Incoterms® 2020 – Lecture Review

These question-and-answer flashcards cover the history, structure, key concepts, rule specifics, and 2020 updates of Incoterms®, as well as related documents like Bills of Lading and insurance, giving comprehensive practice for exam preparation.

Who publishes the Incoterms® rules?

The International Chamber of Commerce (ICC).

In what year were the first Incoterms® rules issued?

1936.

What do the Incoterms® rules govern regarding a sales contract?

Obligations, transfer of risk, and allocation of costs between seller and buyer.

Name one key aspect that Incoterms® rules do NOT govern.

Transfer of property/title (ownership) of goods.

How many rules are contained in Incoterms® 2020?

11 rules.

Which Incoterms® 2020 rule replaced DAT (Delivered at Terminal)?

DPU (Delivered at Place Unloaded).

What are the two broad categories of Incoterms® 2020 rules?

(1) Rules for any mode of transport and (2) Rules for sea/inland waterway transport.

List the 7 multimodal rules of Incoterms® 2020.

EXW, FCA, CPT, CIP, DPU, DAP, DDP.

List the 4 maritime‐only rules of Incoterms® 2020.

FAS, FOB, CFR, CIF.

Under EXW, where does risk transfer from seller to buyer?

When the goods are placed at the buyer’s disposal at the named place (usually the seller’s premises).

Which party arranges export clearance under EXW?

The buyer (seller has no obligation).

Why should buyers use EXW with care for international shipments?

Because the buyer bears almost all responsibilities, including export formalities and loading risks.

Under FCA, when does risk transfer if the named place is the seller’s premises?

When the goods are loaded on the buyer-nominated carrier at the seller’s premises.

Which Incoterms® rule is recommended instead of FOB for containerised goods?

FCA (Free Carrier).

Where is delivery under FAS effected?

When goods are placed alongside the vessel at the named port of shipment.

Who bears loading costs under FOB?

The seller, unless trade custom or contract states otherwise.

Define ‘on board’ in the context of FOB, CFR, and CIF.

Delivery occurs when goods are physically placed on the vessel, according to port custom and cargo type.

What additional seller obligation distinguishes CIF from CFR?

The seller must obtain insurance at minimum cover (Clause C in 2010, Clause A in 2020 for CIP).

Under CFR, who bears the marine insurance risk?

The buyer must arrange insurance; seller is not obliged to insure.

Which rule requires the seller to obtain insurance with Clause A (all-risks) cover under Incoterms® 2020?

CIP (Carriage and Insurance Paid To).

At what point does risk transfer under CPT and CIP?

When the goods are handed over to the first carrier, not at destination.

What major change regarding insurance cover was introduced in Incoterms® 2020 for CIF and CIP?

CIP now requires higher insurance cover (Institute Cargo Clauses A); CIF remains minimum cover (Clause C).

What does DAP require concerning unloading?

Seller delivers ready for unloading; buyer is responsible for unloading costs/risks.

Under DPU, who is responsible for unloading at destination?

The seller.

Which rule places maximum responsibility on the seller, including import clearance and duties?

DDP (Delivered Duty Paid).

Why might a seller avoid using DDP?

Complexity and risk of handling foreign import formalities, duties, and taxes.

What document serves as evidence of contract of carriage, receipt of goods, and document of title in maritime trade?

Bill of Lading (B/L).

Give two functions of a Bill of Lading.

(1) Receipt of goods, (2) Evidence of carriage contract, (3) Document of title.

What is a ‘Clean’ Bill of Lading?

One stating the goods were received in apparent good order and condition, without clauses noting defects.

What type of B/L allows transfer of title by endorsement?

Negotiable B/L, e.g., ‘To Order’ Bill of Lading.

Which Incoterms® 2020 rule now includes an option for on-board Bills of Lading under A6/B6?

FCA, if the buyer instructs the carrier to issue an on-board B/L to the seller.

Define ‘Pre-carriage’.

Inland movement before the container is delivered to the port/terminal.

Define ‘On-carriage’.

Inland movement after the container is picked up from the port/terminal at destination.

What is meant by ‘omni-modal’ transport?

Door-to-door transport using multiple modes (multimodal).

Name three factors that do NOT influence Incoterms® rules directly.

Price, payment method, transfer of title (ownership).

Is use of Incoterms® mandatory in a sales contract?

No, but strongly recommended for clarity.

How should a party reference an Incoterms® rule in a contract?

Rule + named place/port + ‘Incoterms® 2020’ (e.g., FOB Hamburg Incoterms® 2020).

What change was made to the order of articles within each rule in Incoterms® 2020?

Delivery and transfer of risk (A2/B2 and A3/B3) are now placed before carriage and insurance obligations.

What does ‘FIOST’ stand for in voyage charter context?

