that risk and provide the buyer with a
document which allows the buyer to claim against that insurance. This typically will be an original
insurance policy covering just that transaction or a certificate issued by the insurer under the seller’s
existing open marine policy. Both of these will normally show the seller as the “insured” or “assured”
and will require the seller to endorse the document on the reverse such that the buyer or any bona
fides holder with an insurable interest in the goods at the time of loss or damage occurred can claim.
The advantage to the seller is that it can often obtain cheap insurance and then build a larger amount
into its selling price.
The advantage to the buyer is that it does not have to worry about declaring the shipment to its own
insurer.
The disadvantage to the buyer can be that the insurer may well not be too enthusiastic about meeting
any claim.
Note that some countries do not permit CIF imports, requiring the buyer to insure with an insurer in
its own country.
With letters of credit, just as for FOB and CFR, the banks seem to have no problem, except they
sometimes make a complete mess of the insurance clause. Examples are requiring presentation of a
policy but not a certificate of marine insurance; inserting nonsense words and requirement because
“that is how the have always done it”. A seller would be prudent to state in the contract not just they
will provide an insurance document but state specific wording such as “One original insurance policy
or certificate of marine insurance, for 110 percent of the invoice value, blank endorsed, covering
Institute Cargo Clauses (C), Institute War Clauses (Cargo) and Institute Strikes Clauses (Cargo).”
Anything more than that in an LC is just superfluous and often meaningless.

A HORSE DESIGNED BY A COMMITTEE
Are the Incoterms® 2020 rules perfect? No, of course not. Like the camel, purportedly a horse
designed by a committee, they come close but not quite all the way. After all, both have their heads
and tails at the correct ends, are supported by four legs, can carry a load for a long distance and
many other similarities. But there are design problems. That hump matter for starters, and clearly the
committee couldn’t decide on one hump or two so went with both options. Seems though that the
horse doesn’t have any and is a much more elegant creature.
Of necessity, the Drafting Group requested, and indeed required, input from the ICC’s National
Committees around the world. The ICC is after all the World Business Organisation representing
many millions of members. This process meant that the Drafting Group members received over 3,000
comments that had to be read, understood and either rejected, or accepted for further discussion.
It is often said that the most efficient committee is a committee consisting of just one member. So
now, let’s imagine that Bob Ronai’s “Special Committee for the Improvement of Incoterms® 2020”
has been formed. Here are its recommendations for action, if only….

FCA the containers from the destination terminal.
ACTION: 2. It does not solve the problem of the L/C stating

In A4 delete the words “If agreed, the seller must a latest shipment date, which almost invariably
contract for carriage on the usual terms at the will be the delivery date taken from the contract
buyer’s risk and cost.” which under FCA is delivery to the carrier, not on
board the vessel.
In B4 delete the words “except when the contract
of carriage is made by the seller as provided for When comments were requested from the
in A4.” National Committees, some simply stated that
this was the way it had to be and the banks
REASON: around the world had to toe the line! Frankly
If the parties want the seller to arrange the many banks in their L/C dealings have yet to
transport at the buyer’s cost then they should get to the last quarter of the twentieth century
use CPT and absorb the cost into the seller’s CPT let alone 2020, so this attitude is nothing short
price. of breathtaking and rather concerning. Also see
FOB below.
Note too that the current FCA wording is not
as comprehensive as the wording in CPT for DAP
effectively the same action.
ACTION:
ACTION: A2 Delivery to be expanded to two options of not
In A6 remove the option for an on board bill of unloaded and unloaded, much as already occurs
lading to be obtained from the buyer’s carrier: in FCA where the goods are either loaded onto
“Where the buyer has instructed the carrier to the carrier’s means of transport or not unloaded
issue to the seller a transport document under into the carrier’s premises. A2 therefore to read:
B6, the seller must provide any such document
to the buyer.” The seller must deliver the goods by placing
them at the disposal of the buyer
In B6 remove: “If the parties have so agreed, the a) on the arriving means of transport ready for
buyer must instruct the carrier to issue to the unloading at the agreed point, if any, at the
seller, at the buyer’s cost and risk, a transport named place of destination;
document stating that the goods have been or
loaded (such as a bill of lading with an onboard b) unloaded from the arriving means of transport
notation).” at the agreed point, if any, at the named place of
destination
REASON:
1. It creates too many consequential problems. or by procuring the goods so delivered. In either
It implies that the seller will be named as case the seller must deliver the goods on the
the shipper on that document, with all its agreed date or within the agreed period.
ramifications of being considered a merchant by
the carrier, along with the attendant liabilities for REASON:
costs such as should the buyer not take hold of Pure common sense really. Absorb DPU into this

