Incoterms® 2020 Explained: Understanding International Shipping Responsibilities
What Are Incoterms® 2020?
Incoterms® 2020 are internationally recognized trade rules published by the International Chamber of Commerce (ICC) that define the responsibilities of buyers and sellers in international transactions. They clarify obligations related to transportation, export and import formalities, insurance, delivery, and the transfer of risk during shipment.
While Incoterms® are widely used in global trade contracts, they do not determine ownership of goods, payment terms, or contractual rights. Instead, they provide a common framework that helps businesses reduce misunderstandings and manage international shipments more effectively.
Why Is This Topic Important?
International shipments involve multiple parties, including suppliers, carriers, freight forwarders, customs brokers, and importers. Without clearly defined responsibilities, companies may face unexpected costs, customs delays, shipment disruptions, and contractual disputes.
Selecting the correct Incoterm helps organizations establish clear responsibilities, improve supply chain coordination, support import and export compliance, and reduce trade-related risks.
Main Requirements and Elements
Incoterms® 2020 includes 11 standardized trade terms that allocate responsibilities between buyers and sellers. Commonly used terms include:
EXW (Ex Works): The seller provides the goods at its location, while the buyer manages transportation, export procedures, and import clearance.
FCA (Free Carrier): The seller delivers goods to a carrier selected by the buyer and completes export requirements.
FOB (Free On Board): Primarily used for ocean shipments, where risk transfers to the buyer once goods are loaded on the vessel.
CIF (Cost, Insurance and Freight): The seller pays transportation and minimum insurance costs to the destination port, while risk transfers after loading.
DAP (Delivered at Place): The seller delivers goods to the agreed location, while the buyer handles import clearance, duties, and taxes.
DDP (Delivered Duty Paid): The seller assumes most transportation, customs, and delivery responsibilities, including duties and taxes.
Companies should select an Incoterm based on the shipment method, destination, customs responsibilities, and commercial agreement.
Common Compliance Risk Areas
Businesses may encounter compliance issues when selecting an unsuitable Incoterm, misunderstanding risk transfer points, or failing to clearly identify the delivery location in contracts. Organizations may also confuse delivery responsibilities with ownership transfer or fail to coordinate roles among purchasing, logistics, finance, and compliance teams.
These issues can result in shipment delays, unexpected expenses, customs problems, and disputes between trading partners.
Consequences of Improper Use
Incorrect application of Incoterms® may lead to customs clearance challenges, additional transportation costs, insurance disputes, and unclear accountability between buyers and sellers. The impact depends on contract terms, regulatory requirements, and each party’s ability to fulfill assigned responsibilities.
Practical Steps Companies Should Take
Organizations should establish procedures for selecting and applying Incoterms® based on transportation methods, destination requirements, and customs obligations. Companies should clearly define delivery locations in contracts, maintain supporting documentation, coordinate with logistics providers, and regularly review international shipping agreements.
Employee training for procurement, sales, logistics, and compliance teams also helps ensure consistent application of Incoterms® across global operations.
Recommended Best Practices
An effective Incoterms® compliance process should be integrated into daily trade operations. Companies should maintain written procedures, review contracts regularly, and ensure that all departments understand their assigned responsibilities. Clear communication with suppliers and customers helps minimize disputes and improves supply chain efficiency.
How DSG Global LLC Can Help
DSG Global LLC assists organizations with Incoterms® evaluations, international shipping reviews, customs compliance assessments, employee training, and global trade compliance advisory services. Our team helps businesses strengthen trade processes, clarify responsibilities, and reduce commercial and regulatory risks.
Conclusion
Incoterms® 2020 provide a standardized framework for managing transportation responsibilities, customs obligations, and risk allocation in international trade. By selecting the appropriate trade terms and maintaining clear documentation, companies can improve supply chain performance and reduce compliance risks.
Contact DSG Global LLC to evaluate your international shipping practices and strengthen your global trade compliance program.
Disclaimer: This article is provided for general informational purposes only and does not constitute legal advice. The appropriate use of Incoterms® depends on the specific transaction, contract terms, transportation method, and applicable customs requirements. Companies should seek professional guidance based on their individual trade activities.
References
International Chamber of Commerce (ICC) – Incoterms® 2020 Rules
U.S. Customs and Border Protection (CBP) – Import and Export Guidance
International Trade Administration (ITA) – Trade Resources
World Trade Organization (WTO) – International Trade Principles
