1. What is Incoterms 2020?

Incoterms stands for International Commercial Terms. It is a set of internationally recognized trade rules published by the International Chamber of Commerce (ICC) and widely used around the world. Incoterms define the responsibilities, costs, and risks borne by sellers and buyers in international trade transactions.

International trade involves complex transportation arrangements and related procedures. Therefore, Incoterms were developed to help businesses in different countries conduct transactions and reach agreements more easily.

Incoterms clearly define the obligations of exporters and importers. However, Incoterms are not laws enacted by governments; they are contractual rules that become effective only when agreed upon by the parties involved. Buyers and sellers must agree on each party’s responsibilities, costs, and risks before an import-export transaction takes place.

As a result, the use of Incoterms is not mandatory and depends entirely on the agreement between the parties in an international sales contract.

Businesses may therefore apply Incoterms flexibly according to their actual trading practices. Understanding this characteristic helps companies work more effectively with trading partners and avoid misunderstandings regarding the use of Incoterms.

Incoterms are typically updated every ten years. The next version, Incoterms 2030, is expected to be released in due course.

This article highlights the key changes introduced in Incoterms 2020 compared to the previous version. It should be noted that businesses are free to choose which version of Incoterms to apply, and the introduction of Incoterms 2020 does not invalidate previous versions.

2. Key Changes in Incoterms 2020

DAT Renamed to DPU

DAT (Delivered at Terminal) has been renamed DPU (Delivered at Place Unloaded).

While the concept remains largely the same, the ICC wanted to emphasize that the seller must deliver the goods to a named place (such as a terminal, port, inland container depot, or any other agreed location).

Under DPU, the seller is responsible for unloading the goods from the means of transport at the agreed destination. This expands the scope of DAT, which was limited to terminals.

The seller bears all costs, risks, and responsibilities until the goods have been unloaded at the named place.

The purchase of cargo insurance remains subject to agreement between the buyer and seller.

Example: DPU Cat Lai Port (FCL shipment)

The seller is responsible for:

• Inland transportation from the seller’s warehouse to Cat Lai Port
• Export local charges
• Import local charges
• International freight

Insurance costs are negotiated separately between the parties.

FCA (Free Carrier)

Under FCA, the seller fulfills its delivery obligation when the goods are handed over to the carrier nominated by the buyer.

A significant update in Incoterms 2020 is that the carrier may issue an on-board Bill of Lading (B/L) to the seller after receiving the goods.

It should be noted that delivering goods to the carrier includes responsibility for loading the goods onto the means of transport.

CIF and CIP Insurance Requirements

The letter "I" in CIF and CIP refers to Insurance, meaning the seller must arrange cargo insurance.

For CIP, Incoterms 2020 increases the minimum insurance requirement to Institute Cargo Clauses (A) or equivalent coverage. Under Incoterms 2010, the default insurance level was Clause (C).

For CIF, the insurance requirement remains unchanged from the previous version.

Since insurance coverage directly affects insurance costs, buyers and sellers should carefully consider this issue when negotiating contracts.

Clearer Allocation of Costs and Responsibilities

In Incoterms 2020, Sections A9/B9 provide a clearer breakdown of the responsibilities and costs borne by sellers and buyers.

Own Means of Transport

Under the following terms:

• FCA (Free Carrier)
• DAP (Delivered at Place)
• DPU (Delivered at Place Unloaded)
• DDP (Delivered Duty Paid)

the carrier is no longer required to be an independent third party. Transportation may be performed using the seller’s or buyer’s own vehicles.

Data Security Requirements

Incoterms 2020 introduces provisions regarding information security.

Parties involved in a transaction are required to protect confidential information relating to:

• Goods
• Pricing
• Commercial agreements
• Transaction-related documents

3. Summary of Incoterms 2020 Rules

3.1 EXW – Ex Works

Summary

1. EXW means the seller delivers the goods when they are placed at the disposal of the buyer at a named place (factory, warehouse, or other agreed location).
2. The seller is not required to load the goods onto the collecting vehicle or clear the goods for export.
3. Delivery occurs—and risk transfers to the buyer—when the goods are made available to the buyer, even before loading.
4. EXW represents the minimum obligation for the seller under Incoterms.
5. EXW can be used with any mode of transport.
6. Delivery Point = Named Place

The delivery location is the same as the named place specified in the contract.

