Incoterms 2020 Explained: A Plain Guide for New Zealand Importers and Exporters

Incoterms 2020 are 11 standard trade terms published by the International Chamber of Commerce. Each one answers the same three questions for a sale of goods: where the seller delivers, the point at which risk passes from seller to buyer, and who pays for each part of the journey. They are not law. They apply only when your contract names them.

Get the Incoterm right and a shipment moves with no argument about who carries the cost or the risk at each step. Get it wrong, or leave it vague, and the gap shows up later as a damaged container nobody insured, duty and GST you cannot reclaim, or a payment a bank will not release. This guide walks through what the rules do, the 11 terms in full, and the New Zealand customs, GST and insurance detail that decides which term actually suits your trade.

What are Incoterms 2020?

Incoterms 2020 are a set of 11 internationally recognised trade rules published by the International Chamber of Commerce (ICC). The word is short for International Commercial Terms. Each rule is a three letter code, such as FOB or CIP, that both parties to a sale of goods agree to use. Once a contract names the rule, both sides know exactly where the seller has to deliver, at what point the risk of loss or damage moves to the buyer, and who pays for packing, carriage, insurance, clearance and handling along the way.

The point of a shared set of rules is to remove guesswork. Two traders in different countries can write three letters and a place name into a contract and rely on the same agreed meaning, instead of each assuming their own. The correct way to state a term is the code, the named place, and the year: for example, CIF Tauranga, INCOTERMS 2020.

Who publishes Incoterms, and are they law?

The ICC publishes and updates the rules. It is a non governmental business organisation based in Paris, and it has no power to make law. That matters in practice: Incoterms have legal effect only when a contract expressly incorporates them. They are not imposed by any government, and no country ratifies them. If your contract does not name an Incoterm, none applies by default.

The ICC has revised the rules roughly every decade since the first edition in 1936, as trade shifted from loose and break bulk cargo towards containers, air freight and multimodal movements. The current edition is Incoterms 2020. The 2010 edition is still valid if a contract names it, which is exactly why stating the year is not optional.

What do Incoterms govern, and what do they not?

Incoterms govern three things only: delivery, risk transfer and cost allocation. Delivery is where and when the seller meets the delivery obligation. Risk transfer is the point at which responsibility for loss or damage to the goods passes from seller to buyer. Cost allocation is who pays for each stage, from export packing through to import clearance and final delivery.

They do not govern five things that often get assumed into them. They say nothing about when title or ownership passes, nothing about payment terms, nothing about breach of contract remedies, nothing about whether the goods conform to the contract, and nothing about force majeure. Those matters live in the rest of your contract and in the law that governs it. A common and expensive error is to treat the Incoterm as the whole agreement. It is one clause. For a fuller look at where this goes wrong, read our guide to the most common Incoterms mistakes that cost New Zealand businesses money.

The four questions every rule answers

Every Incoterm, whichever one it is, answers the same four questions. Learn to read these four and you can read any rule.

The catch most people miss is that risk and cost do not always move at the same point. Under CPT and CIP, the seller pays for carriage all the way to the destination, but risk passes to the buyer the moment the goods are handed to the first carrier at origin. So the seller can be paying for a journey on which the buyer already carries the risk. Paying for carriage is not the same as bearing risk during carriage.

The 11 Incoterms 2020 rules at a glance

The 11 rules split into two families by transport mode. Seven work for any mode of transport, including sea, air, road, rail and multimodal. Four are for sea and inland waterway transport only, and were designed for bulk and break bulk cargo loaded directly onto a vessel. In modern containerised trade, the any mode rules fit the vast majority of shipments.

Within each family the rules run on a spectrum of seller obligation, from EXW, where the seller only makes the goods available at its own premises, through to DDP, where the seller delivers to the buyer cleared for import with all duty and GST paid.

Why does the named place matter?

The named place is the part of the term that makes it enforceable. It fixes where risk transfers and where the seller's cost obligation ends. A rule with no place, or a vague one, is a loose thread. FOB on its own does not say which port. FCA China does not say which site. CIF with only a country does not say which port of arrival. Each of those gaps can be read differently by courts in different countries, and that is exactly the kind of opening the other side's lawyer looks for when something goes wrong.

The fix is simple. Always state a specific place: a port, terminal, warehouse or street address. Write it in full, for example FOB Yantian Container Terminal Shenzhen, INCOTERMS 2020, or FCA 12 Industrial Road Hamilton, INCOTERMS 2020. The more precise the named place, the clearer the risk transfer point.

