Incoterms 2020 and sea transport – which one to choose?

Notwithstanding experience in import of goods, a choice of a suitable Incoterms 2020 rule can be a challenge. It turns out that this decision has a considerable impact not only on the rights and duties of a buyer and a seller but also on incurred expenses. This article focuses on which terms are used the most often in case of sea transport. Incoterms 2020 and sea transport – which should we choose then? 

Incoterms 2020 rules most often applied in case of sea/maritime transport

In the case of sea freight, the most commonly used Incoterms are EXW, FOB, CFR, and DDP. They can be divided into two groups, according to benefits for a seller and a buyer.

In simple terms, for a buyer, the most beneficial rules are FOB and EXW. They allow for a choice of a freight forwarder, who is responsible for the organization of a large part of the transport. In contrast, in the case of CFR or DDP, the seller chooses a freight forwarding agency.

Additionally, EXW and FOB terms allow for greater control over transport, planning, and expenditure than CFR and DDP. Incoterms 2020 also determine who incurs the costs related to, among others, loading and unloading, customs procedures, and insurance.

Incoterms 2020 FOB and sea transport

The rule most often used in maritime transport is undoubtedly FOB. It should be noted that this option applies only and exclusively in sea transport and inland shipping.

Under FOB, the seller leaves goods at a port of origin, prepared and ready for international transport. They also bear any costs until the moment of placing the commodities on board.

Besides, FOB ensures excellent flexibility. Even though an exporter takes care of formalities, it is the buyer who chooses the route, time of shipment, and price negotiation with the freight forwarder.

FOB is not recommended for container transport. In that case, FCA or CIP should be applied.

Learn more – Incoterms 2020 FOB

Incoterms 2020 CIF

CIF, similarly to FOB, is applied only in the case of maritime and inland shipping. For this reason, it is the second most often chosen rule in sea transport. However, CIF is not allowed in case of transport involving more than one form of industry. In such a case, a CIP rule is used instead of CIF. CIF should not be recommended for container transport.

Furthermore, CIF moves the costs of sea freight from the buyer to the seller. Thus, the seller bears all the expenses till the moment of loading and then the cost of sea freight till the moment of unloading.

Learn more – Incoterms 2020 CIF.

Incoterms 2020 FCA

Almost 40% of contracts around the world are based on the Incoterms 2020 FCA rule. It stems mainly from the fact that it applies to all means of transport, including combined transport. In the case of FCA, a buyer bears the responsibility for the goods from the moment of it being delivered to their storage area or any other appointed place. Moreover, in FCA, the burden of clearing a ship belongs to the seller. The responsibility of stowing the cargo either to a seller or a buyer, depending on the form of transportation.

Changes in Incoterms introduced in 2020 give an additional possibility of writing up an annotation on a bill of lading before loading the goods on the board.

Learn more – Incoterms FCA

Incoterms 2020 DAP

Incoterms 2020 DAP is applied in any form of transportation. This formula can also be used in the case of combined transport: combining a few means of transportation.

According to Incoterms 2020, a buyer bears responsibility for the goods, and expenditure from the moment transport begins till a chosen point.

The most critical modifications introduced in 2020 allow for shipping the goods with one’s own means of transport without using a freight forwarding agency. Besides, a seller is not obliged to share upon buyer’s request information necessary for receiving insurance.

Learn more – Incoterms 2020 DAP

It is also worth noting that Incoterms change every ten years. The newest amendments were introduced at the beginning of 2020. A more thorough discussion of the rules can be found on our blog, in an article on Incoterms 2020. We also encourage everyone to download our detailed coverage of Incoterms 2020 in a PDF form.

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