Incoterms 2020 are the 11 internationally recognised rules that define how costs and risks are divided between buyer and seller in commodity transactions. They are published by the International Chamber of Commerce (ICC) and are incorporated by reference into almost every commodity contract traded internationally.
The 11 Incoterms 2020 Rules
| Term | Name | Risk transfers at | Who pays freight |
|---|---|---|---|
| EXW | Ex Works | Seller's premises | Buyer |
| FCA | Free Carrier | Named place (often seller's premises or port) | Buyer from named point |
| CPT | Carriage Paid To | First carrier handoff | Seller to destination |
| CIP | Carriage & Insurance Paid | First carrier handoff | Seller to destination + insurance |
| DAP | Delivered At Place | Named destination, ready to unload | Seller |
| DPU | Delivered at Place Unloaded | Named destination, unloaded | Seller |
| DDP | Delivered Duty Paid | Named destination, duties paid | Seller (all costs) |
| FAS | Free Alongside Ship | Alongside vessel at loading port | Buyer |
| FOB | Free On Board | On board vessel at loading port | Buyer from vessel |
| CFR | Cost & Freight | On board vessel at loading port | Seller pays freight, buyer bears risk en route |
| CIF | Cost, Insurance & Freight | On board vessel at loading port | Seller pays freight + insurance |
Incoterms in Petroleum Trade
FOB and CIF are the dominant terms in petroleum cargo trading. The choice has significant financial and operational implications:
- FOB seller — loads product, buyer charters vessel, buyer bears freight and insurance risk
- CIF buyer — seller arranges freight and insurance, simpler for buyer but premium in price
- Rotterdam FOB — the global benchmark for EN590 and heating oil (ICE Gasoil FOB ARA)
- Singapore FOB — benchmark for Jet A-1 and bunker fuel in Asia
Frequently Asked Questions
- What are Incoterms?
Incoterms (International Commercial Terms) are a globally recognised set of trade rules published by the International Chamber of Commerce (ICC). They define precisely where risk and cost transfer from seller to buyer in an international sale, covering transport, insurance, customs clearance, and documentation obligations.
- What is the difference between FOB and CIF in Incoterms?
FOB (Free On Board): seller is responsible until goods cross the ship's rail at the named port of loading; buyer pays all freight and insurance from that point. CIF (Cost Insurance Freight): seller pays for freight and minimum insurance to the named port of destination; risk transfers to buyer once goods are on board the vessel.
- Which Incoterm is most commonly used in petroleum trade?
FOB (Free On Board) and CIF (Cost Insurance Freight) dominate petroleum trade. FOB Rotterdam is the primary European benchmark for EN590 and other petroleum products. For large crude oil shipments, FOB at the loading terminal is standard, with buyers arranging their own VLCC or Aframax charters.
- What is the latest version of Incoterms?
Incoterms 2020 is the current version, effective from 1 January 2020, published by the International Chamber of Commerce. It replaced Incoterms 2010. Key changes include: FCA now allows bill of lading with on-board notation, DDP clarified regarding import VAT, and security obligations were strengthened for all terms.