What changed from Incoterms 2010 to 2020?

Four changes matter most for a New Zealand business reviewing its contracts.

DAT became DPU. The old DAT, Delivered at Terminal, was renamed DPU, Delivered at Place Unloaded, to make clear that the seller can deliver and unload at any agreed place, rather than at a terminal alone.

FCA can now produce an on board bill of lading. Under the 2020 rules, the buyer and seller can agree that the buyer instructs the carrier to issue an on board bill of lading to the seller after loading. That resolves a long standing clash between FCA and letter of credit payment, and removes the last practical reason to keep using FOB for containers.

CIP now requires all risks insurance. CIP now carries a minimum insurance standard of Institute Cargo Clauses (A), which is all risks cover. CIF kept the lower Clauses (C) minimum, a named perils policy. This is one of the most commercially important differences between the two insurance terms.

Own transport is recognised. The rules now state plainly that a party can meet its carriage obligation using its own transport, rather than only by hiring a third party carrier.

How do Incoterms affect New Zealand customs, GST and insurance?

This is where the choice of term meets New Zealand rules, and where the practical money sits.

Customs duty and the value it is charged on

New Zealand Customs charges any import duty on the customs value of the goods, which is based on the price paid or payable for them. Where goods are bought on a CIF basis, the actual overseas freight and insurance are deducted to reach that customs value, so duty is charged on the value of the goods themselves, not on the freight and insurance. Switching the Incoterm does not move that duty base. It changes who arranges and pays for each leg, not the value Customs assesses duty on.

GST on imported goods

GST at 15 percent is charged on a wider base than duty: the customs value of the goods, plus any duty, plus the international freight and insurance. In other words, GST is charged on the landed cost. Since 1 December 2019, GST applies to imported goods regardless of value under the low value imported goods rules, and Customs collects duty and GST at the border on consignments valued over NZ$1000.

Who is the importer of record, and who keeps the GST

The Incoterm decides who is responsible for import clearance, and that decides who is the importer of record. Under DAP, the New Zealand buyer is the importer of record, lodges the entry, pays duty and GST, and if GST registered claims the GST back as an input credit. Under DDP, the overseas seller, or an agent it appoints, has to be the importer of record. A foreign seller that is not registered here usually cannot do that, so the goods can sit at the freight station while demurrage builds. Even when DDP works, the GST credit belongs to the seller as importer of record, not to you. For most business to business imports, DAP keeps the structure clean and keeps the GST credit with the New Zealand buyer.

Insurance

Only CIP and CIF oblige the seller to insure the cargo, and they set different minimums. CIF requires only Institute Cargo Clauses (C), a named perils policy that may not cover ordinary handling damage. CIP requires Clauses (A) all risks cover. Under every other rule, neither party is obliged to insure, so risk can pass to the buyer at origin with no cover in place unless the buyer arranges it. Treat insurance as a separate decision and confirm with your broker that cargo cover is active from the point risk transfers.

One more layer sits underneath all of this. The Incoterm is incorporated into a contract, and in New Zealand that contract and matters such as the passing of title sit under the Contracts and Commercial Law Act 2017, while import procedure sits under the Customs and Excise Act 2018. This is general information, not legal or tax advice. For a specific transaction, confirm the detail with New Zealand Customs, a licensed customs broker, or a commercial lawyer.

How do I choose the right Incoterm?

Five questions filter the 11 rules down to the right fit for a given shipment.

1. What is the mode of transport? If the cargo is containerised, air, road, rail or multimodal, use an any mode rule only. Reserve FAS, FOB, CFR and CIF for bulk and break bulk cargo loaded directly onto a vessel.

2. Can the seller handle export clearance? If yes, every rule except EXW is open. If the seller genuinely cannot, EXW may be forced, but FCA at the seller's premises is usually the better answer because export clearance then sits with the seller, where the law expects it.

3. Who is better placed to arrange carriage and insurance? If the buyer has the stronger freight position, lean to the F terms, FCA, FAS or FOB. If the seller does, lean to the C or D terms.

4. Can the buyer clear import at destination? If yes, DAP, CPT, CIP, CFR and CIF are all options. If not, DDP delivers fully cleared, but only if the seller can legally be the importer of record here.

5. What is the risk appetite and relationship? If the buyer wants all risks cover as a seller obligation, CIP carries it. If the buyer wants control of logistics, the F terms hand it over.

The framework does not always produce one answer. For a given lane, two or three terms can all be reasonable. What it does is surface the trade offs so the choice is deliberate rather than a habit copied from an old template.

A short glossary