3.2 FCA – Free Carrier

Summary

1. Under FCA, the seller delivers the goods in one of two ways:

• If the named place is the seller’s premises, delivery occurs when the goods are loaded onto the buyer’s collecting vehicle.
• If the named place is another location, delivery occurs when the seller transports the goods to the agreed location and places them at the disposal of the carrier nominated by the buyer, ready for unloading.

2. Whichever location is specified becomes the point where costs and risks transfer to the buyer.
3. FCA requires the seller to complete export customs clearance.
4. On-board Bill of Lading

To enhance the practicality of FCA transactions, Incoterms 2020 allows the buyer to instruct the carrier to issue an on-board Bill of Lading to the seller after the goods have been loaded, provided this arrangement is agreed in the contract.

5. FCA may be used with any mode of transport.
6. Delivery Point = Named Place

The delivery location is the same as the named place specified in the contract.

3.3 CPT | Carriage Paid To

Summary

1. CPT means that the seller delivers the goods to the buyer – and transfers the risk of loss or damage to the buyer – when:

• The goods are handed over to a carrier contracted by the seller; or

• The seller procures goods already delivered in this manner for shipment to the buyer.

2. Once the goods have been delivered to the carrier, the seller does not guarantee that they will arrive at the destination in good condition or in the agreed quantity. Risk transfers from the seller to the buyer at the moment the goods are handed over to the carrier.

3. The seller must arrange and pay for transportation from the place of delivery to the agreed destination.

4. CPT can be used with any mode of transport.

5. Delivery Point ≠ Named Place

The point where risk transfers is different from the final destination named in the contract.

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3.4 CIP | Carriage and Insurance Paid To

Summary

1. CIP means that the seller delivers the goods to the buyer – and transfers the risk of loss or damage to the buyer – when:

• The goods are handed over to a carrier contracted by the seller; or

• The seller procures goods already delivered in this manner for shipment to the buyer.

2. Once the goods have been delivered to the carrier, the seller does not guarantee that they will arrive at the destination in good condition or in the agreed quantity. Risk transfers from the seller to the buyer at the moment the goods are handed over to the carrier.

3. The seller must arrange and pay for transportation from the place of delivery to the agreed destination.

4. The seller must obtain cargo insurance covering the goods from the place of delivery to at least the agreed destination.

5. CIP can be used with any mode of transport.

6. Delivery Point ≠ Named Place

The point where risk transfers is different from the final destination named in the contract.

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3.5 FAS | Free Alongside Ship

Summary

1. FAS means that the seller delivers the goods to the buyer when:

• The goods are placed alongside the vessel nominated by the buyer at the named port of shipment; or

• The seller procures goods already delivered in this manner for shipment to the buyer.

2. The risk of loss or damage transfers to the buyer once the goods are placed alongside the vessel, and the buyer bears all costs from that point onward.

3. FAS requires the seller to complete export customs clearance.

4. FAS is used exclusively for sea transport.

5. Delivery Point = Named Place

The delivery point is the same as the named port specified in the contract.

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3.6 FOB | Free On Board

Summary

1. FOB means that the seller delivers the goods to the buyer when:

• The goods are loaded on board the vessel nominated by the buyer at the named port of shipment; or

• The seller procures goods already delivered in this manner for shipment to the buyer.

2. The risk of loss or damage transfers to the buyer once the goods are loaded on board the vessel, and the buyer bears all costs from that moment onward.

3. FOB requires the seller to complete export customs clearance.

4. FOB is used exclusively for sea transport.

5. Delivery Point = Named Place

The delivery point is the same as the named port specified in the contract.

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3.7 CFR / CNF / C+F / C&F | Cost and Freight

Summary

1. CFR means that the seller delivers the goods to the buyer when:

• The goods are loaded on board the vessel; or

• The seller procures goods already delivered in this manner for shipment to the buyer.

2. The risk of loss or damage transfers to the buyer once the goods are loaded on board the vessel. At that point, the seller has fulfilled its delivery obligation, regardless of whether the goods arrive at the destination port in good condition or in full quantity.

