Incoterms 2020

As Brexit quickly approaches there has never been a more important time to know your Incoterms®

In the latest publication, 2020 there are eleven different Incoterms® all ranging in terms of obligations, risks and costs and include very different extremes, EXW and DDP with the rest falling in the middle.

As we see Brexit implemented, we will see new customs regimes incorporated into trade with the EU where currently there are none. Goods move currently in free circulation and this will be the main change that we see.

Many exporters and importers may choose EXW as what they consider to be an easy option as the other party will be obligated to undertake all the processes, however this may leave you at risk as you still have legal obligations to consider.

The opposite to EXW is DDP which means you assume all responsibility including customs procedures in the country that you will deliver the goods as well as picking up the costs for Duties and Taxes, which can prove expensive and almost impossible in some countries.

We find that the easiest way to work with incoterms is in groups.

The E group

The F group

The C group

The D Group

The E Group

Currently only one Incoterm® sits in this group as discussed earlier in the article, EXW.

The delivery point under an EXW (Ex-Works) takes place at an agreed point of collection of the goods by the buyer, usually the seller’s premises but could be a third-party location. The risk with EXW passes before the transport begins. In essence delivery takes place when the seller makes the goods available for the buyer and notifies them that the goods are available. The seller by choosing this Incoterm will be at risk as they are still legally obligated to have HMRC clearance records on record but does not customs clear the goods. They also should not load the collecting vehicle. The risk passes from the seller to the buyer for damage or loss when the goods are placed at the disposal of the buyer and all costs from that point on are for the buyers account.

The F Group

Comprises of three Incoterms® FCA, FAS, FOB.

The delivery point under FCA (Free Carrier) takes place in one of two ways, either the sellers premises when this is the named place as soon as they are loaded onto the collecting vehicle positioned by the buyer OR when they are delivered to another named place which usually means when they reach the buyers first carrier. The seller should customs clear the goods for export in the country of that the goods originate. The risk passes from the seller to the buyer for damage or loss when the goods are placed at whichever of the two delivery points set out above has been chosen and all costs from that point on are for the buyers account.

The delivery point under FAS (Free Alongside Ship) takes place when the goods are: –

• Placed alongside the ship (a quay or barge)
• At the named port of shipment

The seller should customs clear the goods for export in the country of that the goods originate. The risk passes from the seller to the buyer for damage or loss when the goods are placed alongside the ship and all costs from that point on are for the buyers account.

The delivery point for FOB (Free on Board) means that the goods are considered delivered when the goods are loaded on board a vessel. The seller should customs clear the goods for export in the country of that the goods originate. The risk passes from the seller to the buyer for damage or loss when the goods are placed past the ships rail and all costs from that point on are for the buyers account.

The C Group

Comprises of four Incoterms ® CPT, CIP, CFR and CIF.
The delivery point for CPT (Carriage Paid To) is when the seller hands over the goods to the carrier or forwarder and the contract of carriage should be arranged by the shipper, which the seller bears the cost. One important consideration with CPT is that the risk for loss and damage passes from seller to buyer when the goods are handed over to the carrier. The shipper is responsible for customs clearance in the country of that the goods originate.

CIP (Carriage and Insurance Paid) is the same as CPT but requires the seller to insure the goods against the buyer’s loss or damage to the goods, to the requirement of cargo clauses A.

The delivery point for CFR (Cost and Freight) means that the seller delivers the goods to the buyer by delivering them on board a vessel. One important consideration with CFR is that the risk for loss and damage passes from seller to buyer when the goods are handed over to the carrier. The shipper is responsible for customs clearance in the country of that the goods originate.

CIF (Cost Insurance and Freight is the same as CFR but requires the seller to insure the goods against the buyer’s loss or damage to the goods, to the requirement of cargo clauses A.

The D Group

Comprises of three Incoterms® DAP, DPU and DDP and these Incoterms® cover the maximum responsibility that shippers can take.

DAP delivery takes place at a named place agreed in the country of which the seller has sold to. It is customs cleared for export and the shipper does not take care of customs clearance in the receiving country but do deliver to a named place, usually the buyers’ premises.

DPU delivery takes place at a named place agreed in the country of which the seller has sold to. It is customs cleared for export and the shipper does not take care of customs clearance in the receiving country but do deliver to a named place, usually the buyers’ premises BUT the seller is responsible for unloading the goods from the delivering vehicle.

DDP is the maximum responsibility that a shipper can undertake, delivery takes place at a named place agreed in the country of which the seller has sold to. It is customs cleared for export and the shipper does not take care of customs clearance in the receiving country but do deliver to a named place, usually the buyers’ premises BUT the seller customs clears the goods in the country in which the goods deliver as well as paying the taxes and duties applicable for the classification of goods.

Correct use of Incoterms should be applied for all international trade and not all incoterms are valid for all modes of transport. You should apply FAS, FOB, CFR and CIF only to Sea and Inland Waterway Transport and the Incoterms, EXW, FCA, CPT, CIP, DAP DPU and DDP to any mode of transport.

If you would like to know more or need any assistance please contact us on hello@kranlee.com and we will be more than happy to assist.

× How can I help you?