Incoterms 2020 applied to the flooring industry

What are Incoterms and why do they exist?

Whenever a trader needs to arrange a shipment — whether it concerns a truck to a distributor, a container from Asia, or an air freight consignment to a construction project — the same questions invariably arise. Who pays for transport? Who insures the cargo in transit? If the goods arrive damaged — who is responsible? And who handles the customs formalities on both sides of the border?

To avoid renegotiating all these questions each time, Incotermsexist: a set of standardised trade terms, published by the International Chamber of Commerce (ICC). An Incoterm defines, in a single word, the precise allocation of responsibilities, costs and risk between buyer and seller — from the moment the goods leave the warehouse to the moment they arrive at their final destination.

Incoterms are revised every ten years. The current version, Incoterms 2020, is in force. They must always be explicitly stated in the contract, followed by a named location — because the same Incoterm can have a very different meaning depending on where the risk transfers.

The golden question: who loads, who pays, who risks?

A simple way to understand Incoterms: ask three questions for each term.

1. Who arranges and pays for transport to the destination?
2. At what point does the risk transfer from seller to buyer?
3. Who handles customs — export on the seller's side, import on the buyer's side?

The answer shifts per Incoterm from "everything with the seller" (DDP) through a shared middle ground to "everything with the buyer" (EXW).

The 11 Incoterms 2020 explained

EXW — Ex Works

The goods are made available at the seller's warehouse. The buyer or his carrier must collect and load them. The buyer pays all transport, all customs costs on both sides, and bears the risk from the moment the goods are in his truck.

EXW is widely used but almost always incorrectly applied: the seller cannot fully complete the export documents if he has already transferred the goods before the border. In practice, FCA works better for collection.

FCA — Free Carrier

The seller loads the goods onto the buyer's vehicle (or delivers them to a carrier designated by the buyer). The seller also covers the export documents. From that point, the risk passes to the buyer. The correct Incoterm for collection at the seller's warehouse.

FAS — Free Alongside Ship

The seller arranges transport to the quay, alongside the agreed vessel. The buyer must arrange for the cargo to be loaded on board. Rarely used in the flooring industry.

FOB — Free on Board

The seller arranges transport until the goods are loaded on board the vessel at the port of shipment. From that point, the risk passes to the buyer, who also pays the sea freight and customs clearance upon arrival. The most commonly used Incoterm for intercontinental container shipments from Asia.

CFR — Cost and Freight

The seller pays the sea freight to the port of destination. However, the risk — just as with FOB — passes to the buyer as soon as the container is on board at the port of departure. The buyer pays customs clearance upon arrival.

CIF — Cost, Insurance and Freight

As CFR, but the seller also takes out a cargo insurance policy. Note: the insurance is minimal — the ICC minimum standard covers only 110% of the invoice value. Buyers are advised to arrange their own supplementary insurance for high-value shipments.

CPT — Carriage Paid To

The seller pays for transport to the agreed destination, for any mode of transport (road, air, water). The risk transfers as soon as the goods are handed over to the first carrier.

CIP — Carriage and Insurance Paid To

Like CPT, but including transport insurance. Unlike CIF, a broader insurance obligation applies here (Institute Cargo Clauses A).

DAP — Delivered at Place

The seller arranges and pays for the full transport to the agreed destination — typically the buyer's warehouse or shop. The buyer arranges customs clearance and pays import duties. Unloading the truck is the buyer's responsibility (in practice the driver often does it anyway).

DPU — Delivered at Place Unloaded

Like DAP, but the seller is also responsible for unloading at the destination. The only Incoterm under which the seller is responsible for unloading.

DDP — Delivered Duty Paid

The most far-reaching Incoterm for the seller: he pays for everything — transport, insurance, export and import duties — until the goods are ready to be unloaded at the destination. The risk remains with the seller up to that point.

Comparison table

The diagram shows, per Incoterm, which portion of the journey is borne by the seller (orange) or the buyer (blue), with the risk transfer point indicated.

Incoterms in practice: which ones are actually used?

FCA — the correct term for collection

When a customer collects goods themselves, FCA is the correct Incoterm. The seller loads the buyer's truck — as they have the necessary equipment (stacker, forklift, pallet truck) — and provides the export documents. Risk transfers as soon as the goods are in the vehicle.

EXW EXW is theoretically widely used but in practice is almost always incorrectly applied: the term assumes that the buyer loads the goods themselves on the seller's premises, which is legally and logistically problematic. In reality the seller loads anyway — meaning FCA is effectively applied while EXW is written on the invoice.

FOB — the standard for intercontinental transport

FOB FOB is the most widely used Incoterm when purchasing flooring from Asia. The seller arranges transport until the container is on board at the port of departure. After that, the buyer is responsible: they arrange the sea freight, the insurance and customs clearance upon arrival.

CFR more often than CIF

CFR is in practice used more frequently than CIF. The reason: importers typically take out their own cargo insurance, which provides broader coverage than the minimum insurance required under CIF (Institute Cargo Clauses C, at only 110% of the invoice value). With their own policy under CFR, the buyer retains full control over the scope of coverage.

DAP — the standard for European deliveries

DAP dominates for deliveries within Europe. The supplier pays for road transport to the customer's premises. Within the EU there are no import formalities. In practice, the truck driver often also unloads the goods, even though this is technically at the buyer's expense under DAP — which is why DPU is less commonly applied.

DDP — only in specific cases

DDP places all responsibility with the seller, including import duties in the buyer's country. This requires the seller to have a fiscal representative in the country of destination. It is used in large, established partnerships or by major distributors who offer their customers a fully managed service.

Sources & further reading