Incoterms 2020: a guide to the 11 rules for grain traders
7 min read
Incoterms 2020 define where the seller delivers, when risk passes and who pays for transport. Here are all 11 rules, what changed in 2020 and which rules grain traders use most.
Incoterms are standard trade rules published by the International Chamber of Commerce (ICC). The current edition, Incoterms 2020, took effect on 1 January 2020. Each rule is a three-letter code that answers three questions: where the seller delivers the goods, when risk passes to the buyer and who pays for which part of transport and customs.
Incoterms do not decide price, payment, quality or the moment ownership passes. Those terms belong in the contract. To apply a rule, name it together with a place and the edition, for example "FOB Chornomorsk Incoterms 2020".
All 11 rules at a glance
| Rule | Full name | Transport | Risk passes to the buyer | Main freight paid by |
|---|---|---|---|---|
| EXW | Ex Works | any | at the seller's premises | buyer |
| FCA | Free Carrier | any | on handover to the buyer's carrier | buyer |
| CPT | Carriage Paid To | any | on handover to the first carrier | seller |
| CIP | Carriage and Insurance Paid To | any | on handover to the first carrier | seller |
| DAP | Delivered at Place | any | at the named place, ready for unloading | seller |
| DPU | Delivered at Place Unloaded | any | at the named place, after unloading | seller |
| DDP | Delivered Duty Paid | any | at the named place, import cleared | seller |
| FAS | Free Alongside Ship | sea and inland waterway | alongside the vessel at the port of shipment | buyer |
| FOB | Free On Board | sea and inland waterway | on board at the port of shipment | buyer |
| CFR | Cost and Freight | sea and inland waterway | on board at the port of shipment | seller |
| CIF | Cost, Insurance and Freight | sea and inland waterway | on board at the port of shipment | seller |
Note the C-rules: CPT, CIP, CFR and CIF. The seller pays for transport to the destination, but risk passes much earlier, at shipment.
What changed in Incoterms 2020
- DAT was renamed DPU. Delivery can now be at any place, not only a terminal, and includes unloading.
- CIP now requires broader insurance, Institute Cargo Clauses (A). CIF still requires only the minimum cover, Clauses (C).
- Under FCA, the parties can agree that the buyer's carrier issues an on-board bill of lading to the seller. This helps when payment is by letter of credit.
- Under FCA, DAP, DPU and DDP, the parties can use their own transport instead of a third-party carrier.
- Security-related costs are now allocated explicitly between seller and buyer.
Which rules grain traders use
| Situation | Typical rules |
|---|---|
| Bulk grain by sea from a Black Sea port | FOB, CFR, CIF |
| Grain by barge on the Danube | FOB, FCA |
| Delivery by rail or truck to a port or border crossing | CPT, DAP, FCA |
| Sale from a farm or elevator, buyer collects | EXW, FCA |
For bulk sea shipments, the market mostly trades FOB and CIF, with CFR when the buyer insures on its own. The FOB and CIF guides explain those two rules in detail.
Common mistakes
- Using FOB or CIF for containerised or overland cargo. For these, FCA, CPT or CIP fit better.
- Leaving out the place or the edition. "FOB" alone, or "FOB Incoterms 2010", leads to disputes.
- Expecting Incoterms to cover laytime, demurrage or quality. These must be in the contract or the charter party.
- Choosing EXW for export when the buyer cannot clear goods for export in the seller's country. FCA is usually safer.
Incoterms on INBULK
Every offer on INBULK states its basis and place of delivery, so buyers and sellers compare like with like. How INBULK works.