In the case of CPT (Carraige Paid To), the seller delivers by making the goods available to the carrier nominated by the buyer at the named place within the agreed period and entering into a contract of carriage. Till then, he must bear all the costs, which will include transportation of the goods to the carrier’s premises and the cost of transport of goods to the named place of destination. The seller must pay for obtaining the usual proof that the goods have been delivered to the carrier. If the said proof, as agreed, happens to be the transport document, say a bill of lading or the airway bill, then the seller must pay the costs for obtaining the same. The costs for sending to the buyer the proof of delivery and any costs or charges or duties and taxes for obtaining export clearance and also transport related security, must be borne by the seller.. If the seller requests the buyer to assist in obtaining any information or documents required for carrying out export or transit formalities, the seller must reimburse the buyer the costs for doing so.

On his part, the buyer must bear all the costs after the delivery is made in accordance with A2. He must reimburse the seller any costs incurred for providing any assistance documents for import formalities. He must also bear the any or all duties, taxes, costs or other charges for any customs or other formalities for import of the goods. In case the buyer fails to give the seller appropriate information about the nominated carrier to whom the cargo must be delivered within the agreed period from the named place of delivery or if the carrier nominated by him fails to take delivery of the goods at the expiry of the agreed period, the buyer must pay additional costs incurred on that account.

Invariably, the transportation costs in the contract of carriage will include costs for transit through intermediate countries and unloading at the place of destination. Where such costs are included in the contract of carriage, the seller must bear such costs. Where such costs are not included in the contract of carriage, the buyer must bear such costs.

In the case of CIP (Carriage Paid To), the allocation of costs is the same as for CPT, except that the seller must pay for the costs of insurance. For taking the insurance cover, the seller may need from the buyer information such as the point at the place of destination where the goods must be delivered. The buyer must provide the seller with such information at his own cost. The seller will usually cover insurance only till the place of destination.

Under CIP, the seller must cover insurance for 110% of the invoice value of the goods. The Insurance must cover ‘all risks’ as per the Institute Cargo Clauses. If the buyer requires additional insurance coverage such as risks arising from war, strikes, riots, civil commotion etc., or if the buyer wants a cover higher than 100% of the invoice value, the seller may cover these at the request of the buyer but the buyer must reimburse the additional costs for such higher or more extensive insurance cover. The seller must bear the costs of sending to the buyer, the insurance policy or certificate duly endorsed.

At his own cost, the buyer must give the seller information necessary to enable him take out insurance. The seller, at his own cost, must intimate the shipment details to the buyer to enable him cover the risks from the time the goods are delivered.

Under all the Rules of Incoterms 2020, the obligations of the seller in regard to allocation of costs are spelt out at A9 and those of the buyer at B9 in the columnar format under each Rule.

Under each of the 7 Rules for any mode or modes of transport (EXW, FCA, CPT, CIP, DAP, DPU and DDP), the general principle is that the seller bears all the costs till the goods are delivered in accordance with A2 and the buyer bears all the costs thereafter. There can be some exceptions.

In the case of EXW (Ex-Works), the seller delivers by making the goods available at the named place within the agreed period and giving notice to the buyer. Till the delivery is thus made, the seller bears all the costs and the buyer bears all the costs after taking delivery or if he does not do so, from the end of the agreed period. The seller has no obligation to load the goods and therefore, if he does so at buyer’s request, then the buyer must reimburse the seller for such costs. In addition, the buyer must reimburse the seller any costs incurred for providing any assistance or information needed for arranging transport, insurance and import and export formalities. He must also bear any or all duties, taxes, costs or other charges for any customs or other formalities for export of the goods. In case the buyer fails to give the buyer appropriate notice of the arrangements made to pick up the cargo within the agreed period from the named place of delivery or if the buyer or his agent or the carrier nominated by him fails to pick up the goods at the expiry of the agreed period, the buyer must pay any additional costs incurred on that account.

In the case of FCA (Free Carrier), the seller delivers by making the goods available to the carrier nominated by the buyer at the named place within the agreed period. Till then, he must bear all the costs, which may include transportation of the goods to the carrier’s premises. In case, the goods are to be delivered to the carrier at the seller’s premises, it may include the loading costs. The seller must obtain the proof of delivery to the carrier at his own cost. If the said proof happens to be the transport document, say a bill of lading or the airway bill, then the seller must pay the costs for obtaining the same. Any costs or charges or duties and taxes for obtaining export clearance must be borne by the seller. If the seller requests the buyer to assist in obtaining any information or documents required for carrying out export formalities, the seller must reimburse the buyer the costs for doing so.

On his part, the buyer must bear all the costs after the delivery is made. He must reimburse the seller any costs incurred for providing any assistance documents for transit and import formalities. He must also bear the any or all duties, taxes, costs or other charges for any customs or other formalities for transit and import of the goods. In case the buyer fails to give the seller appropriate information about the nominated carrier to whom the cargo must be delivered within the agreed period from the named place of delivery or if the carrier nominated by him fails to take delivery of the goods at the expiry of the agreed period, the buyer must pay additional costs incurred on that account.

In the case of DAP (Delivered At Place), the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the agreed point, if any, at the named place of destination within the agreed period. Till then, he must bear all the costs, which will include the cost of loading the goods, any transport related security and the transport of goods to the named place of destination. The seller must pay for obtaining the usual proof that the goods have been so delivered to the buyer or his agent. The seller has no obligation to unload the goods at the destination but if the contract of carriage includes unloading at the agreed destination, the seller must bear the costs. The costs for export clearance, including any duties, taxes or any other charges and for transit through intermediate countries must be borne by the seller. If the seller requests the buyer to assist in obtaining any information or documents required for carrying out export or transit formalities or for arranging insurance, the seller must reimburse the buyer the costs for doing so.

On his part, the buyer must bear all the costs after the delivery is made in accordance with A2. He must reimburse the seller any costs incurred for providing any assistance documents for import formalities. He must also bear the any or all duties, taxes, costs or other charges for any customs or other formalities for import of the goods. If the costs of unloading the cargo at destination are not included in the contract of carriage, the buyer must bear such charges. The buyer must give notice of the point at the place of destination where the goods must be made available. If he fails to do so, he must bear any additional costs incurred due to that reason.

In the case of DPU (Delivery at Place Unloaded), the seller delivers when the goods once unloaded from the arriving means of transport, are placed at the disposal of the buyer at the point in the named place of destination within the agreed period. The allocation of costs is the same as for DAP, except that the seller must also pay for the costs of unloading the goods at the named place of destination.

In the case of ‘Delivery Duty Paid’ (DDP), the seller delivers when the goods are placed at the disposal of the buyer cleared for import on the arriving means of transport ready for unloading at the named place of destination within the agreed period. The allocation of costs is the same as for DAP, except that the seller has to also bear the costs of import clearance. This means the import duties, taxes and any other charges relating to import clearance must be borne by the seller. Sometimes, it may also include Value Added Tax or Goods and Services Tax in the importing country. Of course, the buyer is required to extend all assistance in procuring any information or documents for clearance of the goods through the Customs in the importing country.

Invariably, in the case of DAP, DPU and DDP, the delivery of the goods will be in the importing country. The delivery point may be a specific point at the terminal at the port or airport or a warehouse or a project site or the buyer’s premises. The seller must take careful note of any inland transportation or other costs involved in discharging his obligation to deliver the goods at the place of destination.

Under all the Rules of Incoterms 2020, the obligations of the seller in regard to allocation of costs are spelt out at A9 and those of the buyer at B9 in the columnar format under each Rule.

Under each of the 4 Rules for transport by sea or inland waterways (FAS, FOB, CFR and CIF) the general principle is that the seller bears all the costs till the goods are delivered in accordance with A2 and the buyer bears all the costs thereafter. There can be some exceptions.

In the case of FAS (Free Alongside Ship), the seller delivers by making the goods available alongside the carrier nominated by the buyer at the named place within the agreed period. Till then, he must bear all the costs, which will include transportation of the goods to the quay alongside the nominated vessel. The seller must pay for obtaining the usual proof that the goods have been delivered to the carrier. If the said proof, as agreed, happens to be the transport document, say a bill of lading, then the seller must pay the costs for obtaining the same. The costs for sending to the buyer the proof of delivery and any costs or charges or duties and taxes for obtaining export clearance must be borne by the seller. If the seller requests the buyer to assist in obtaining any information or documents required for carrying out export formalities, the seller must reimburse the buyer the costs for doing so.

On his part, the buyer must bear all the costs after the delivery is made in accordance with A2. He must reimburse the seller any costs incurred for providing any assistance or documents for import or transit formalities. He must also bear any or all duties, taxes, costs or other charges for any customs or other formalities for import of the goods. In case the buyer fails to give the seller appropriate information about the nominated vessel alongside which the cargo must be delivered within the agreed period or if the vessel nominated by him fails to arrive at the named place within the agreed period, the buyer must pay additional costs incurred on that account.

In the case of FOB (Free on Board), the allocation of costs is the same as that for FAS, except that the costs of loading the goods on board the vessel must be borne by the seller.

In the case of CFR (Cost and Freight), the seller must deliver by placing the goods safely on board the vessel and also enter into a contract of carriage. He must bear the costs of transportation to the named place of destination i.e. the port of discharge. Invariably, the transportation costs in the contract of carriage will include costs for transit through intermediate countries and unloading at the place of destination. Where such costs are included in the contract of carriage, the seller must bear such costs. Where such costs are not included in the contract of carriage, the buyer must bear such costs.

In the case of CIF (Cost, Insurance and Freight), the allocation of costs is the same as for CFR, except that the seller must pay for the costs of insurance. For taking the insurance cover, the seller may need from the buyer information such as the point at the port of discharge where the goods must be delivered. The buyer must provide the seller with such information at his own cost. The seller will usually cover insurance only till the place of destination.