rule as everything else is identical. them at the disposal of the buyer
a) on the arriving means of transport ready for
DPU unloading at the agreed point, if any, at the
named place of destination;
ACTION: or
Delete this rule entirely. b) unloaded from the arriving means of transport
at the agreed point, if any, at the named place of
REASON: destination
It is almost entirely identical now to DAP. The
new DPU is an expansion of the previous DAT or by procuring the goods so delivered. In either
which implied delivery into a terminal to await case the seller must deliver the goods on the
import clearance by the buyer after which the agreed date or within the agreed period.
buyer would transfer the goods to whatever
final destination they chose. Now the delivery REASON:
point has moved on to potentially occur after Once again, pure common sense. This brings
import clearance, if necessary, as a result of a DDP to the ultimate responsibility for the seller of
suggestion put forward by a small minority of doing everything right to the buyer’s destination,
National Committees, possibly by their private as currently provided for in the current 2020
agreement to support each other in this, to suit a invention of DPU. It seems odd that DPU would
very small number of their members. Apparently, be the only rule requiring the seller to unload at
those members occasionally found themselves the destination when it was not responsible for
unloading the goods into the buyer’s premises import clearance, yet in DDP where the seller is
because the sellers were also responsible for responsible for import clearance it stops short of
installation and testing of these capital goods in full service to the buyer. This would also make
turnkey projects. All they effectively wanted was DDP truly to be the complete opposite of EXW.
DAP unloaded, which given the complexity of
such turnkey contracts, could have easily been FOB
accommodated by appropriate wording in the
contract – frankly I would guarantee that such ACTION:
contracts do indeed contain delivery instructions In A2 the first paragraph to be replaced with:
in minute detail. The seller must deliver the goods:
a. where the goods are not packed into ISO
DDP shipping containers, either by placing them on
board the vessel nominated by the buyer at the
ACTION: loading point, if any, indicated by the buyer at
A2 Delivery to be expanded to two options of the named port of shipment or by procuring the
“not unloaded” and “unloaded”, much as already goods so delivered;
occurs in FCA where the goods are either b. where the goods are packed into ISO
loaded onto the carrier’s means of transport shipping containers, either by delivering them
or not unloaded into the carrier’s premises. A2 to the carrier or another person nominated
therefore to read: by the buyer at the named point, if any, at the
named place, for that carrier to arrange loading
The seller must deliver the goods by placing the containers on board the vessel at the buyer’s

cost, or procure goods so delivered. delivered;
b. where the goods are packed into ISO
REASON: shipping containers, either by delivering them
In the great majority of transactions of to the carrier for that carrier to arrange loading
containerised goods where the buyer arranges the containers on board the vessel, or procure
carriage, the seller and buyer refer to FOB and goods so delivered.
not FCA. The Incoterms® 2020 rules need to
reflect long-standing and current practice, the REASON:
trading world is unlikely to make a sudden and In the great majority of transactions of
rapid change to FCA for containers. The banks containerised goods where the seller arranges
and freight forwarders will continue using FOB, carriage but not insurance, the seller and buyer
indeed the banks will still require an on board refer to CFR and not CPT. The Incoterms® 2020
bill of lading shipped by a given date. The seller rules need to reflect long-standing and current
will need to liaise with the buyer’s carrier to practice, the trading world is unlikely to make a
ensure compliance. The act of the containers sudden and rapid change to CPT for containers.
being placed on board satisfies both seller and The banks and freight forwarders will continue
buyer as evidence of the goods actually leaving using CFR, indeed the banks will still require
the country of export. This wording endeavours an on board bill of lading shipped by a given
to provide within the FOB rule the solution to the date and the seller is best placed to ensure
problem, and yes it may need further polishing. compliance. The act of the containers being
placed on board satisfies both seller and buyer
as evidence of the goods actually leaving the
ACTION: country of export. This wording endeavours to
In A4 delete the words: “If agreed, the seller provide within the CFR rule the solution to the
must contract for carriage on the usual terms at problem, and yes it may need further polishing.
the buyer’s risk and cost.”
CIF
In B4 delete the words: “except when the
contract of carriage is made by the seller as ACTION:
provided for in A4.” In A2 the first paragraph to be replaced with:
The seller must deliver the goods:
REASON: a. where the goods are not packed into ISO
If the parties want the seller to arrange carriage shipping containers, either by placing them on
at the buyer’s cost then they should use CFR and board the vessel or by procuring the goods so
absorb the cost into the seller’s CFR price. delivered;
b. where the goods are packed into ISO
CFR shipping containers, either by delivering them
to the carrier for that carrier to arrange loading
ACTION: the containers on board the vessel, or procure
In A2 the first paragraph to be replaced with: goods so delivered.
The seller must deliver the goods:
a. where the goods are not packed into ISO REASON:
shipping containers, either by placing them on In the great majority of transactions of
board the vessel or by procuring the goods so containerised goods where the seller arranges

carriage and insurance, the seller and buyer too may need further polishing.
refer to CIF and not CIP. The Incoterms® 2020
rules need to reflect long-standing and current While A5 requires the seller to make a contract of
practice, the trading world is unlikely to make a insurance, in CIF unlike CIP it is only for minimum
sudden and rapid change to CIP for containers. cover under Institute Cargo Clauses (C), as
The banks and freight forwarders will continue indeed CIP provided in Incoterms® 2010. The
using CIF, indeed the banks will still require an on parties can nevertheless specify in their contract
board bill of lading shipped by a given date and that the cover be increased to Institute Cargo
the seller is best placed to ensure compliance. Clauses (A). This cover is usually the default
The act of the containers being placed on board for most marine insurance so regardless of the
satisfies both seller and buyer as evidence of contract most sellers would take out such cover
the goods actually leaving the country of export. even unknowingly so.
This wording endeavours to provide within the
CIF rule the solution to the problem, and yes it
The above are my attempt to redesign the camel in as close a likeness to a horse as I can get it. Yes,
it is still a dream, maybe for 2030.

