Incoterms 2020: An Introduction to the International Commercial Terms

Stefan Schmierer
Jun 2, 2020
3 min read

Updated: Apr 28

Incoterms 2020 form a core part of international commercial practice by providing a standardised set of rules governing the delivery of goods in cross‑border sales contracts. By clearly allocating risk, cost, and responsibility between sellers and buyers, Incoterms play a central role in reducing uncertainty and disputes in international trade transactions.

The International Commercial Terms (Incoterms©) feature a series of three‑letter trade terms which each present accurate rules for exchange of goods for international sales contracts, and deal with the passage of risk from the seller to the buyer, and which party bears which costs. Helping to eliminate ambiguity to the parties,

First published by the International Chamber of Commerce (ICC) in 1936, Incoterms© have been refined every decade, and have gradually developed into the essential trade terms widely recognised globally. Statistics from ICC Paris show that Incoterms© are used in approximately 90% of global trading contracts, facilitating trillions of dollars annually, with their influence increasing consistently. In the latest edition, Incoterms 2020, offered in more than 29 languages, there are 11 trade terms. Some rules remain unchanged from previous versions, while others have been revised following evaluation at international conferences.

The Eleven Trade Terms Under Incoterms 2020

Seven of the terms (EXW, FCA, CPT, CIP, DAP, DPU, DDP) may be applied where goods are transported using combined or multimodal transport. The remaining four terms (FAS, FOB, CFR, CIF) apply primarily to sea or inland waterway transportation. Some of the most commonly used Incoterms© are introduced as follows.

EXW (Ex Works)

Under EXW, the seller has the minimum obligation, limited to packing the goods and making them available for collection at the seller’s premises. The buyer assumes responsibility for collection, loading, taxes, freight, insurance, customs clearance, and delivery to the final destination. Although EXW may appear to be the least expensive option offered by the seller, buyers should carefully consider the additional logistical and regulatory costs that may arise.

DDP (Delivered Duty Paid)

At the opposite end of the spectrum to EXW, DDP places maximum responsibility on the seller. The seller bears all costs and risks associated with delivering the goods to the destination specified by the buyer, including duties and taxes. The buyer is generally only required to receive the goods. While DDP may represent the highest upfront price, it can reduce logistical complexity for buyers unfamiliar with foreign trade procedures.

FOB (Free on Board)

FOB applies only to sea or inland waterway transport and allocates responsibilities between the parties more evenly. The seller is responsible for export clearance, arranging transport, and loading the goods onto the vessel designated by the buyer. The risk transfers once the goods are loaded onboard. The buyer then assumes responsibility for freight, insurance, unloading, import clearance, and subsequent transportation. FOB can be cost‑effective depending on freight terms negotiated by the buyer.

Differences With Other Trade Terms

While additional trade clauses may exist in certain jurisdictions, Incoterms remain dominant in global trade. Unlike domestic trade regimes or tariff schedules, such as the Harmonized Tariff Schedule of the United States, Incoterms© provide internationally neutral and harmonised rules that are not tailored to national legislation. Their adoption promotes transparency, consistency, and predictability in international commercial transactions.

How Ravenscroft & Schmierer Can Help?

Ravenscroft & Schmierer advises businesses on the legal implications of using Incoterms 2020 in international sales contracts, including risk allocation, contractual drafting, and dispute prevention. The firm assists clients in understanding how Incoterms interact with governing law, logistics practices, and payment arrangements.

Businesses seeking clarity on the appropriate use of Incoterms in cross‑border transactions may contact us for further information.

Frequently Asked Questions

Whilst every effort has been made to ensure the accuracy of this article it is general in nature and does not constitute legal advice of any kind. You should seek your own personal legal advice before taking legal action. We accept no liability whatsoever for loss arising out of the use or misuse of this article.