Under all the Rules of Incoterms 2020, the obligations of the seller in regard to the carriage of the goods are spelt out at A4 and those of the buyer at B4 in the columnar format under each Rule.

The Ex-Works (EXW) and Free Carrier (FCA) cast no obligation on the seller to contract for carriage. Under EXW, the seller has to make the goods available at the named place and serve a notice to the buyer. Under FCA, the seller has to make the goods available to the carrier named by the buyer at the named place. But, in both the cases, the seller must notify the buyer any relevant information requested by the buyer or detailing any special care to be taken, especially in regard to the transport-related security requirements.

The buyer’s obligation in EXW and FCA is to take delivery of the goods at the named place and arrange for carriage either in his own conveyance or through a contracted carrier. At buyer’s request, the seller, at his own option, may contract for carriage with a carrier but that will be at the cost and risk of the buyer. Usually, this must be agreed upfront in the contract.

In the case of Carriage Paid To (CPT) and Carriage Insurance Paid (CIP), the obligation to enter into contract of carriage, at his own cost, is with the seller. Unless the buyer and seller agree otherwise, the contract of carriage must be from the agreed point at the place of delivery on the usual terms and for usual route in a customary manner of the type used for transport of the kind of goods sold. The seller must know from the buyer precisely where the goods have to be consigned, the point at the place of destination. If the buyer does not specify that, the seller can choose the point at the place of destination that best suits the purpose. The seller must comply with any security related requirements for the entire transport to the destination.

The buyer’s obligation in CIP and CPT is to inform the buyer the point at the place of destination where the cargo should be consigned and make sure that import formalities in his country do not delay the clearance of the goods through the Customs. For this purpose, he may seek necessary documents and information from the seller.

In the case of Delivery At Place (DAP), Delivery at Place Unloaded (DPU) and Delivery Duty Paid (DDP), the seller must contract for carriage of the goods to the named place of destination or the agreed point at the named place of destination e.g. project site, buyer’s premises, any other warehouse, any container yard or port or airport terminal etc. This should preferably be agreed upfront in the contract. If the buyer does not specify that, the seller can choose the point at the place of destination that best suits the purpose. The seller must comply with any security related requirements for the entire transport to the destination.

The buyer’s obligation in DAP, DPU and DDU is to inform the seller the point at the place of destination where the cargo should be consigned. If this is not made known to the seller, he can choose the point at the place of destination that best suits the purpose. The buyer should also make sure that import formalities in his country do not lead to delay the clearance of the goods through the Customs. For this purpose, he may seek necessary documents and information from the seller.

The four Rules, FAS, FOB, CFR and CIF together are generally referred or understood as Maritime Rules, for the sake of convenience. They very specifically refer to only transportation over water, either by ship or barges, ocean going or only through river or by a combination of both and they cover only port to port shipment. These should be used only when no other mode of transport is involved. If any other mode of transportation is involved, the parties must consider the use of FCA, CIP or CPT. Also, these Rules should not be used for container shipments and less than container loads because, invariably, such type of consignments are delivered to the carriers at the container yards at the ports or inland container deports or container freight stations.

Under Free Alongside Ship (FAS) and Free On Board (FOB), the seller has no obligation to contract for carriage but the seller must give the buyer all the necessary details to enable him (the buyer) enter into contract of carriage. Secondly, the seller must inform the transport related security requirements clearly to the buyer.

The obligation of the buyer is to convey the kind of documentation required by him and arrange for contract of carriage. However, many times the buyer may request the seller to enter into contract of carriage. In such cases, the seller, at his own option, may enter into contract of carriage but at the cost and risk of the seller. Usually, such matters must be agreed upfront in the contract. Where the seller does enter into contract of carriage, he must do so on the terms as agreed in the contract or the usual terms as determined by earlier dealings.

In an FAS contract, the seller has to place the goods alongside the vessel within the agreed date or period. The parties should clearly agree on whether the seller should merely obtain the receipt from the carrier and send to the buyer to enable him enter into contract of carriage and obtain a bill of lading should be rather clear upfront. In most FAS situations, whoever seeks a bill of lading will only get a ‘received for shipment’ bill of lading. This must be clearly understood.

Similarly, in a FOB contract, the seller has to place the goods on-board the vessel. The parties should clearly agree on whether the seller should merely obtain the ‘mate’s receipt’ from the captain of the vessel and send to the buyer to enable him enter into contract of carriage and obtain a bill of lading should be rather clear upfront. In all probability, whoever seeks a bill of lading, will get an ‘on-board’ bill of lading. This must be clearly understood.

There could be situations where the seller has to claim payment against presentation of transport documents, may be under a letter of credit. In such situations, the buyer and seller must agree upfront on who will enter into a contract of carriage and the type of documentation required.

Under Cost and Freight (CFR) and Cost, Insurance and Freight (CIF), the obligation to enter into contract for carriage is on the seller. He must arrange or procure a contract of carriage of the goods from the port of loading to the port of discharge or where so agreed, any point at the port of destination. For this purpose, he will require the buyer to inform the precise details. Invariably, the seller will be required to obtain a bill of lading and send to the buyer to enable him take delivery of the goods.

Under all the Rules of Incoterms 2020, the obligations of the seller in regard to checking, marking and packing are spelt out at A8 and those of the buyer at B8 in the columnar format under each Rule.

Without exception, in all the Rules of Incoterms 2020, the obligations to check the goods for quality or for measuring them or for weighing them to ensure that they are in accordance with the contract are on the seller. The buyer has no role in them and consequently has no obligations to do so. The costs for such operations are also to be borne by the seller. For example, the goods may have to be tested for compliance with several quality parameters, sometimes in independent laboratories. The buyer has to get the testing done at his own cost.

Of course, there could be situations where the buyer names an independent laboratory where the goods have to be tested or gives some critical specifications that must be got tested or pre-shipment inspections to be carried out by specific agencies. In such cases the parties must agree on who will bear the costs but once that is agreed, the seller cannot escape the obligations to get such analysis, testing or inspection done.

The obligation to package the goods properly is on the seller, unless the goods are of a nature that they need no packing, such as goods delivered in bulk. The packaging must be appropriate for the type of goods. For example, the goods that are susceptible to breakage, such as glass, must be packed in a manner that they withstand the rigour of handling during transportation; hygroscopic goods must be so packed that they do not get spoiled by moisture; and so on.

The packaging must also be appropriate for the type of voyage. It is customary for goods to be transported by sea or inland waterways to be packed in wooden crates but such a packing would be inappropriate for transportation by air, where packing in cartons may be appropriate as the weight is an important consideration. Heavier packing will significantly boost the costs by air transport whereas lighter packing may significantly make the goods not worthy of sea or inland waterway transport, where the handling may not be as sophisticated as in the case of air transport.

Of course, if the buyer wants some extra or different packing than is customary, the buyer and seller must agree on who will bear the extra cost. However, once that is agreed, the seller must comply with the packaging requirements or specifications as agreed.

The obligation to mark the packages is on the seller. The marking should be appropriate for the type of goods and should caution the handlers during the voyage of any special care to be taken. For example, it is customary to mark the packages with ‘Fragile, Handle with Care’, where the goods are susceptible to breakage. Similarly, there may be goods that need to be in a dry place during transport. There may be hazardous goods that require special handling to ensure that they suffer no damage that would lead to any leakages during transportation and handling at the cargo terminals. So, the seller must take enough care to mark the packages as appropriate and as is customary.

Of course, there could be situations where the buyer has special requirements. For example, he may provide the seller with his (buyer’s) logo, labels or tags or similar things. Such exceptions must be agreed upfront and once agreed, the seller must comply with the agreed marking specifications.

Under all the Rules of Incoterms 2020, the obligations of the seller in regard to Delivery/Transport Documents are spelt out at A6 and those of the buyer at B6 in the columnar format under each Rule.

Whenever the seller delivers the goods under any Rules of the Incoterms 2020, he needs proof of delivery to evidence that he has discharged his obligation. This can be a simple receipt, either stand alone or endorsement on the invoice of the seller or a transport document. The precise document and in what form this must be obtained by the seller should be invariably agreed upfront.

In the case of EXW (Ex-Works), the seller delivers by making the goods available at the named place and gives notice to the buyer. So, there is no obligation on the part of the seller to give any documents to the buyer. It is the buyer who has an obligation to give the seller a receipt for the goods when he takes delivery. In what form the receipt has to be given must be agreed upfront between the buyer and the seller.

In the case of FCA (Free Carrier), the seller delivers to the carrier nominated by the buyer. The carrier’s receipt is the proof of delivery. What form the receipt must be is something that the buyer and seller must agree upfront. Sometimes, the buyer may instruct the carrier to issue a transport document (e.g. an airway bill or multi-modal transport document or a truck receipt or a railway receipt). That may be to enable the seller present transport documents under letter of credit or to raise finance. So, if the parties have agreed that the seller must present ‘on board’ bill of lading, the buyer must so instruct the carrier. Where the buyer so requests, the seller must assist him in obtaining the transport document, at the buyer’s cost and risk. Where, in an FCA contract, the buyer requests the seller to arrange for contract of carriage at his (buyer’s) cost and risk and the seller agrees to do so, the precise document (bill of lading, airway bill, truck receipt, railway receipt, multi-modal transport document, courier receipt etc.) must be agreed upfront. The form of the document (negotiable or non-negotiable) should also be agreed upfront.

In the case of CPT (Carriage Paid To) and CIP (Carriage and Insurance Paid) the seller contracts for carriage and so, it is his obligation to obtain and send the transport document to the buyer. The document will depend on the mode of transport (sea, air, truck, rail or multi-modal) and may be negotiable or non-negotiable depending on the mode of transport and as agreed between the buyer and the seller. The transport document must evidence delivery within the agreed period and from the place of delivery to the place of destination.