IN CONCLUSION
I believe that the rules must reflect what is already happening, and has been happening, in the real
world of trade and seek to give some order and guidance based on that practice. Trying to get trade
to rapidly change direction is like trying to turn a container ship at speed in a one hundred metre
circle, it just isn’t going to happen.
It might mean that lawyers need to learn more about the real world that continues on without
them. It might mean those with academic qualifications but no real-world experience need to step
from the classroom and walk in the shoes of a business person for a little while. It might mean that
bankers still steeped in what used to happen when their bosses’ bosses’ bosses used to be the front-
line operations clerks in the 1970s need to step out of their banking chambers and see what their
customers are actually doing right now despite them.
People in businesses, large and small, multi-national and micro, go about their manufacturing and
trading businesses day after day to feed their families and the families of their employees, largely
without interference from those who seek to tell them how they should go about selling and buying
their products. I salute them for keeping the world going.
I hope that you have enjoyed reading this book and that it has enhanced your knowledge and
understanding of the Incoterms® 2020 rules and trade in general.
Bob Ronai

aBout traDE FinancE GloBal
traDE FinancE WitHout BarriErs
Trade Finance Global (TFG) is the leading trade finance platform. We assist companies to access trade and
receivables finance through our relationships with banks, funds and alternative finance houses.
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A COMMENTARY ON THE

INCOTERMS® 2020 RULES

In Partnership with Import-Export Services Pty Ltd

2 | A COMMENTARY ON THE INCOTERMS® 2020 RULES

A1 / B1: GENERAL OBLIGATIONS 16

A COMMENTARY ON THE INCOTERMS® 2020 RULES | 3

RobeRt (bob) Ronai the rules.

As the leading trade finance platform, connecting companies

TFG would like to express its gratitude to Bob Ronai, a

 David Lowe (Co-Chair) - UK

A COMMENTARY ON THE INCOTERMS® 2020 RULES | 5

The rules do not deal with such matters as:

 whether there is even a contract of sale;

A COMMENTARY ON THE INCOTERMS® 2020 RULES | 7

Specification and nature of the goods:

The law governing the contract:

The method and time for payment:

Tariffs and customs duties:

Business to consumer (B2C) sales:

Transfer of property, ownership or title of the goods sold:

A COMMENTARY ON THE INCOTERMS® 2020 RULES | 9

A COMMENTARY ON THE INCOTERMS® 2020 RULES | 11

Group E DEparturE Group D arrival

Group c Main carriaGE paiD

The four groups became two groups:

EXW Ex Works FAS Free Alongside Ship

A COMMENTARY ON THE INCOTERMS® 2020 RULES | 13

A COMMENTARY ON THE INCOTERMS® 2020 RULES | 15

RULES FOR SEA AND INLAND WATERWAY TRANSPORT

RULES FOR ANY MODE OR MODES OF TRANSPORT

There is no difference between any of the rules.

16 | A1 / B1: General Obligations

A COMMENTARY ON THE INCOTERMS® 2020 RULES | 17

RULES FOR ANY MODE OR MODES OF TRANSPORT

This delivery must be made on:

1. the agreed date or

A COMMENTARY ON THE INCOTERMS® 2020 RULES | 19

CIP – CARRIAGE AND INSURANCE PAID TO

DPU – DELIVERED AT PLACE UNLOADED

DDP – DELIVERED DUTY PAID

RULES FOR ANY MODE OR MODES OF TRANSPORT

A COMMENTARY ON THE INCOTERMS® 2020 RULES | 21

RULES FOR SEA AND INLAND WATERWAY TRANSPORT

FOB – FREE ON BOARD

A COMMENTARY ON THE INCOTERMS® 2020 RULES | 23

CIF – COST INSURANCE AND FREIGHT

A COMMENTARY ON THE INCOTERMS® 2020 RULES | 25

FCA – FREE CARRIER

CPT – CARRIAGE PAID TO

CIP – CARRIAGE AND INSURANCE PAID TO

26 | A3 / B3: TRANSFER OF RISK

DAP – DELIVERED AT PLACE

DPU – DELIVERED AT PLACE UNLOADED

DDP – DELIVERED DUTY PAID

A COMMENTARY ON THE INCOTERMS® 2020 RULES | 27

FOB – FREE ON BOARD

CFR – COST AND FREIGHT

CIF – COST INSURANCE AND FREIGHT

28 | A3 / B3: TRANSFER OF RISK

A COMMENTARY ON THE INCOTERMS® 2020 RULES | 29

David Lowe (Co-Chair) - UK

whether there is even a contract of sale;