Incoterms 2020:
What should businesses note?

What are Incoterms?

Incoterms (International Commercial Terms) are international rules issued by the International Chamber of Commerce (ICC) that define the responsibilities of buyer and seller in international trade. The current version is Incoterms 2020.

Incoterms do not replace the sales contract, but they help parties align on delivery point, cost allocation, and the moment risk transfers — critical factors in logistics planning.

What do Incoterms regulate?

Each Incoterm defines three main responsibility groups between buyer and seller:

• Delivery point and the moment risk transfers
• Allocation of transport, insurance, and related costs
• Responsibility for documentation, declaration, and customs procedures

Risk transfer point

Risk for the cargo transfers from seller to buyer at a specific point — which may be the seller's premises, port of loading, port of discharge, or final delivery location, depending on the chosen term.

NOTE Incoterms apply only when clearly stated in the contract or transaction documents. Failure to specify the full term name and location can lead to misunderstandings about responsibility.

Commonly used Incoterms

Incoterms 2020 includes 11 terms grouped by transport mode. Below is a comparison of commonly used terms in import-export transactions:

Comparison of commonly used Incoterms

Term	Group	Risk transfer point	Best suited for
EXW	All modes	At seller's premises	Buyer controls entire transport
FOB	Sea / inland waterway	On board at port of loading	Common for sea export
CIF	Sea / inland waterway	On board at port of loading	Seller covers freight and insurance to destination port
DAP	All modes	At named place of delivery	Delivery to buyer's warehouse

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Choosing the right term depends on transport mode, each party's level of control, and the logistics cost structure the business wants to manage.

What should businesses note when applying Incoterms?

Before recording Incoterms in a contract or documents, businesses should consider the following:

1. State the full term name, version (2020), and specific place or port
2. Confirm the transport mode suited to the chosen term group
3. Coordinate with the logistics provider to ensure actual responsibility allocation matches the agreed term
4. Review documentation and customs requirements related to the delivery condition

NOTE Some terms such as FOB and CIF apply only to sea and inland waterway transport. Using the wrong term group can cause disputes over responsibility.