In the case of DAP, DPU and DDP, usually the seller delivers the goods in the importing country at the named place and the buyer has no role in transportation till then. Since the seller bears the responsibility of transportation till delivery at the place of destination, it is unlikely that the buyer will need transport documents. However, it is possible that in some cases, the buyer may require transport documents to carry out the customs clearance formalities in the importing country, because the legislations in his country require a registered entity in that country to carry out customs formalities. In such cases, the parties must agree on seller’s obligation to send the transport documents to the buyer.

Under all the Rules of Incoterms 2020, the obligations of the seller in regard to Delivery/Transport Documents are spelt out at A6 and those of the buyer at A6 in the columnar format under each Rule.

Out of the four Incoterms 2020 Rules for transport by sea or inland waterways or a combination of both, under FAS (Free Alongside Ship) and Free on board (FOB), the seller has no obligation to enter into a contract of carriage. But, he will need a proof of delivery to show that he has discharged his obligation to deliver the goods within the agreed period. So, the buyer must name the person from whom the seller can obtain such a document.

In the case of FAS, the proof of receipt of goods may be issued by a freight forwarder nominated by the buyer at the port of loading or it may be the carrier’s receipt showing that the seller has delivered the goods alongside the vessel. In any case, it is very necessary that the buyer and the seller agree upfront, preferably in the contract, as to who will issue the proof of delivery and what the document for the proof of delivery should be.

In the case of FOB, the seller’s obligation is to ensure that the goods are loaded i.e. placed safely, ‘on board’ the vessel nominated by the buyer. When he does discharge that obligation, he needs a document to show that he has delivered in accordance with his obligations under FOB. Usually a mate’s receipt issued by the captain of the vessel giving the quantity and description of goods, should be the document evidencing delivery. The seller and the buyer must agree on this upfront to avoid any disputes later.

Sometimes, it is possible that the buyer requests the seller to contract for carriage even in FAS and FOB contracts and the seller agrees to do so at the buyer’s cost and risk. In that case, the buyer and the seller can very well agree on the transport document i.e. the bill of lading as the proof of delivery. Even here, the parties must agree on the type of bill of lading i.e. whether it should be a non-negotiable seaway bill or a negotiable bill of lading and if it is a negotiable document, whether it should show the consignee as the buyer or it should merely show the seller as the shipper and be endorsed in favour of the buyer or blank endorsed. The transport document must cover the contracted goods and must evidence delivery within the contracted period.

In the case of both FAS and FOB, whenever the buyer requests the assistance of the seller for entering into a contract of carriage with the carriers, the seller must give reasonable assistance at the cost and risk of the buyer.

In the case of CFR (Cost and Freight) and CIF (Cost, Insurance and Freight), the seller has an obligation to enter into contract of carriage. So invariably, the document evidencing delivery will be the bill of lading issued by the carrier. The buyer and the seller must agree on the type of bill of lading i.e. whether it should be a non-negotiable seaway bill or a negotiable bill of lading and if it is a negotiable document, whether it should show consignee as the buyer or merely show the seller as the shipper and be endorsed in favour of the buyer or blank endorsed. The transport document must cover the contracted goods and must evidence delivery within the contracted period.

All these three Rules, known as the ‘D’ Rules, require the seller to deliver the goods in the buyer’s country, where necessary after carrying out the import formalities.

‘Delivered At Place’ (DAP) - means that the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the agreed point, if any, at the named place of destination on the agreed date or within the agreed period.

‘Delivered At Place Unloaded’ (DPU) means that the seller delivers when the goods once unloaded from the arriving means of transport, are placed at the disposal of the buyer at the point in the named place of destination within the agreed period.

‘Delivery Duty Paid’ (DDP) means that the seller delivers when the goods are placed at the disposal of the buyer cleared for import on the arriving means of transport ready for unloading at the named place of destination on the agreed date or within the agreed period.

Thus, in the case of DAP and DDU, the seller has no obligation to unload the goods, whereas in the case of DPU, the seller takes on the obligation to unload the goods. This may not be always practical, if the goods require special equipments to unload that are not available at the destination. It is unlikely that the seller would engage crane mounted trucks or forklifts towed by the truck for unloading. However, DPU can work when the seller can engage the agencies that can undertake this work at the destination. For example, at the ports or at any railway terminal it is likely that there would be established cargo handling agencies engaged in the specialist task of unloading the cargo or the carriers themselves may have the means to unload the cargo or arrange for it.

Sometimes, the buyer may ask the goods to be delivered at a project site where some construction work is going on. Where the seller feels that adequate facilities are not available at such destination to unload the cargo, he should rather opt for DAP rather than DPU.

The DPU in Incoterms 2020 replaces the DAT (Delivered at Terminal) in the earlier 2010 Rules. In essence, there is no difference from the earlier DAT and the present DPU. DAT did not restrict delivery only at the terminal. Under DAT, the delivery occurred when the goods once unloaded from the arriving means of transport, were placed at the disposal of the buyer at the point named in the terminal at the named port or place of destination within the agreed period. It also said that the word ‘terminal’ includes any place, quay, warehouse, container yard or rail, road or air cargo terminal. However the use of the words ‘terminal’ created an impression that the seller must deliver only at a terminal. The idea of changing DAT to DPU is to make it clear that the point of delivery may be any place at the destination.

As far as delivery obligations are concerned, there is no difference between DAP and DDP terms. In the case of DDP, the price is inclusive of duty and so, the seller bears any risk of variation in import duties or duty rates. In the case of DAP, that risk passes to the buyer.

In all the cases of DAP, DPU or DDU, the seller must give notice to the buyer upon making the goods available at the destination and the buyer’s obligation is to take delivery when the goods are so delivered by the seller.

At the core of Incoterms 2020 is the concept of delivery of goods because the seller usually bears the costs and risks till the goods are delivered. Once the goods are delivered by the seller, the risks and costs from thereon usually pass on to the buyer.

In some cases (e.g. Ex-W), the seller delivers the goods by making the goods available at an agreed place and gives notice to the seller and thereafter, it is for the seller to take delivery i.e. take possession of the goods. In some other cases (e.g. FOB), the seller delivers the goods to the carriers and sends the necessary documents to the buyer.

Under all the Rules of Incoterms 2020, the delivery obligations of the seller are spelt out at A2 in the columnar table and the obligations of the buyer to take delivery are spelt out at B2 in the table.

Under Ex-Works of the Incoterms 2020, the delivery occurs when the seller makes the goods available at the agreed place and gives notice to the buyer. Thereafter, it is the obligation of the buyer to take delivery i.e. possession of the goods from the named place.

One of the misconceptions about Ex-W is that the place of delivery has to be the works or the factory of the seller. That is not the case. The place of delivery may be the factory or warehouse or any premises of the seller or any other named place away from the seller’s premises. It is quite possible that the seller, a trader, has contracted the goods from another manufacturer and the agreed place of delivery may be the factory of that manufacturer.

Another misconception is to equate the word ‘delivery with giving physical delivery or actual possession of the goods to the buyer. Once the seller makes the goods available at the named place and gives notice to the buyer, the delivery occurs. When the buyer takes physical possession of the goods is not material. So, if there is possibility of delay in lifting the goods, the buyer must arrange suitable insurance to cover damage of the goods after the seller has delivered the goods.

A third misconception is regarding loading of the goods. The seller has no obligation to load the goods on the buyer’s own or collecting vehicle. He only needs to make the goods available at the named place and give notice to the buyer. This can create some problems for the buyer where special equipments are required to load the goods. So, the buyer should evaluate and choose Ex-W only if he can load the goods. If he does opt for Ex-W and later requests the seller to load the goods, he must understand that the seller can at his own option agree to do so but the costs for loading and risks involved will still have to be borne by the buyer.

Since the buyer has to take possession of the goods from the named place, he has to send his own or collecting vehicle to the named place, which may be the seller’s premises or any other named place. The seller must ensure that the vehicle will be able to get unhindered access at the named place. Also, if at the named place or factory or premises, multiple loading points exist, the seller and buyer must agree on the point of loading where the vehicle can be sent by the buyer.

Finally, the seller must deliver within the time or period agreed e.g. by 10th June or within 30 days from the date of contract.

‘Free Alongside Ship’ (FAS) means that the seller delivers the goods by placing the goods alongside the vessel (e.g. on a quay or a barge) nominated by the buyer at the loading point indicated by the buyer, if any, at named port of shipment or by procuring the goods so delivered on the agreed date or within the agreed period, in the manner customary at the port. The vessel must be present when the goods are so delivered. Otherwise, it will not be considered as delivery under FAS.

‘Free On Board’ (FOB) means that the seller delivers the goods by placing them on board the vessel nominated by the buyer at the named port of shipment or by procuring the goods so delivered on the agreed date or within the agreed period, in the manner customary at the port.

In both FAS and FOB, the buyer’s prime obligation is to notify the seller the name of the vessel and loading point at the named port within sufficient time to enable the seller deliver the goods. The seller has no obligation to enter into a contract of carriage with the carrier. If the buyer so requests, seller may do so, at his own option, at the cost and risk of the buyer. If he opts not to do so, he must intimate the buyer.

Under ‘Cost and Freight’ (CFR) as well as ‘Cost, Freight and Insurance’ (CIF), the delivery occurs when the seller places the goods on board the vessel at the named port of shipment or by procuring the goods so delivered on the agreed date or within the agreed period, in the manner customary at the port. The seller must enter into a contract of carriage with the carrier from the port of loading to the port of destination.

An important point to note in FOB, CFR and CIF is that the goods must be placed safely on the deck or in the hold of the ship. The concept of crossing the ship’s rail was done away with in the 2010 Rules.