Free In, Out, Stowed, and Trimmed (loading, discharge, stowage costs not included in freight).

Which Incoterms® rules allow use of the seller’s own means of transport under 2020 revision?

FCA, DAP, DPU, DDP.

Explain the key difference between demurrage and detention for containers.

Demurrage: charge for using terminal space beyond free time; Detention: charge for using the container outside the terminal beyond free time.

Under EXW-LOADED variation, who bears risk during loading?

Still the buyer unless expressly agreed otherwise.

Give one reason CIF/CFR are unsuitable for containerised goods.

Risk transfers when goods are on board, but containers often delivered earlier to terminal; CPT/CIP are clearer for containers.

What does ‘Institute Cargo Clauses (A)’ cover compared with (C)?

Clause A provides ‘all risks’ cover; Clause C provides limited named perils cover.

What is the main advantage for a seller using FCA instead of FOB for containers?

Seller’s risk ends when handing goods to carrier at inland location or terminal, avoiding ambiguity of ‘on board’.

Which party arranges import clearance under DAP?

The buyer.

State one major benefit of using CPT for the buyer.

Seller pays main carriage to destination while risk passes earlier, allowing buyer to arrange insurance of choice.

What does the ‘®’ symbol signify after Incoterms?

It is a registered trademark of the ICC.

Are variations like ‘FOB stowed and trimmed’ part of official Incoterms®?

No; they are trade custom variations and not within the official rules.

What security-related addition was made in Incoterms® 2020?

Explicit inclusion of security-related requirements in carriage and clearance obligations.

What factor primarily determines whether to choose a maritime or multimodal Incoterms® rule?

Whether the delivery/transport involves sea carriage only (bulk/loose cargo) or multimodal/container traffic.

Under which rule does the seller have zero obligation to load the goods?

EXW.

When using CIF, what minimum insurance value must the seller procure?

110% of the contract price, but only minimum cover (Clause C).

What risk does a seller face if they agree to ‘CIF Rotterdam not later than…’ in the contract?

They may inadvertently guarantee arrival date, which Incoterms® C-terms do not cover.

Which Incoterms® rule is most appropriate for e-commerce parcel delivery to a buyer’s door including duty?

DDP.

Who pays for unloading under DPU?

The seller.

Give one disadvantage for a buyer when the seller organises transport under a C-term.

Buyer bears risk once goods handed to first carrier but has less control over carrier choice and transport conditions.

What document must the seller provide under CFR and CIF proving shipment?

A bill of lading or other transport document indicating the goods are on board.

Which B/L type is unsuitable for Letters of Credit requiring negotiability?

Straight (non-negotiable) Bill of Lading.

Name two Incoterms® that require the seller to contract and pay for main carriage.

CFR, CIF, CPT, CIP, DPU, DAP, DDP (any one or two).

If a container is damaged after being placed in the export stack but before loading under FOB, who bears the risk?

The buyer, because risk passes only once goods are on board; however, delivery may be considered incomplete, leading to disputes—FCA is safer for containers.

Why were Explanatory Notes introduced in Incoterms® 2020?

To guide users in selecting the correct rule and understanding practical application.

What does ‘THC’ stand for, sometimes added to Incoterms® clauses?

Terminal Handling Charges.

Under FCA, who is responsible for export customs clearance?

The seller.

What key advice does the ICC give about dating older Incoterms versions in contracts?

Specify the year, e.g., ‘Incoterms® 2000’, to avoid ambiguity; older versions remain valid if agreed.

Define ‘Force Majeure’ in sales contracts.

Unforeseeable events beyond parties’ control that prevent contract performance; not covered by Incoterms®.

Do Incoterms® apply automatically to domestic transactions?

They can apply if parties agree; Incoterms® 2020 explicitly allow domestic use.

What is the potential pitfall of an EXW quote with a Letter of Credit requiring an on-board B/L?

Seller may be unable to provide required transport document, delaying payment and increasing risk.

Which clause in a B/L indicates damaged packaging, making it ‘unclean’?

A clause noting defects, e.g., ‘bags torn’ or ‘cases broken’.

What is glyphosate compliance in coffee contracts an example of?

Commodity-specific quality/specification outside the scope of Incoterms® but included in sales terms.

How does voyage charter freight differ from liner freight in cost components?

Voyage charter freight is negotiated and may exclude loading/discharge (FIO/FIOST), whereas liner freight typically includes these costs.

Which Incoterms® rule should be chosen when the seller bears risks and costs only up to the border of buyer’s country?

DAP (Delivered at Place).

When using CPT or CIP, why should parties avoid stating a ‘delivery date at destination’?

Risk passes at dispatch; specifying arrival date may create additional obligations not covered by the rule.

What is the main practical criterion for choosing between DAP and DPU?

Whether the seller is willing and able to unload the goods at destination (DPU) or not (DAP).