Incoterms 2020: What Every Industrial Buyer and Seller Needs to Know
What Incoterms are
Incoterms (International Commercial Terms) are a standardized set of three-letter trade terms, published and maintained by the International Chamber of Commerce (ICC), that define exactly which party — buyer or seller — is responsible for transport costs, insurance, customs clearance, and risk of loss or damage at each stage of an international shipment. The current version, Incoterms 2020, contains 11 distinct rules, according to the ICC's own reference page.
How the rules are structured
Not every Incoterm applies to every mode of transport. Rules such as FCA (Free Carrier), DAP (Delivered at Place) and DPU (Delivered at Place Unloaded) apply to any mode of transport — road, rail, air, sea or multimodal — while CIF (Cost, Insurance and Freight) is reserved specifically for sea and inland-waterway transport and is commonly used in commodity trading. Confusing a sea-only term like CIF with a general-purpose term like CIP (Carriage and Insurance Paid To) is a common source of contractual error.
What changed in the 2020 revision
- DPU (Delivered at Place Unloaded) replaced the 2010 term DAT (Delivered at Terminal), placing explicit emphasis on the seller's obligation to unload the goods at any named destination, not just a terminal.
- FCA was revised to accommodate situations where the buyer's carrier needs to issue an on-board bill of lading for sea carriage, addressing a common practical gap under the 2010 rules.
- All cost obligations for each rule were consolidated into a single article (A9/B9) in each rule's text, making costs easier to find and compare across terms.
- Minimum insurance coverage requirements changed: CIF still defaults to the minimum-coverage Institute Cargo Clauses (C), while CIP now requires the higher-coverage Institute Cargo Clauses (A) — a meaningful difference in the level of insurance protection a buyer receives by default under each term.
- Enhanced security-related transport obligations were added throughout the 2020 rules.
The most common buyer/seller mistake
Industrial buyers and sellers frequently treat Incoterms as interchangeable shorthand for "who pays shipping," without registering that each term shifts the point at which risk transfers from seller to buyer — which is a separate question from who pays. Two contracts that look similar on paper (say, CIF versus DAP) can leave very different parties holding the risk of damage or loss during ocean transit, insurance obligations, and customs-clearance responsibility at the destination country. Because Incoterms govern cost and risk allocation but not the transfer of legal title to goods (a separate matter governed by the sales contract itself), conflating "who owns the goods" with "who bears the risk" is another frequent point of confusion.
Why this matters for industrial procurement
For any company importing machinery, spare parts or raw materials, or exporting finished industrial goods, the Incoterm written into a purchase order or sales contract directly determines landed cost, who arranges and pays for insurance, who is responsible for customs formalities at each border, and who bears the financial risk if goods are damaged or lost in transit. Selecting the wrong term for the actual mode of transport being used, or misunderstanding the insurance-coverage default built into a given term, can result in uninsured losses or unexpected costs that fall outside what either party budgeted for.
Relevance for Iranian industrial trade
Given Iran's reliance on imported industrial equipment, spare parts and raw materials, and its export of petrochemical, metal and other industrial goods, correctly specifying and understanding Incoterms is a frequent, high-stakes point of negotiation between Iranian industrial buyers or sellers and their foreign counterparties. A term that shifts insurance responsibility, customs clearance, or risk transfer to the wrong party can materially change the true cost of an import or export deal — making Incoterms literacy a practical procurement and contract-negotiation skill rather than a legal technicality.