Another important point is that FOB, CFR and CIF should not be chosen for container shipments or even less than container loads. The reason is that usually, the containers are delivered to the shipping lines at the container yards at the ports or inland container depots. When that happens, the ship may not have even arrived. Invariably, it is the carrier who loads the containers on to the vessel when the ship arrives. In case of less than container loads, the packages usually go to the container freight stations where they are stuffed into containers along with other less than container loads, before movement of the containers to the port commences. So, in case of container loads or less than container loads, the preferred option should be FCA, CIP or CPT rather than FOB, CFR or CIF. In effect, this means that the FOB, CFR or CIF term should be chosen usually for bulk or non-containerised cargo, where the seller’s obligation is to ensure that the cargo is placed on the deck or in the hold of the ship.

In all these case, the seller must obtain and send the proof of delivery to the buyer. Where, as agreed, these are transport documents, the seller must obtain and send them to the buyer to enable him take delivery of the goods at the port of discharge. In case of FAS, FOB and CFR, he must intimate the necessary shipment details to the buyer to enable him take out insurance.

‘Free Carrier’ (FCA) requires the seller to deliver the goods to the carrier or another person nominated by the buyer at the agreed point, if any, at the named place on the agreed date or within the agreed period. The delivery may be before customs clearance for export or after. This must be clearly spelt out in the contract.

The seller has no obligation to enter into a contract of carriage with the carrier. He may, if requested by the buyer or nothing to the contrary is instructed by the buyer, contact for carriage on usual terms at the risk and expense of the buyer. In that case, he must give despatch details and transport document to the buyer through any convenient means. If the buyer requests the seller to make a contract of carriage but the seller does not want to do so, he must give notice of his refusal to do so to the buyer.

Delivery is complete when the goods are placed at the disposal of the carrier or nominated person. However, if the named place is the seller’s premises, the delivery is complete when the goods have been loaded on the means of transport provided by the buyer. The seller need not take out insurance but he must provide the buyer necessary information to enable the latter take out insurance. If the buyer specifically requests, the seller may take out insurance at the cost and risk of the buyer.

The buyer’s prime obligation is to notify the seller the name of the carrier or nominated person within sufficient time to enable the seller deliver the goods. He should select the time within the agreed delivery period when the carrier or nominated person will take delivery. He should notify the seller the mode of transport to be used by the nominated person and the point of taking delivery within the named place. He should accept the delivery as agreed and pay the seller the agreed price for the goods against delivery and as agreed.

It may be noted that when the delivery is not at the seller’s premises but at any other named place, the obligation of the seller is to place the goods at the disposal of the buyer or the carrier at the named place. But the seller is under no obligation to unload the goods from his own means of conveyance at the named place. Most often, he may not have the means or equipments to unload the cargo. Many times, he may not be allowed to undertake such operations at the named place for safety, security and other operational reasons.

FCA can be used for any mode or modes of transport. Quite often the goods go through several modes of transport, including sea or inland waterways transport. Where multimodal transport operators take the responsibility of end-to-end transportation, FCA must be used. For all containerised cargo, FCA must be used, even where only port-to-port shipment is envisaged, as the seller can deliver the containers to the shipping lines only at the inland container depots or designated container yards near the ports.

Carriage Paid To (CPT) and Carriage and Insurance Paid (CIP) terms cast similar delivery obligations on the seller. The buyer also has similar obligations but with the additional caveat that he must physically receive the goods at the place of destination.

The important point to take note is that in FCA, CIP and CPT, the delivery takes place when the seller passes on the goods to the carrier and not when the goods reach the destination.

Under all the Rules of Incoterms 2020, the obligations of the seller in regard to Export/Import Clearances are spelt out at A7 and those of the buyer at A7 in the columnar format under each Rule.

Under FAS (Free Alongside Ship), the seller delivers by making the goods available alongside the vessel nominated by the buyer, within the agreed period. It is his obligation to carry out the export formalities at his own risk and costs. But, where applicable, the buyer must assist the seller, at his (seller’s) cost and risk, in obtaining any documents/information relating to the permits/licenses/security clearances/pre-shipment certificates to comply with any formalities/regulations in the exporting country. The seller has no obligation to arrange the transit or import clearances.

The obligation to carry out the formalities relating to compliance with regulations in the transit country and importing country is on the buyer, as these activities take place after the seller has made delivery. However, where the buyer so requests, the seller must assist the buyer, at his (buyer’s) cost and risk, in obtaining any documents/information relating to the permits/licenses/security clearances/pre-shipment certificates to comply with any formalities/regulations in the transit country or importing.

In the case of FOB (Free on Board), the seller delivers by placing the goods safely on board the vessel nominated by the buyer, within the agreed period. It is his obligation to carry out the export formalities at his own risk and costs. But, where applicable, the buyer must assist the seller, at his (seller’s) cost and risk, in obtaining any documents/information relating to the permits/licenses/security clearances/pre-shipment certificates to comply with any formalities/regulations in the exporting country. The seller has no obligation to arrange the transit or import clearances.

The obligation to carry out the formalities relating to compliance with regulations in the transit country and importing country is on the buyer, as these activities take place after the seller has made delivery. These include licenses and permits required for transit, import licenses and permits required by regulations in the importing country, security clearance for transit and import, pre-shipment inspection and any other official authorizations and approvals. Where so requested by the buyer, the seller must assist the buyer in obtaining any documents/information relating to the permits/licenses/security clearances/pre-shipment certificates to comply with any formalities/regulations in the transit country or importing.

In the case of CFR (Cost and Freight) and CIF (Cost Insurance and Freight), the seller delivers by placing the goods on board the vessel. He also has the obligation to enter into a contract of carriage with the carriers. It is his obligation to carry out the export formalities at his own risk and costs. But, where applicable, the buyer must assist the seller, at his (seller’s) cost and risk, in obtaining any documents/information relating to the permits/licenses/security clearances/pre-shipment certificates to comply with any formalities/regulations in the exporting country. The seller has no obligation to arrange the transit or import clearances.

The obligation to carry out the formalities relating to compliance with regulations in the transit country and importing country is on the buyer, as these activities take place after the seller has made delivery. These include licenses and permits required for transit, import licenses and permits required by regulations in the importing country, security clearance for transit and import, pre-shipment inspection and any other official authorizations and approvals. Where so requested by the buyer, the seller must assist the buyer in obtaining any documents/information relating to the permits/licenses/security clearances/pre-shipment certificates to comply with any formalities/regulations in the transit country or importing.

Under all the Rules of Incoterms 2020, the obligations of the seller in regard to Export/Import Clearances are spelt out at A7 and those of the buyer at A7 in the columnar format under each Rule.

Under EXW (Ex-Works), the seller delivers by making the goods available at the named place within the agreed period. So, he has no obligation to arrange for any import/export clearances. It is for the buyer to carry out the necessary formalities. However, where the buyer so requests, the seller must assist the buyer, at his (buyer’s cost) in obtaining any documents/information relating to the permits/licenses/security clearances/pre-shipment certificates to comply with any formalities/regulations in the importing/exporting countries.

In practice, however, the laws in the exporting country may allow only an entity registered in that country to carry out the export formalities. So, the buyer or his agent or a freight forwarder nominated by him usually files the export documents in the name of the seller (for and on behalf of the seller) with the Customs and gets through the formalities. This, of course, requires the concurrence of the seller.

Under FCA (Free Carrier), CPT (Carriage Paid To) and Carriage and Insurance Paid (CIP), the seller has to carry out the export formalities in the exporting country and the buyer has to carry out the import formalities in the transit country, if any, and the importing country. Where the buyer so requests, the seller must assist the buyer, at his (buyer’s cost) in obtaining any documents/information relating to the permits/licenses/security clearances/pre-shipment certificates to comply with any formalities/regulations in the importing/transit countries.

In the cases of DAP (Delivery At Place) and DPU (Delivery at Place Unloaded), the point of delivery is in the importing country. So, the seller must not only carry out all export formalities in the exporting country but must also carry out at his own cost any formalities in the country of transit. The obligation to carry out import formalities in the importing country is on the buyer. For this purpose, the seller must assist the buyer in obtaining any documents/information relating to the permits/licenses/security clearances/pre-shipment certificates to comply with any formalities/regulations in the importing country. DAP and DPU can lead to tricky situations where the clearances in the importing country are delayed due to some problems at the buyer’s end resulting in failure of the seller to deliver within the agreed period. So, the parties must examine all possibilities before agreeing to these Incoterms.

In the case of DDP (Delivery Duty Paid), the point of delivery is in the importing country. The seller must carry out and pay for all the formalities in the exporting country, transit country and in the importing country. Where the seller so requests, the buyer must assist the seller, at his (seller’s cost) in obtaining any documents/information relating to the permits/licenses/security clearances/pre-shipment certificates to comply with any formalities/regulations in the importing/exporting countries.

In practice, however, the laws in the importing country may allow only an entity registered in that country to carry out the import formalities. So, the seller or his agent or a freight forwarder nominated by him may file the import documents in the name of the buyer (for and on behalf of the buyer) with the Customs and get through the formalities. This, of course, requires the concurrence of the buyer.

The seller must be clear that under DDP, the risk of any variation in duties, taxes and other charges in the importing country must be absorbed by him, as the price is inclusive of such costs.

Certain obligations of the buyer and seller flow out of the contract. For example, the buyer must deliver the goods as per the agreed specifications, within the time agreed and so on. And that the buyer must pay for the goods when delivered in accordance with the contract, within the time agreed in the manner agreed and so on.

Still, the Incoterms 2020 also spells out certain general obligations. Across all the Rules, the general obligations given in the Incoterms 2020 are the same. The obligations of the seller are spelt out as A1 and those of the seller as B1 in the columnar format in all the Rules. There is no difference between any of the 11 Rules. So, whether under FCA or CIF or any other Rule, these general obligations of the buyer and seller remain the same, as spelt out in A1 and B1.

