Incoterms 2020 for Air Cargo: Which Rules to Use and Avoid

What Incoterms do and do not cover

Incoterms are published by the International Chamber of Commerce. The current edition, Incoterms 2020, has been in force since January 1, 2020 and contains 11 rules. As an overview of the rules notes, they are not law and apply only if the parties incorporate them into their contract.

They allocate delivery, risk, cost and certain formalities between seller and buyer. According to the Trade Hub glossary, they do not deal with transfer of ownership, price, payment method, applicable law or dispute resolution. That matters in air cargo because many shipments are high value and fast moving, so the contract still has to say when title passes and when the seller is paid.

Always write the rule, the named place and the version together, for example “FCA Frankfurt Airport, Incoterms 2020”.

Which Incoterms 2020 rules work for air freight

Some details are easy to miss. Under FCA, whether the seller or buyer loads depends on the named place: at the seller’s premises the seller loads, while at another place such as a forwarder’s terminal the seller delivers ready for unloading. CIP now requires Institute Cargo Clauses (A) cover or equivalent, a higher standard than the earlier edition, as DHL’s Incoterms 2020 summary (German) explains. The same source notes that DPU is the only rule requiring the seller to unload and that DAP should be used if the seller should not bear unloading.

Why FOB, CFR and CIF do not belong on an air waybill

FOB, CFR, CIF and FAS are sea and inland waterway rules. They are built around goods being placed alongside or on board a vessel, and their logic does not fit air cargo, where goods are handed to a carrier or handler at an airport or warehouse well before the aircraft is loaded. The mismatch can leave risk and responsibility unclear while goods wait for a flight.

The air equivalents are FCA where the seller delivers to the buyer’s carrier, and CPT or CIP where the seller pays for carriage to the destination. The Incoterms 2020 change allowing an on-board bill of lading under FCA is a sea feature and has no practical use for air waybills.

Air cargo pitfalls to settle in the contract

• Be precise about the place: an airport, a city and a forwarder’s warehouse are different points of handover and different risk points.
• Know when risk moves: under CPT and CIP the buyer carries transit risk from the first handover, although the seller has paid the freight.
• Allocate surcharges: fuel, security, handling and chargeable-weight charges should be assigned clearly rather than assumed to sit inside the freight rate.
• Dangerous and regulated goods: responsibility for documentation and acceptance should be clear. See our guides to dangerous goods acceptance and lithium battery compliance.
• Insurance and carrier liability: international conventions limit carrier liability, often well below cargo value, so insurance matters even when the rule does not require it.
• Customs under DDP: the seller must clear import and pay duties, which can be difficult without local registration. DAP is often more practical.
• Time-critical freight: perishables, pharmaceuticals and urgent parts need rules that put control with the party best placed to manage the cold chain or delay. See our guides to pharma air freight, perishable cargo and AOG parts charter.

Handling quality at both ends also affects who bears practical risk. Compare options in our guide to airport cargo handling providers and review freighter insurance requirements.

The air waybill is not a document of title

The air waybill is a non-negotiable transport document. As the Wikipedia entry on the air waybill explains, it acts as a receipt and evidence of the contract of carriage, and the words “non-negotiable” appear on its face. Unlike an ocean bill of lading, it cannot be endorsed to transfer ownership of goods in transit. IATA’s e-AWB programme allows it to be issued electronically.

This changes how sellers protect themselves. Because the waybill does not control the goods, the choice of consignee is critical. In letter of credit transactions, banks often require air shipments to be consigned directly to the issuing bank, a practice discussed by practitioners on the ICC documentary credit forum. If the goods are consigned to the buyer instead, the buyer can generally collect them from the carrier at destination without the seller or bank being paid.

Structuring this correctly is where a letter of credit arrangement needs to match the chosen Incoterm, the consignee on the waybill and the documents the bank will examine. UNCITRAL has been examining a negotiable cargo document that could give air cargo a title function, as Air Cargo News reported, but for now the waybill remains non-negotiable.

How your Incoterm affects financing air cargo trade

Lenders look at the Incoterm to see who carries risk during transit, who must insure the goods and which documents prove delivery. A CIP sale with insurance in place, an FCA sale with a clearly documented handover, and a DAP sale with proof of delivery each create a different risk profile for the party providing finance.

For exporters and importers moving high-value goods by air, specialist trade finance advisory can help match the financing structure to the contract terms, documents and cash conversion cycle of the shipment. Where the need is shorter-term liquidity rather than a single transaction, Financely also arranges working capital and supply chain finance for established companies.

Which rule fits which air shipment?

• Standard commercial freight, buyer uses its own forwarder: FCA at a named airport or terminal.
• Seller controls the booking and the buyer wants insured cargo: CIP, with ICC (A) cover.
• Seller books freight but insurance is the buyer’s concern: CPT.
• Buyer wants delivery to its door but will clear customs itself: DAP.
• Seller can clear import and pay duties locally: DDP, with care.
• Charter or freighter programmes: agree the Incoterm between shipper and consignee separately from the charter or ACMI contract. See air cargo charter brokers and how to structure a cargo ACMI RFP.

Operational planning also affects the delivery point. See our guides to cargo hub selection, ULD planning, payload and range planning and e-commerce air cargo networks. For large or unusual loads, see project cargo charter and humanitarian cargo planning.