Before anything else: Incoterms 2020 is still the current edition. The International Chamber of Commerce revises the rules roughly every decade, and the next revision is not expected until around 2030. There is no “Incoterms 2026”, despite it being a common search term, and a contract referring to one is referring to something that does not exist.
What Incoterms do and do not cover
Incoterms allocate three things between seller and buyer: who arranges and pays for carriage, who bears the risk of loss or damage at each point, and who handles export and import formalities.
They do not transfer title, do not set the price, do not specify payment terms, and do not govern what happens if the goods are defective. Those come from the sale contract. An Incoterm is one component of a contract, not a substitute for one.
The eleven terms in two families
Seven terms work for any mode of transport, including containerised sea freight and air:
- EXW (Ex Works) — buyer collects from the seller’s premises and does everything.
- FCA (Free Carrier) — seller delivers to a carrier nominated by the buyer, cleared for export.
- CPT / CIP (Carriage Paid To / Carriage and Insurance Paid To) — seller pays carriage to a named destination; risk passes earlier, at handover to the first carrier. CIP adds insurance at a high level of cover.
- DAP / DPU (Delivered at Place / Delivered at Place Unloaded) — seller delivers to destination; DPU additionally unloads.
- DDP (Delivered Duty Paid) — seller does everything including import clearance and duties.
Four terms apply only to sea and inland waterway transport: FAS, FOB, CFR and CIF.
The FOB problem
FOB is the most misused term in international trade, and New Zealand exporters use it constantly for containerised cargo where it does not belong.
Under FOB, risk passes when goods are placed on board the vessel. That made sense for break-bulk cargo loaded directly. Containerised cargo is delivered to a terminal days before loading, and during that gap the seller retains risk over goods it no longer controls and cannot inspect.
FCA is the correct term for containers. Risk passes at handover to the carrier, which is where control actually transfers. Incoterms 2020 also introduced an option under FCA for an on-board bill of lading, which addressed the main historical reason exporters resisted the change for letter of credit purposes.
The two terms that create the most difficulty
EXW puts every obligation on the buyer, including export clearance in the seller’s own country — something an overseas buyer often cannot legally do in New Zealand. It looks simple for the seller and regularly is not. FCA achieves nearly the same commercial outcome without the problem.
DDP requires the seller to clear goods for import and pay duties and taxes in the buyer’s country. That means being able to act as importer of record in a jurisdiction where you may have no presence, and may trigger tax registration obligations. Exporters agree to DDP to win business and discover the complexity afterwards. DAP is usually the better answer.
Insurance under CIF and CIP
Incoterms 2020 separated the two. CIP now requires cover at a high level equivalent to all-risks, while CIF retains the older minimum cover appropriate to commodity trades. Exporters using CIF for manufactured goods are frequently insured well below what the cargo warrants.
Getting it right in practice
- Always state the term, the named place with precision, and the edition: FCA Auckland Airport, Incoterms 2020. “FCA Auckland” is ambiguous.
- Match the term to the transport mode. Sea-only terms for airfreight are a common and consequential error.
- Check the term against your insurance so there is no gap where nobody is covered.
- Make sure the Incoterm and the payment terms are consistent with each other.
The ICC publishes the authoritative rules, and New Zealand Trade and Enterprise and the New Zealand Customs Service both publish exporter guidance. For a first export contract into an unfamiliar market, a freight forwarder’s advice on term selection is usually free and usually worth having.
