Incoterms 2020: A Comprehensive Guide for Freight Forwarders

In the dynamic landscape of global trade, understanding the rules that govern shipping responsibilities, costs, and risks is crucial. This is particularly true for freight forwarders who are central in navigating the complexities of international trade. The introduction of Incoterms 2020 marks a significant update, providing much-needed clarity and efficiency in global shipping practices.

The Evolution of International Trade and Incoterms

International trade has been a cornerstone of economic development, with its roots tracing back thousands of years. Its recent evolution, marked by the globalization of markets and internationalization of production, has led to an increased reliance on efficient and clear trade terms. According to World Bank statistics, the percentage of global GDP attributed to exports and imports has risen markedly, from 12% in 1960 to about 30% in 2015. This growth underscores the importance of standardized rules in international trade, a role filled by Incoterms.

Understanding Incoterms

Incoterms, short for International Commercial Terms, are sets of rules developed by the International Chamber of Commerce (ICC). They provide universally accepted definitions and rules of interpretation for common commercial terms in contracts for the sale of goods. First published in 1936, Incoterms have undergone several updates, with the latest version, Incoterms® 2020, coming into effect on January 1, 2020.

The Relevance of Incoterms in Freight Forwarding

For freight forwarders, the Incoterms are essential tools. They clarify the division of costs and risks between buyers and sellers in international trade contracts. This clarity is crucial in freight forwarding, where professionals are responsible for navigating diverse cultural, legal, and business landscapes. By utilizing Incoterms, freight forwarders can ensure a more predictable and streamlined shipping process.

Detailed Overview of Incoterms 2020

Incoterms 2020 includes eleven terms, applicable to different modes of transport. They are categorized into rules for any mode of transport and rules specific to sea and inland waterway transport. 

Rules for Any Mode of Transport 

  • EXW (Ex Works) 
  • FCA (Free Carrier) 
  • CPT (Carriage Paid To) 
  • CIP (Carriage and Insurance Paid To) 
  • DAP (Delivered at Place) 
  • DPU (Delivered at Place Unloaded) 
  • DDP (Delivered Duty Paid) 

Rules for Sea and Inland Waterway Transport 

  • FAS (Free Alongside Ship) 
  • FOB (Free On Board) 
  • CFR (Cost and Freight) 
  • CIF (Cost Insurance and Freight) 

Each Incoterm defines specific responsibilities for freight forwarding, including the point of delivery, who covers transportation costs, export and import requirements, and freight insurance obligations. 

Key Updates in Incoterms 2020 

The transition from Incoterms 2010 to 2020 includes several key updates: 

  • FCA (Free Carrier): Now offers an option for an on-board notation on the Bill of Lading. 
  • Centralization of Costs: Costs are now listed centrally in A9/B9 of each Incoterm rule. 
  • Insurance Requirements: CIP now requires an insurance cover as per the Institute Cargo Clause A, while CIF maintains the Clause C level. 
  • Transportation by Sellers/Buyers: Recognizes that transportation may be conducted without a third-party carrier, using the buyer’s or seller’s own means. 
  • DAT to DPU: The Delivered at Terminal (DAT) term has been changed to Delivered at Place Unloaded (DPU). 
  • Security-related Requirements: The 2020 update shifts the responsibility for security-related requirements and costs to the seller. 

Practical Implications for Freight Forwarders

Understanding and applying Incoterms 2020 is crucial for freight forwarders. This knowledge allows them to advise clients accurately, manage shipping contracts effectively, and ensure compliance with international trade regulations. Freight forwarders must be aware of the specific obligations and risks associated with each Incoterm, particularly concerning the point of transfer of risks, transportation costs, and insurance requirements.

Preparing for Incoterms 2020

Freight forwarding companies should undertake the following steps to align with Incoterms 2020: 

  • Training and Awareness: Educate staff on the changes and nuances of Incoterms 2020. 
  • Contract Review: Analyze existing contracts for compliance with the new terms. 
  • Client Communication: Inform and guide clients on the implications of these changes for their shipping needs. 
  • Insurance Adjustments: Review and adjust insurance coverage as per the updated requirements in CIP and CIF terms. 
  • Operational Adjustments: Adapt internal processes, especially in documentation and risk management, to align with Incoterms 2020. 


For freight forwarders, Incoterms 2020 offers an opportunity to enhance service efficiency and accuracy in international trade. By fully understanding and implementing these terms, freight forwarders can provide more effective solutions to their clients, ensuring smoother, more predictable, and compliant international shipping operations.

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