Taking the obligations of the seller first at A1, in all the Rules, Incoterms 2020 says that the seller must deliver the goods as required by the contract. He must also provide the buyer with an invoice. There could be other documents the seller might have agreed to furnish the buyer such as test or analysis certificate, pre-shipment inspection certificate, weight certificate, certificate of verified gross mass, certificate of origin or certificate with respect to any other compliance and so on. Incoterms 2020 says that the seller must furnish the documents as agreed in the contract and that any of the documents may be in paper or electronic form as agreed to in the contract. What happens if the contract is silent regarding the form in which the documents must be furnished? Incoterms 2020 says that in such a case, then the documents must be furnished as customary, which effectively means that the past practice can be a guide in such situations or if no such past practice is there, the general industry practice that prevails.

Of course, Incoterms 2020 does not say what is meant by ‘electronic form’. So, it leaves open the option to the seller to furnish the document in the form of a pdf file. With the advent of block chain technology, the seller may opt to use the block chain form but it is advisable that he takes the buyer into confidence before doing that as not all buyers may be as familiar with the block chain technology. It is quite possible that some other format may be developed in future. By not defining ‘electronic format’ Incoterms 2020 does not rule out any such future possibility.

The buyer’s obligation spelt out at B1, in all the Rules, says that the buyer must pay the price for the goods as stated in the contract of sale. Of course, this obligation flows out of the contract itself. Yet, Incoterms 2020 makes a mention of it, meaning perhaps that once you use any of the Incoterms Rules, the obligation to pay as per the contract follows. Naturally, this will be subject to the seller discharging all his obligations under the contract.

Incoterms 2020 says nothing about the terms of payment i.e. when and how the payment must be made. The payment may be 100% in advance or part in advance and part after shipment or after shipment or upon presentation of documents or even deferred for payment some time after shipment, in instalments or in full. Similarly, the payment may be through letter of credit or wire/electronic payment or through cheque or any other manner. These are matters to be agreed in the contract.

As in the case of the 2010 Rules, Incoterms 2020 splits the 11 Rules into two sections – 7 for any mode or modes of transport and 4 for transport by sea and inland waterways. The heading of each Rule is a three-letter acronym followed by its name and the correct way to use it i.e. by stating the acronym followed by the relevant location. Here are those 11 headings of the Rules. They are the same as in 2010 Rules, except that DAT (Delivery at Terminal) has given way to DPU (Delivered at Place Unloaded).

Rules for any mode or modes of transportation

• Ex-W - Ex-Works (state named place of delivery)
• FCA – Free Carrier (state named place of delivery)
• CPT – Carriage Paid To (state named place of destination)
• CIP – Carriage Insurance Paid (state named place of destination)
• DAP – Delivered at Place (state named place of destination)
• DPU – Delivery at Place Unloaded (state named place of destination)
• DDP – Delivery Duty Paid (state named place of destination)

Rules for Sea and Inland Waterway Transport

• FAS – Free Alongside Ship (state named port of loading)
• FOB – Free of Board (state named port of loading)
• CFR – Cost and Freight (state named port of destination)
• CIF – Cost Insurance and Freight (state named port of destination)

Each Rule gives a comprehensive diagram, in blue (indicating obligations of the seller), gold (indicating obligations of the buyer) and in some Rules, green (indicating shared obligations). The idea is to give the reader an overview of each Rule and therefore, quite naturally, the diagrams do not form part of the actual text of the Rules. The colours used are standard for the diagrams for all the Rules.

Then each Rule gives an explanation, mainly to clarify some pertinent aspect. Again, the explanations do not form part of the Rules. They include diagrams to more easily identify the points made in the explanations. Here the colour scheme includes black representing where the cargo (drawn as a box) is delivered and grey where the cargo is elsewhere.

Within each Rule, the seller’s obligations are given on the left side with an A and buyer’s obligations on right side with a B in a columnar format. As in the case of 2010 Rules, Incoterms 2020 also lists 10 obligations. The order is changed somewhat. These are:

• A1/B1 – General Obligations
• A2/B2 – Delivery/Taking Delivery
• A3/B3 – Transfer of Risks
• A4/B4 – Carriage
• A5/B5 – Insurance
• A6/B6 – Delivery/Transport Document
• A7/B7 – Export/Import Clearance
• A8/B8 – Checking/Packing/Marking
• A9/B9 – Allocation of Costs
• A10/B10 – Notices

Reference to costs are included wherever relevant but clearly spelt out in A9/B9.

The actual texts give all the above obligations for each Rule but for the sake of convenience, a new third section is added now. The Incoterms 2020 publication also gives each obligation and says how each Rule deals with it. The idea is to help comparisons of what any obligation is under each Rule. For example, under A2 Delivery/Taking Delivery, comparison can be easily made as to how the each Rule treats this obligation. This is all the more useful when evaluating the risks and costs. Accordingly, the decision on which Rule to choose becomes easier.

It must be noted that when using Incoterms in the contracts or other documents, the version must be clearly stated to ensure precision and avoid disputes later. Thus, the correct usage is CIF Rotterdam Incoterms 2020. That will enable not only the buyers and sellers refer to the correct version of the Incoterms but also the arbiters to apply the relevant provisions.

The primary objective of the Incoterms 2020 is to clearly specify the obligations of the buyer and the seller in international trade transactions, when the risks pass from the seller to the buyer and what costs the buyer and the seller bear.

Letter of Credit (LC) is a conditional undertaking to pay a certain amount of money, given by an issuing bank, at the request of an applicant (usually, the buyer), to a beneficiary (usually, the seller), upon presentation of specified documents. Therefore, it is also called a Documentary Letter of Credit. Thus, in a documentary credit transaction, the banks deal in documents and not with the goods or performance to which the documents may relate.

It follows, therefore, that LC, by its very nature, is a separate transaction from the sale or other contract on which it may be based. The LC must be seen essentially as a tool to facilitate the process of payment against performance as evidenced by the documents presented. It cannot be a substitute for the sale or other contract that gives rise to the transaction in the first place.

Once the documents presented are in conformity with the terms and conditions of the letter of credit, the issuing bank or the confirming bank is obligated to honour its commitment, no matter whether the goods or performance are deficient in any way.

Usually, before opening the LC, the issuing bank takes an undertaking cum guarantee from the applicant that he will reimburse the bank for the payments made by the bank to the beneficiary against the documents presented in accordance with the terms and conditions of the LC. Even so, the banks are a bit weary of a situation where the applicant may default or go bust. So, they invariably call for presentation of negotiable transport documents where the title to the goods passes on to them before making payment, so that in the event of default by the applicant, they can dispose off the goods and thereby recoup full or part of the payment made to the beneficiary.

In the case of CPT (Carriage Paid To), CIP (Carriage Insurance Paid), CFR (Cost and Freight) and CIF (Cost, Insurance and Freight), the seller enters into a contract of carriage and so, there ought to be no problem in his obtaining and presenting the transport documents under LC for claim of payment. In the case of shipments by sea, these may very well be ocean bills of lading made out to the order of the shipper and endorsed in favour of the bank or blank endorsed thus transferring the title to the goods in favour of the bank. In the case of transport by road and rail also, the issuing bank may call for presentation of truck receipts or railway receipts endorsed in favour of the bank or blank endorsed. However, in case of air transport, the seller can only obtain an airway bill which is only a goods consignment note and not a document of title to the goods. In such cases, the bank will ensure that the applicant is sound and will not default in reimbursing the bank for payments against the documents that are in conformity with the terms and conditions of the LC.

In the case of CIP and CIF, the obligation to take out insurance policy or an insurance cover under an open cover policy is on the seller. The issuing bank may well ask for cargo insurance covering all risks and additional policies to cover risks of war and strikes, riots and civil commotion.

In the case of letter of credit (LC), the banks deal in documents and not in goods. So, applicants prescribe such documents that will ensure necessary compliance with the obligations of the seller, as spelt out in the Incoterms 2020 used in the underlying contract. Still, quite often, the LC is not necessarily the best way to settle the payment.

Let us take EXW (Ex-Works). Here, the seller delivers by making the goods available at the named place within the agreed period and serving a notice to the buyer. The buyer or his agent or carrier takes delivery and all that the seller gets is a proof of delivery by way of receipt. So, if a LC is the mode of payment, the documents called for may only be invoice and receipt for goods. An issuing bank may not be comfortable with this situation where the buyer gets physical possession of the goods at the time of delivery. Even the seller may not be very comfortable with such a situation. So, it is better to look for other modes of payment in such cases.

Similarly, in case of DAP (Delivered At Place), DPU (Delivered at Place Unloaded) and DDP (Delivery Duty Paid) also, the seller delivers by making the goods available at the place of destination, usually in the importing country. Here again, what the seller gets against delivery of the goods to the buyer or his agent is a receipt and not a transport document. There is little point in sending the receipt for presentation as a document under the LC, after passing the possession of the goods to the buyer. Here again, the LC is not the best mode of securing payment.

In the case of FCA (Free Carrier), in most cases, the seller delivers by making the goods available to the carrier nominated by the buyer. All he is entitled to is a receipt from the carrier and not a transport document. It is the buyer who enters into a contract of carriage. But, the Incoterms 2020 does cater to situations where the seller may be required to present a transport document under LC. So, it says that the buyer can very well instruct the carrier to issue a transport document to the seller.

Similarly, in the case of FAS (Free Alongside Ship), the seller delivers by making the goods available alongside the vessel nominated by the buyer. The buyer or his agent or his freight forwarder will probably issue a receipt which acts as the proof of delivery. Here again it is the buyer who enters into a contract of carriage, after loading the goods on to the vessel. But, what if the LC calls for presentation of a transport document? Incoterms 2020 says that the buyer can instruct the carrier to issue a bill of lading to the seller.