3. Under CFR, the seller is not responsible for purchasing cargo insurance. Therefore, the buyer must arrange insurance if desired.

4. The seller must contract and pay for carriage from the port of shipment to the named port of destination.

5. CFR is used exclusively for sea transport.

6. Delivery Point ≠ Named Place

The point where risk transfers is different from the named port of destination.

3.8 CIF | Cost, Insurance & Freight – Cost, Insurance and Freight Summary:

1. CIF means the seller delivers the goods to the buyer when:
   • The goods are placed on board the vessel, or
   • The seller procures the goods already delivered in this way for delivery to the buyer.
2. Risk of loss or damage to the goods transfers when the goods are placed on board the vessel. At that point, the seller has completed its delivery obligation, regardless of whether the goods arrive at the port of destination in good condition.
3. Under CIF, the seller is responsible for purchasing insurance for the goods.
4. The seller must enter into a contract of carriage from the place of delivery to the named port of destination.
5. CIF is used for sea and inland waterway transport.
6. Delivery point ≠ Named place: The delivery point is different from the named place.

3.9 DAP | Delivered At Place – Delivered at Place Summary:

1. DAP means the seller delivers the goods to the buyer and transfers risk when the goods are placed at the buyer’s disposal on the arriving means of transport, ready for unloading at the named destination.
2. The seller bears all risks to bring the goods to the named destination. Risk of loss or damage transfers to the buyer at the delivery point.
3. All costs incurred before the delivery point are borne by the seller; all costs after the delivery point are borne by the buyer.
4. The seller must contract for carriage to the named place.
5. DAP can be used for any mode of transport.
6. Delivery point = Named place: The delivery point is the same as the named place.

3.10 DPU | Delivered at Place Unloaded – Delivered at Place Unloaded Summary:

1. DPU means the seller delivers the goods to the buyer and transfers risk when the goods are unloaded from the arriving means of transport and placed at the buyer’s disposal at the named destination.
2. The seller bears all risks of loss or damage to bring the goods to the named destination and unload them. DPU is the only Incoterms rule that requires the seller to unload the goods at the destination (the seller bears the costs and risks of unloading).
3. All costs incurred before the delivery point are borne by the seller; all costs after the delivery point are borne by the buyer.
4. The seller must contract for carriage to the named place.
5. DPU can be used for any mode of transport.
6. Delivery point = Named place: The delivery point is the same as the named place.

3.11 DDP | Delivered Duty Paid – Delivered Duty Paid Summary:

1. DDP means the seller delivers the goods to the buyer when the goods have cleared import customs and are placed at the buyer’s disposal on the arriving means of transport, ready for unloading at the named destination.
2. The seller bears all risks of loss or damage to bring the goods to the named destination.
3. All costs incurred before the delivery point are borne by the seller (including import customs clearance costs), and all costs after the delivery point are borne by the buyer.
4. The seller must contract for carriage to the named place.
5. DDP can be used for any mode of transport.
6. Delivery point = Named place: The delivery point is the same as the named place

4. Criteria for Choosing the Appropriate Incoterms

Incoterms directly affect import-export costs and procedures. Therefore, businesses need to carefully consider and negotiate to select the most suitable Incoterms terms.

4.1 Based on Mode of Transport In Incoterms 2020, the terms suitable for sea transport are CFR, CIF, FAS, and FOB. For shipments transported by road, rail, or domestic routes (not by sea), it is better to choose EXW, FCA, CPT, CIP, DAP, DPU, or DDP. However, in practice, some air shipments still use FOB (e.g., FOB Incheon, FOB Shanghai). It is best not to use FOB frequently for air transport to avoid unnecessary disputes.

4.2 Based on Delivery Location

• If delivery takes place at the seller’s premises, EXW or FCA are both appropriate.
• When the seller wants to deliver at a point outside their factory or warehouse and transfer risk immediately upon handing over to the first carrier, choose FCA, CPT, or CIP.
• For sea or inland waterway transport, if delivery is alongside the ship (on the quay or barge), FAS is the suitable term.
• If delivery occurs when the goods are already on board the vessel at the port of shipment, the appropriate terms are FOB, CIF, or CFR (depending on the agreement regarding insurance).
• If delivery is at the port of destination while the goods are still on board the vessel, use DAP. If delivery is at the quay at the destination port, use DPU.

