Incoterms Guide
Incoterms®, short for International Commercial Terms, are rules published by the International Chamber of Commerce (ICC). They define responsibilities, costs, and risks in global trade, forming a key part of the contract of sale. These rules simplify transactions and ensure clear agreements between buyers and sellers, making it easier to negotiate terms effectively. The ICC first introduced a set of Incoterms in 1936. Since 1980, the ICC has revised them roughly every 10 years to reflect changes in global trade. As of 2025, Incoterms 2020 remain the current version, with the next review anticipated around 2030. The latest version, Incoterms 2020, came into effect on January 1, 2020. This is the ninth revision, following updates in 1957, 1967, 1976, 1980, 1990, 2000, and 2010. Each update aims to keep the rules aligned with modern trade practices.
These revisions clarify roles in trade contracts and ensure that parties understand their costs and risks associated with orders and shipments. They also set out who must arrange insurance for goods in transit. Incoterms are stated on relevant sales & shipping documents to ensure shipments are processed smoothly. This guide explains the updates in Incoterms 2020 and highlights the key changes for buyers and sellers. It also includes a chart to make everything clear and easy to follow.
Note: The content of this article and chart is only for general information purposes and shall not in any circumstances be considered bespoke legal advice or professional advice.
What are Incoterms?
Incoterms are international trade rules that determine who pays for shipping, insurance, and customs and when risk transfers from seller to buyer. They are widely accepted by governments and legal authorities, helping to facilitate international trade and making them an integral part of global trade contracts. Some rules apply to all modes of transport, while others are specific to sea freight. Understanding these distinctions is essential to avoid confusion in international transactions. Incoterms Rules for Any Mode of Transport (7 Terms):
EXW – Ex Works
FCA – Free Carrier
CPT – Carriage Paid To
CIP – Carriage and Paid To
DAP – Delivered at Place
DPU – Delivered at Place Unloaded (replaces DAT)
DDP – Delivered Duty Paid Incoterms for Sea and Inland Waterway Transport Only (4 Terms):
FAS – Free Alongside Ship
FOB – Free on Board
CFR – Cost and Freight
CIF – Cost, Insurance, and Freight
What does ‘Freight Collect’ and ‘Freight Prepaid’ mean?
Freight Collect and Freight Prepaid are common terms used in International Freight. It is very important to understand the difference, it is basically a statement of who will be paying for all the International freight charges. If you export your goods on ‘Freight Collect’ terms (EXW, FCA, FAS and FOB are all Freight Collect terms) that means that the importer (your buyer) will ‘collect’ and pay all of the freight charges on their side, you will not have to pay any freight at all. If you are the exporter and sell the goods on CFR, CIF, CPT, CIP, DAP, DPU or DDP terms, this means that you will pay for the freight charges (‘Freight Prepaid’ – you will pre-pay the freight charges). These are linked to the selling terms of your invoice, if you are selling your goods on ‘FOB’ terms (Free on Board) then you are only covering the costs to get the goods loaded on board the vessel. All charges thereafter will be charged to the receiver of the goods (consignee) – so it will be Freight Collect. These freight terms are stated on the Bill of Lading, the document issued by the shipping line or freight forwarder.