In the case of FOB (Free on Board), the seller has the obligation to get the goods loaded on board the vessel nominated by the buyer. It means the goods have to be placed safely on board the nominated vessel. When he does so, the seller gets a mate’s receipt from the master of the vessel. This is only a receipt not a negotiable transport document. So, where the LC calls for presentation of a transport document, the buyer, who enters into a contact of carriage, can instruct the carriers to issue a negotiable bill of lading to the seller against surrender of mate’s receipt. Incoterms 2020 has a specific provision requiring the buyer to do so in such matters.

Under all the Rules of Incoterms 2020, the obligations of the seller in regard to Insurance are spelt out at A5 and those of the buyer at B5 in the columnar format under each Rule.

Under all the seven Rules for transport by any mode or modes of transport, Incoterms 2020 does not prescribe any obligations on the buyer to take out insurance. Of course, this does not mean that the buyer need not take out insurance. The risk of loss or damage to the cargo passes to the buyer once the seller makes delivery as per A2. So, to cover the risks that arise after delivery, the buyer must invariably take out insurance as appropriate but Incoterms 2020 leaves that choice to the buyer. However, the seller has an obligation to furnish the buyer all the necessary details he needs and requests, to enable him take out insurance.

Similarly, except for Cost Insurance Paid (CIP), under all the other six Rules for transport by any mode or modes of transport (EXW, FCA, CPT, DAP, DPU and DDP), Incoterms 2020 does not prescribe any obligations on the seller to take out insurance. Of course, this does not mean that the seller need not take out insurance in such cases. The risk of loss or damage to the cargo passes to the buyer only after the seller makes delivery as per A2. Till delivery is made, the seller bears the risks. So, to cover the risks that arise till delivery is made, the seller must take out insurance as appropriate but Incoterms 2020 leaves that choice to the seller.

Under CIP, the seller must cover insurance for 110% of the invoice value of the goods. The cover must be in the invoice of the currency and must be till the goods are delivered in accordance with A2. The Insurance must cover ‘all risks’ as per the Institute Cargo Clauses. These are a set of terms for cargo insurance policies voluntarily adopted as standard terms by many international marine insurance organizations, including the Institute of London Underwriters and the American Institute of Marine Underwriters.

There are three basic sets of institute cargo clauses: A, B and C. Institute Cargo Clause A (All Risks) is considered the widest insurance coverage attracting the highest premium. Institute Cargo Clause B is considered a more restrictive coverage with moderate premium. Institute Cargo Clause C is considered the most restrictive coverage attracting the lowest premium.

Institute Cargo Clauses A i.e. All Risks, covers all risks to cargo during transit except those specifically excluded such as willful misconduct of the assured, ordinary leakage, inherent vice or nature of the goods, insolvency of the carrier etc. If the buyer requires additional insurance coverage such as risks arising from war, strikes, riots, civil commotion etc., the seller must cover these at the cost of the buyer.

Usually, the seller will obtain an insurance policy or insurance certificate (in case of an existing policy or open cover policy), with claims payable at destination, giving details of the shipment and either blank endorse or endorse it in favour of the buyer and send it to the buyer to enable the latter make a claim, in case of loss or damage to cargo.

Under CIP, the buyer must give the seller information necessary to take insurance - for instance, the point at the place of destination where the goods must be delivered. Similarly, the seller must intimate the shipment details to the buyer to enable him cover the risks from the time the goods are delivered.

Under all the Rules of Incoterms 2020, the obligations of the seller in regard to Insurance are spelt out at A5 and those of the buyer at B5 in the columnar format under each Rule.

Under all the four Rules for transport by sea or inland waterways or a combination of both, Incoterms 2020 does not prescribe any obligations on the buyer to take out insurance. Of course, this does not mean that the buyer need not take out insurance. The risk of loss or damage to the cargo passes to the buyer once the seller makes delivery as per A2. So, to cover the risks that arise after delivery, the buyer must invariably take out insurance as appropriate but Incoterms 2020 leaves that choice to the buyer. However, the seller has an obligation to furnish the buyer all the necessary details he needs and requests, to enable him take out insurance.

Similarly, except for Cost Insurance Freight (CIF), under all the other three Rules for transport by sea or inland waterways (FAS, FOB and CFR), Incoterms 2020 does not prescribe any obligations on the seller to take out insurance. Of course, this does not mean that the seller need not take out insurance in such cases. The risk of loss or damage to the cargo passes to the buyer only after the seller makes delivery as per A2. Till delivery is made, the seller bears the risks. So, to cover the risks that arise till delivery is made, the seller must take out insurance as appropriate but Incoterms 2020 leaves that choice to the seller.

Under CIF, the seller must cover insurance for 110% of the invoice value of the goods. The cover must be in the invoice of the currency and must be till the goods are delivered in accordance with A2. The Insurance must cover the risks per the Institute Cargo Clauses (C). The Institute Cargo Clauses are a set of terms for cargo insurance policies voluntarily adopted as standard terms by many international marine insurance organizations, including the Institute of London Underwriters and the American Institute of Marine Underwriters.

There are three basic sets of institute cargo clauses: A, B and C. Institute Cargo Clause A (All Risks) is considered the widest insurance coverage attracting the highest premium. Institute Cargo Clause B is considered a more restrictive coverage with moderate premium. Institute Cargo Clause C is considered the most restrictive coverage attracting the lowest premium. The risks to the cargo during transit alone are covered.

Institute Cargo Clauses (C) covers all risks to the cargo that are actually specified. The risks not specified are not covered. If the buyer requires additional insurance coverage such as risks arising from war, strikes, riots, civil commotion etc., the seller must cover these at the cost of the buyer.

Usually, the seller will obtain an insurance policy or insurance certificate (in case of an existing policy or open cover policy), with claims payable at destination, giving details of the shipment and either blank endorse or endorse it in favour of the buyer and send it to the buyer to enable the latter make a claim, in case of loss or damage to cargo.

Under CIF, the buyer must give the seller information necessary to take insurance - for instance, the point at the port of destination where the goods must be delivered. Similarly, the seller must intimate the shipment details to the buyer to enable him cover the risks from the time the goods are delivered.

At the outset, let it be clear that the write ups on Incoterms 2020 in the Exim Mitra are furnished with a view to help understand the latest version of the International Commercial Terms (Incoterms). The publisher of these Rules, the International Chamber of Commerce (ICC) calls the latest revision as Incoterms® 2020, signifying its trademark, but for the sake of convenience these are referred to as Incoterms 2020 in these write ups. These write-ups are not intended to be a substitute for the original text of the Incoterms 2020. It is strongly recommended that the users should get the original publication of the International Chamber of Commerce (ICC) and be guided by the actual text of the Incoterms 2020 available on ICC’s new e-commerce platform https://2go.iccwbo.org/explore-our-products/ebooks.html in both print and digital book formats. The books can also be bought from ICC. India (web link : http://www.iccindiaonline.org/icc-two/Incoterms2020.html). Besides the text of the new Rules, the ICC has also published a pocket guide and a wall chart.

Incoterms 2020 Rules is the latest and the tenth revision to Incoterms, first introduced in 1923 by the International Chamber of Commerce. It came into effect from 1st January 2020. With the emergence of new technologies, government policies, and environmental regulations, Incoterms 2020 provides an updated common framework for buyers and sellers that reflects changes in market practice and is easier to use than previous versions of the Rules.

The drafting process of Incoterms 2020 involved extensive consultation with economists, lawyers, traders, freight forwarders and banking and insurance experts drawn from the network of 89 ICC national committees and dedicated industry expert groups.

The primary objective of the Incoterms 2020 remains the same – to clearly specify the obligations of the buyer and seller in international trade transactions, when the risks pass from seller to buyer and what costs the buyer and seller bear.

The cover of Incoterms 2020 book says that these are ‘ICC Rules for the use of International and Domestic Trade Terms’. The book starts with a Foreward by the Secretary General of the ICC, John Dentron followed by an Introduction by ICC’s Special Advisor on Incoterms 2020, Charles Debattista, who explains in an easy to read style what the new Rules do and do not. He explains the basics of what the Rules cover, how traders can choose the best Rules for their transactions and major changes from the earlier Incoterms 2010. He also outlines best practice for incorporating the Incoterms Rules into contracts and explores the relation of contracts ancillary to the sale contract, the concepts of risk and delivery, the role of the carrier, and the care to be taken when using variants of the Incoterms 2020 Rules. The introduction helps understand the new Rules but does not form part of the actual text of the Rules. Another interesting feature of the new publication is the presentation of the Rules in the form of colourful diagrams mostly illustrating the point of delivery and the resultant implication for the obligations of the parties, costs and risks.

Within Incoterms 2020, the users can see the full list of expected costs at a glance. In addition, the costs associated with each item still appear in the respective articles to accommodate a user who wants to focus on a specific aspect of the sale transaction.

An interesting feature of the Incoterms 2020 publications is that it incorporates expanded explanatory notes for users at the start of each Incoterms rule. These notes assist users with accurately interpreting the latest edition of the Incoterms Rules to avoid costly misinterpretations or misapplications.

The primary objectives of the Incoterms 2020 remain the same – to clearly specify the obligations of the buyer and seller in international trade transactions, when the risks pass from buyer to seller and what costs the buyer and seller bear.

However, there are important changes from the earlier 2010 version. Incoterms Rules are mainly about the delivery, which is reflective of the key changes in Incoterms 2020. Very few court cases are there on the interpretation of Incoterms Rules. Rather, the problems that normally arise due to the wrong use of an Incoterms Rule. The Introduction to the new Rules clearly guides the buyers and sellers about using the right Incoterms Rules. Explanatory Rules for each Rule lend greater clarity. Colourful diagrams help understand the point of delivery. Each Rule gives the obligations, delivery point, costs etc. Then there is additional help enabling comparisons of how each Rule deals with the obligations, delivery, costs etc. Also, the Rules specify what they cover and what they do not.

Besides, there are many subtle changes.

The new Rules emphasise more strongly than before that the Rules for transportation by sea or inland waterways should not be used for container shipments, even when they are carried by sea.