4.3 Risk Transfer Between Seller and Buyer If the exporter does not want to bear risks related to the goods, costs, or main carriage, they should use terms in Group E or F. Conversely, if the buyer does not want to bear risks and carriage costs, the seller should take responsibility — in this case, choose terms in Group D. Remember the rule: “For easy export — use E or F; for easy import — remember Group D.” If the seller agrees to pay the main carriage cost but does not want to bear the risk during transportation, Group C (CFR, CIF) is the most reasonable choice.

4.4 Logistics Capability in Contracting Transport When importing from markets where the buyer can obtain lower freight rates than the exporter quotes, it is better to choose CFR, CIF, or even Group D terms so the seller books the vessel and handles the main carriage. If the importer can arrange competitive freight rates, they should choose Group E or F. This allows the buyer to communicate easily with the forwarder, take more control in booking transport, and better monitor the shipment. When freight rates are trending upward, it is advisable to let the other party handle the transport to avoid exchange rate risks.

4.5 Political and Social Stability of Transit Countries Issues such as piracy, riots, bombings, or theft still occur in regions like the Middle East and parts of Asia. In such cases, the seller should use terms where the buyer bears all risks after delivery (E, F, C). On the other hand, if the buyer is willing to bear risks in transit areas, they should choose Group D terms.

4.6 Knowledge of Customs Procedures If the buyer is not familiar with export customs procedures in the seller’s country (directly or indirectly), they should avoid EXW and choose F, C, or D terms instead. When delivery occurs at the buyer’s location, if the seller is not experienced with import customs clearance, they should choose DAP or DPU.

4.7 Nature of the Goods For goods that are easily damaged or spoiled during transport, or high-value goods with high risk of loss (such as agricultural products or precious minerals), the exporter may use EXW, while the importer may use DAP or DDP if they truly want the other party to ensure safety and bear all risks.

4.8 Business Relationship Between Exporter and Importer For first-time transactions, both parties may choose EXW or FOB because the buyer can visit the seller’s factory or warehouse and control the entire import-export process. Even without much experience, the buyer can request the forwarder or logistics provider to supply proof of delivery, handover records, and photos/videos showing the seller handing over the goods at the factory to the carrier arranged by the buyer.

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5. Frequently Asked Questions about Incoterms 2020

Are Incoterms 2020 mandatory? No. Incoterms are not mandatory laws. They are voluntary rules — the two parties agree upon them in the foreign trade contract and can choose any version (2010, 2020, etc.).

How many terms are there in Incoterms 2020? Incoterms 2020 consists of 11 terms, divided into 4 groups: E (EXW), F (FCA, FAS, FOB), C (CFR, CIF, CPT, CIP), D (DAP, DPU, DDP).

What is the difference between CIF and CIP in Incoterms 2020? Both require the seller to purchase insurance, but CIF is for sea transport with minimum coverage (Institute Cargo Clauses C), while CIP applies to all modes of transport with higher coverage (Institute Cargo Clauses A) — this is one of the most important changes in the 2020 version.

What did DAT in Incoterms 2010 become in 2020? DAT (Delivered at Terminal) was renamed DPU (Delivered at Place Unloaded) in Incoterms 2020, and the scope of the delivery point was expanded.

Which is more beneficial for Vietnamese importers: FOB or CIF? It depends on the company’s logistics capability. If you have good relationships with domestic forwarders, FOB is better (you can book the vessel at more competitive rates). If you lack experience, CIF is safer because the seller handles transportation and insurance.

When did Incoterms 2020 take effect? Incoterms 2020 officially came into effect on January 1, 2020, issued by the International Chamber of Commerce (ICC). However, older versions (Incoterms 2010) remain valid if the parties agree to use them.

Does Incoterms 2020 regulate the transfer of ownership of goods? No. Incoterms only regulate the transfer of risk, costs, and obligations between buyer and seller. Ownership is determined by other terms in the foreign trade contract or transport documents (such as the Bill of Lading).