Complete Guide to Incoterms 2020 for Commodity Traders

Incoterms (International Commercial Terms) are standardized trade terms published by the International Chamber of Commerce (ICC) that define the responsibilities of buyers and sellers in international transactions. They specify who arranges transportation, who pays for freight, where risk transfers from seller to buyer, and who handles customs clearance and insurance.

The current version — Incoterms 2020 — includes 11 rules divided into two groups: rules for any mode of transport (EXW, FCA, CPT, CIP, DAP, DPU, DDP) and rules specifically for sea and inland waterway transport (FAS, FOB, CFR, CIF). Using the correct Incoterm in your contract prevents disputes about cost and risk allocation.

FOB (Free on Board) is the most common for bulk commodity exports — the seller delivers goods on board the vessel at the loading port. CFR (Cost and Freight) means the seller pays freight to the destination port but risk transfers at loading. CIF (Cost, Insurance, and Freight) adds insurance to CFR. FCA (Free Carrier) is gaining popularity for containerized commodities.

EXW (Ex Works) — where the buyer collects from the seller's premises — is sometimes used for domestic or regional commodity transactions. DAP (Delivered at Place) is used when the seller delivers to a specific inland location. For the majority of international seaborne commodity trade, FOB, CFR, and CIF cover 90%+ of transactions.

The 2020 revision introduced several changes from the 2010 version. FCA now allows parties to agree that the buyer instructs the carrier to issue a bill of lading to the seller — solving a common LC documentation problem. CIF and CIP insurance requirements now differ: CIP requires maximum coverage (Institute Cargo Clauses A), while CIF maintains minimum coverage (Institute Cargo Clauses C).

DAT (Delivered at Terminal) was renamed DPU (Delivered at Place Unloaded) and expanded to cover any place, not just terminals. Security-related requirements were also strengthened across all terms. These changes reflect evolving trade practices and the growing importance of containerized transport.

Don't use FOB or CIF for containerized cargo — the ICC recommends FCA and CIP instead, since container goods are typically handed to the carrier at a terminal before being loaded on the vessel. However, market convention still uses FOB and CIF for many containerized commodity trades, so follow your market's practice.

Always specify the named place after the Incoterm — 'FOB' alone is meaningless; 'FOB Santos, Brazil' is a complete term. Don't assume Incoterms cover everything — they don't address payment terms, title transfer, or dispute resolution, which must be separately agreed in the contract.