Free Carrier (FCA) has been revised for Incoterms 2020 to cater to a situation where goods are sold FCA for carriage by sea and buyer or seller (or either party’s bank) requests a bill of lading with an on-board notation. FCA now provides for the parties to agree that the buyer will instruct the carrier to issue an on-board bill of lading to the seller once the goods have been loaded on board, and for the seller then to tender the document to the buyer (often through the banks).

Within Incoterms 2020, the users can see the full list of expected costs at a glance. In addition, the costs associated with each item still appear in the respective articles to accommodate a user who wants to focus on a specific aspect of the sale transaction.

The Incoterms 2020 Rules provide for different levels of insurance coverage in the Cost Insurance and Freight (CIF) Rule and Carriage and Insurance Paid To (CIP) Rule. Under the CIF Incoterms Rule, which is reserved for use in maritime trade and is often used in commodity trading, the Institute Cargo Clauses (C) remains the default level of coverage, giving parties the option to agree to a higher level of insurance cover. Taking into account feedback from global users, the CIP Incoterms Rule now requires a higher level of cover, compliant with the Institute Cargo Clauses (A) or similar clauses.

Incoterms 2020 recognises that not all commercial trade transactions from the seller to the buyer are conducted by a third-party carrier. In some cases, transactions are conducted without a third-party carrier at all, such as a seller using its own means of transportation, or a buyer using its own vehicle to collect goods.

Building on the extensive security-related requirements established by Incoterms 2010, the latest edition of the Incoterms Rules includes clearer and more detailed security-related obligations.

The former Delivered at Terminal (DAT) has been changed to Delivered at Place Unloaded (DPU) to emphasise that the place of destination can be any place and not just a “terminal,” and to underscore the sole difference from Delivered at Place Unloaded (DPU) – under DAP the seller does not unload the goods, under DPU, seller does unload the goods. And since delivery under DAP happens before unloading, Incoterms 2020 presents the newly named DPU after DAP.

In the case of FAS (Free Alongside Ship), the seller delivers by making the goods available alongside the vessel nominated by the buyer within the agreed period. When the seller does so, he must immediately notify the buyer to enable him take delivery and insurance. In case the person nominated by the buyer fails to take the delivery of the goods within the agreed period, the seller must notify the buyer. It is possible that the vessel nominated by the buyer does not arrive within the agreed period. In such cases, the seller must notify the buyer that he cannot deliver the goods alongside the vessel. This will enable the buyer take necessary steps to ensure safety of the cargo and take necessary insurance.

On the part of the buyer, he must notify the seller the point in the port of loading where the goods must be delivered. He must notify the seller any security requirements related to the cargo. He must also nominate the vessel alongside which the goods must be delivered. Although this is not mentioned in the Rules, it is the buyer who must ensure that the person nominated by him to take delivery of the goods on his behalf, has access to the necessary equipments to load the goods at the point within the port of loading where the seller is required to deliver the goods.

In the case of FOB (Free on Board), it is the obligation of the seller to load the goods on the nominated vessel. As soon as the goods are loaded on board the vessel, the seller must notify the buyer of having so delivered the goods to enable the buyer take necessary insurance. In case, the nominated vessel does not arrive in time or leaves without taking the goods on board the vessel, the seller must immediately notify the buyer. On his part, the buyer must notify the seller the point in the port of loading where the goods must be delivered and any security requirements related to the cargo. He must also nominate the vessel on which the cargo must be loaded.

In the case of CFR (Cost and Freight), the seller delivers by loading the goods on board the vessel. He must enter into the contract of carriage up to the place of destination and pay the transportation costs. Once he does that, he must immediately notify the buyer to enable him take out necessary insurance and take necessary steps to receive the cargo at the named place of destination. On his part, the buyer must inform the seller any security requirements related to the cargo and also the point within the port of discharge or the place of destination where he wants to receive the goods.

In the case of CIF (Cost, Insurance and Freight), the obligations of the buyer and seller are the same as in the case of CFR, except that the seller takes on the additional obligation of taking out insurance.

In all the cases, the form and manner in which the notices must be given must be agreed upfront, preferably in the contract. Secondly, since all notices must be given well in time, it must be agreed upfront as to when the notice must be given, For example, it may be agreed in the contract upfront that the buyer will nominate the vessel (in case of FAS and FOB contracts), at least a week before the arrival of the vessel. The seller and buyer must agree upfront on the form and manner of proof of delivery.

Under all the Rules of Incoterms 2020, the obligations of the seller in regard to giving notices to the buyer are spelt out at A10 and the obligations of the buyer to give notices to the seller are mentioned at B10 in the columnar format under each Rule.

In the case of EXW (Ex-Works), the seller should give a notice to the buyer when he makes the goods available to the buyer at the named place within the agreed period. If the buyer or his agent (say, the nominated carrier) fails to pick up the cargo within the agreed period, the seller should immediately notify the buyer. On his part, the buyer should notify the seller the person who will take delivery at the named place and the point within the named place where the seller must deliver the goods. If within the agreed period, the buyer wants to take delivery on any particular date, he must notify the seller well in time. The form and manner of notices must be agreed in the contract.

Similarly, in the case of DAP (Delivery AT Place), DPU (Delivery at Place Unloaded) and DDP (Delivery Duty Paid), the seller must give a notice to the buyer when he makes the goods available to the buyer at the named place of destination within the agreed period. If the buyer’s agent fails to pick up the cargo within the agreed period, the seller should immediately notify the buyer. On his part, the buyer should notify the seller the person who will take delivery at the named place of destination and the point within the named place of destination where the seller must deliver the goods. If within the agreed period, the buyer wants to take delivery on any particular date, he must notify the seller well in time. The form and manner of notices must be agreed in the contract.

In the case of FCA (Free Carrier), the seller must give a notice to the buyer when he makes the goods available to the nominated person or carrier at the named place of destination within the agreed period. If the nominated carrier or person fails to pick up the cargo within the agreed period, the seller should immediately notify the buyer. On his part, the buyer should, well in time, nominate the carrier or the person who will take delivery at the named place and the point within the named place where the seller must deliver the goods. If within the agreed period, the buyer wants delivery to be made on any particular date, he must notify the seller well in time. The buyer must also give notice of any cargo related security issues and any restrictions at the named place of delivery (the terminal or premises of the carrier) where the goods have to be delivered. The form and manner of notices must be agreed in the contract.

In the case of CPT (Carriage Paid To) and CIP (Carriage Insurance Paid), the seller must give the buyer a notice that the goods have been delivered in accordance with A2. This can be in the form of copy of the proof of delivery obtained from the carrier or a transport document issued by the carrier. The notice must include the details of transportation and where applicable, the details of insurance. On his part, the buyer should, give notice of the point at the place of destination where he wants to receive the goods. The form and manner of notices must be agreed in the contract.

In the case of all the four Incoterms 2020 Rules (FAS, FOB, CFR and CIF) that deal with Sea and Inland Waterway Transport, the Risks pass on from the seller to the seller to the buyer upon delivery of goods in accordance with A2. Till the delivery of goods, the seller bears the risks; thereafter, the buyer. The point of transfer of risks is the point of delivery – in all these cases, at the port of loading. However, there are some exceptions.

In the case of ‘Free Alongside Ship’ (FAS), the seller delivers the goods by placing the goods alongside the vessel (e.g. on a quay or a barge) nominated by the buyer at the loading point indicated by the buyer, if any, at named port of shipment or by procuring the goods so delivered on the agreed date or within the agreed period, in the manner customary at the port. The vessel must be present when the goods are so delivered. Otherwise, it will not be considered as delivery under FAS. Therefore, if the buyer fails to nominate the vessel or fails to inform the seller where the vessel will arrive or the vessel fails to arrive in time or fails to take the goods, the seller will not be able to deliver, for no fault of his (seller’s). In that case, the risks pass on from the seller to the buyer upon expiry of the agreed date or the agreed period.

In the case of ‘Free On Board’ (FOB), the seller delivers the goods by placing them on board the vessel nominated by the buyer at the named port of shipment or by procuring the goods so delivered on the agreed date or within the agreed period, in the manner customary at the port. The buyer’s prime obligation is to notify the seller the name of the vessel and loading point at the named port within sufficient time to enable the seller deliver the goods. If the buyer fails to do so or if the vessel fails to arrive in time or if the vessel does not take the goods, the seller will not be able to deliver the goods in accordance with A2. In that case, the risks pass from the seller to the buyer upon expiry of the agreed date or the agreed period.

Under ‘Cost and Freight’ (CFR) the delivery occurs when the seller places the goods on board the vessel at the named port of shipment or by procuring the goods so delivered on the agreed date or within the agreed period, in the manner customary at the port. The seller must enter into a contract of carriage with the carrier from the port of loading to the port of destination. But, he cannot do so, unless the buyer informs him the destination port or the point within that destination port. In such situations, the seller cannot deliver in accordance with A2 and the risks will pass from the seller to the buyer upon expiry of the agreed date or period.

Similar situation applies under ‘Cost and Freight’ (CFR) where delivery occurs when the seller places the goods on board the vessel at the named port of shipment or by procuring the goods so delivered on the agreed date or within the agreed period. If the buyer fails to inform the seller the destination port or the point within that destination port, the seller cannot deliver and the risks will pass from the seller to the buyer upon expiry of the agreed date or period.

In the case of all the seven Incoterms 2020 that deal with any mode or modes of transport, the risks pass from the seller to the buyer when delivery occurs in accordance with A2, within the agreed date or period. Till the delivery is effected, the seller bears the risks; thereafter, the buyer. In all the cases, risks pass on from seller to the buyer when delivery takes place whether in the seller’s country or the buyer’s country.

Under Ex-W, delivery occurs when the seller makes the goods available at the point named at the agreed place of delivery and gives buyer the notice of having done so, within the agreed date or period, in accordance with A2. If the buyer fails to give notice of the carrier or another person who will pick up the cargo or fails arrange for pick up of the goods for any reason, the risks get transferred to the buyer upon expiry of the agreed date or period, so long as the goods are identified as described in the contract.

Similarly, in case of FCA, if the buyer does not give notice of the carrier or the carrier fails to take delivery of the goods, the seller will be prevented from effecting delivery, for none of his (seller’s) fault. Then the risks of damage to the goods will pass from the seller to the buyer upon expiry of the agreed date or period.

In the case of CIP and CPT, the delivery occurs when the goods are placed at the disposal of the carrier or another person nominated by the buyer at the agreed point, if any, at the named place within the agreed date or within the agreed period. For this to happen, the buyer must nominate the carrier or another person who will take delivery of the goods. If he fails to do so or if the carrier does not turn up within the agreed date or period, the risks pass to the buyer upon expiry of the agreed date or period. Also, CIP and CPT require the buyer to specify the destination, where the goods have to be consigned. If he fails to do so, the seller will not know where to send the goods. In such situations, the risks will pass on to the buyer upon expiry of the agreed date or period.

In the case of DAP, DPU and DDP, the buyer’s obligations includes obtaining the import license in time for clearance of goods through the Customs in the importing country. If the buyer fails in discharging this obligation, the seller will not be able to effect delivery of the goods at the destination and there may be delay in clearing the goods through the Customs. In such situations, the risks will pass on to the buyer upon expiry of the agreed date or agreed period for delivery.

In the case of DAP, DPU and DDP, the seller’s obligation is to deliver the goods at the point at the agreed place of destination. Usually, it is in the country of the buyer. Unless the buyer informs where the seller is required to deliver the goods, the seller will not be able to discharge his obligation. So, if the buyer fails in his obligation to notify the place of destination of the goods or the point at the place of destination, where the seller has to deliver the goods, the risks will pass on to the buyer at the end of the agreed date or the agreed period for delivery.

In the Incoterms 2020, the Transfer of Risks is dealt with in A3 and B3 in the columnar format under each Rule.

Under all the Rules of Incoterms 2020, the risks get transferred to the buyer from the seller upon delivery of the goods. Till the goods are delivered in accordance with A2, the seller bears the risks. Thereafter, it is the buyer who bears the risks. But there are some exceptions. Before we discuss the exceptions, certain points need to be understood.

First, the risks refer to damage, deterioration or loss of the goods and not all the other risks that may arise in the execution of a contract.

Second, the contracts envisage several obligations on the part of the seller and the buyer. But, Incoterms 2020 specifies certain obligations against each Rule. Failure to discharge obligations specified for the Rule chosen can have consequences on who bears the risks. For example, notices are required to be given by the seller or by the buyer under certain Rules, carriers have to be nominated by the buyer when certain Rules are chosen, transport documents have to be obtained and sent by the seller in certain situations, import licenses have to be available by the buyer under certain Rules and so on. Failure to honour certain obligations can result in situations where the seller cannot deliver.

Third, the delivery must be made with a certain date or agreed period, as mentioned in the contract. There are times, when this cannot be done by the seller because of failure of the buyer to discharge his obligations. In that case, the risk will pass on to the buyer upon expiry of the agreed date or the agreed period.

For example, under Free Carrier (FCA), the buyer is expected to nominate the carrier. Suppose the seller brigs to the goods to the agreed point at the place of delivery but is unable to deliver because the buyer has not nominated the carrier or the nominated carrier does not turn up, the risk will pass to the buyer upon expiry of the agreed date or agreed period. Or, let us say the buyer fails to specify the point at the place of delivery where the goods have to be loaded on to the carrier and due to that reason, the delivery cannot be effected by the seller, then again the risk will pass on to the buyer upon expiry of the agreed date or period for delivery.

Fourth, the risk passing from the seller to the buyer in certain situations upon expiry of the date or period agreed must be clearly understood. Let us say, in an FAS contract, the delivery has to be made on or before 31st March and the buyer has to nominate the vessel alongside which, the seller has to place the goods in the quay and the buyer fails to do so. Let us say the seller brings the goods on to the quay on 20th March. The risk of damage to or loss of the goods rests on the seller till the 31st March and then passes to the buyer on expiry of 31st March. Similarly, if the agreed period for delivery is say 60 days from the date of the contract and the goods are brought to the place of delivery by the seller on the 55th day from the date of the contract. If due to buyer’s default, the delivery cannot be made, then the risk passes on to the buyer upon expiry of the 60th day from the date of the contract.

Incoterms set out the obligations of the buyer and seller, specify who bears what costs and when the risks pass from seller to buyer. The idea is to reduce uncertainties. So, Incoterms must be incorporated in sale-purchase contracts. However, there could still be some loose ends. These must be addressed in the contracts.

In an EXW contract, the buyer takes delivery of the goods at the named place. He has to carry out the export formalities. But the laws of the exporting country may require that only an entity registered in that country can do so. In that case, the buyer or his agent may be required to file the documents with the Customs in the name of the seller. This has to be brought out clearly in the contract. However, unwittingly, the seller may become liable in case any mistake is made in the documentation. That is a risk the seller may not be ready for. Then the best way could be to opt for some other Incoterms where the seller bears the responsibility for export clearances. Similarly, under DDP, the seller has carry to out the import formalities in the importing country but the laws in the importing country may require that only an entity registered in that country can do so.

In case of DAP and DPU, the buyer has to carry out the import clearance formalities even when the obligation of the buyer to deliver at the named place of destination is not complete. These are tricky situations where the contract should clearly fill in the gaps. Otherwise, suitable Incoterms like CPT, CIP, CRF and CIF should be chosen where the seller carries out the export formalities and the buyer carries out the import formalities.

In case of FCA, FAS and FOB, the buyer nominates a carrier and then enters into a contract of carriage. The seller has no role there. However, the seller may require the transport documents showing his name as the consignor or shipper to enable presentation of the transport document under a letter of credit. The Incoterms 2020 does say that in such cases, the buyer can instruct the carrier to issue the transport document to the seller. However, this is not a very ideal situation because the seller is dependent on the buyer after delivering the cargo to the carrier or the buyer’s agent.

In the case of containerised cargo, the Incoterms say that the FCA terms should be used as the seller usually delivers the container to the carriers at a container freight station or at the container yard of the carrier. He does not place the containers on board. The problem, however, is that under FCA the seller does not enter into a contract of carriage. The buyer does. The Incoterms 2020 does say that in such cases, the buyer can instruct the carrier to issue the transport document to the seller, a far from satisfactory position. A second problem is that in a sea shipment, the banks are comfortable where an ’on board’ negotiable bill of lading is presented under letter of credit. In such cases the buyer may ask the carrier to issue a ’received for shipment’ upon receipt of the container and then ask to incorporate a ’shipped on board’ notation.

In CIF and CPT contracts, the Incoterms 2020 call for Institute Cargo Clauses (C), which means minimum cover. The buyer should be careful enough to call for Institute Cargo Clauses (A) for coverage of maximum risks and also cover war risks and risks of strikes, riots and civil commotion separately.

Incoterms deal with obligations, costs and risks, which are matters between the buyer and seller. Except for these, all other matters must be dealt with through the contract between the seller and buyer. The three letter abbreviations of the Incoterms are to be incorporated into the contracts but they are not substitutes for the contracts.

In fact, Incoterms do not deal with whether there is a contract at all or if there is one, what the law governing the contract should be. Indeed, even in contracts, many parties fail to mention the applicable law, something that they should. Of course, in so doing, they can be guided by the Incoterms to determine where the delivery takes place and other obligations.

How the parties will deal with default in fulfilling the obligations, what happens when the goods do not meet the specifications or when there is delay or failure to ship the goods, how the disputes will be resolved, etc. are all matters to be dealt with in the contracts and not Incoterms, which specify the obligations and not the consequences of failure to honour the obligations. Similarly, force majeure clause and consequences of sanctions or prohibitions by regulators must form part of the contract. The Incoterms Rules don’t deal with them.

Specifications or nature of goods is a matter for contracts to deal with. Although the Incoterms do deal with the obligations of the seller to check, pack and mark the goods as appropriate, details such as manner of packaging (e.g. refrigeration), any special handling (e.g. for dangerous goods) etc. form part of the contract.

An important point to note is that Incoterms 2020 doesn’t deal with transfer of property, ownership or title of the goods sold. How and when the property passes from seller to buyer is critical. Usually, it should be at the point of delivery but sometimes this is done by way of dispatch/delivery of the documents of title to the goods. This is a legal matter and quite often local laws can have a bearing on the matter and so these aspects should be covered in the contract.

Incoterms 2020 does deal with the obligations to pay customs duties in the exporting country or importing country. However, the duty rates or customs values cannot form part of the Incoterms. They must be covered in the contracts, including where fall or rise clause covering variations in duties is warranted.

Another important aspect is the time and method of payment i.e. whether the sale is on say open credit or payment at sight, 30 days credit or against letter of credit. These are matters to be dealt with in the contracts. Incoterms 2020 does not deal with them.

Incoterms 2020 does not deal with Verified Gross Mass (VGM) - the weight of the cargo including dunnage and bracing plus the tare weight of the container carrying this cargo. SOLAS (Safety of Life at Sea) regulation requires the shipper to provide VGM in a shipping document, either as part of the shipping instruction or in a separate communication, before vessel loading, mainly in container shipments, not air, road, rail or bulk shipments. Depending on the circumstances, the obligations are discharged by the buyer, seller or forwarder, especially in LCL (less than container load) shipments. So, this matter must be covered in the contracts.

Incoterms 2020 is applied universally and so does not deal with country or region specific matters or seller/buyer specific matters like intellectual property rights (IPR) or Business to Consumer sales, especially through e-commerce or digital platforms.