Incoterms 2020 for green coffee buyers.

An Incoterms rule is a three-letter shorthand, published by the International Chamber of Commerce, for a specific allocation of tasks, costs and risk between seller and buyer. It answers three questions: who arranges and pays for carriage, who bears the risk of loss or damage at each stage, and who handles export and import formalities. It is written into the contract as the rule plus a named place plus the edition, for example "CIF Hamburg Incoterms 2020".

What a rule does not do is at least as important. It does not transfer ownership, it does not set the price, it does not specify payment terms, it does not decide quality or weight determination, and it does not supply a governing law or a dispute mechanism. Those come from your sales contract, which for green coffee is usually a trade-association standard form. A rule quoted without a contract behind it is a shipping instruction pretending to be an agreement.

For a buyer of Ethiopian green coffee, the rule chosen determines what the quoted price actually includes, and therefore whether two quotations are comparable at all. Before comparing prices for the washed and natural lots described on our coffee page (grown in Amaro) establish which rule and named place each quotation is on.

The rules divide into two families. Seven apply to any mode or modes of transport, including containerised sea freight with an inland leg. Four apply only to sea and inland waterway transport, and were designed for cargo loaded across a ship's rail rather than sealed into a container at an inland depot.

FAS, FOB, CFR and CIF are drafted around delivery at the ship. Under FOB, CFR and CIF, risk passes when the goods are on board. That model works for bulk and break-bulk cargo handed over at the quay. It fits containerised coffee badly, because a container is packed and sealed at an inland depot days or weeks before it is loaded, and once it is sealed, the seller has no practical control over it while still, under the rule, carrying the risk.

The ICC's own guidance is that FCA is the appropriate rule where goods are handed over before loading on board, which is the normal case for containers. In practice, coffee has kept FOB alive by convention and by the requirements of banks and letters of credit. Both facts are true at once, and a buyer should know which they are choosing and why.

Incoterms 2020 addressed the letter-of-credit obstacle directly. Under FCA, the parties may now agree that the buyer instructs the carrier to issue a transport document stating the goods have been loaded on board, which the seller then presents to the bank. This removes the main practical reason coffee sellers gave for preferring FOB over FCA.

Two rules oblige the seller to insure, and the 2020 edition deliberately separated the level of cover they require.

• CIF requires the seller to obtain cover complying with a minimum standard, the restricted, named-perils level historically associated with Institute Cargo Clauses (C).
• CIP requires the seller to obtain the higher, all-risks level of cover historically associated with Institute Cargo Clauses (A).

The distinction was drawn because CIF is normally used for bulk commodities where restricted cover is customary, while CIP is used for containerised and manufactured goods where all-risks cover is expected. Coffee sits awkwardly across that line: it is a commodity, but it moves in containers and it is damaged by exactly the moisture and condensation events that restricted cover may not answer.

In either case the required cover is a minimum, and the parties may agree more. If your coffee's real exposure is condensation and moisture migration in a container across an equatorial route, the level of cover is not a back-office question, decide it deliberately and record it in the contract.

The 2020 edition was an evolution of 2010 rather than a rewrite. Four changes matter to a coffee buyer.

1. 01DAT was renamed DPU (Delivered at Place Unloaded) so the rule is no longer tied to a terminal. It remains the only rule under which the seller must unload at destination.
2. 02CIP now requires all-risks insurance cover, while CIF retains the minimum standard. Previously both sat at the minimum.
3. 03FCA gained the optional on-board bill of lading arrangement described above, removing the principal letter-of-credit obstacle to using FCA for containers.
4. 04FCA, DAP, DPU and DDP now expressly accommodate carriage in the seller's or buyer's own vehicle, rather than assuming a third-party carrier is always engaged.

Ethiopia has no sea port. Coffee leaving the country travels overland (principally to the Port of Djibouti) before any vessel is involved. This makes the named place in an Incoterms rule unusually consequential, because the inland leg it either includes or excludes is long, crosses an international border, and carries real risk.

• FCA at a named inland point in Ethiopia means the buyer takes over before the overland leg, and carries the border crossing and the road transit.
• FOB Djibouti means the seller carries the coffee out of Ethiopia, across the border and into a foreign port before risk passes, a materially larger undertaking than FOB at a domestic port would be.
• CFR or CIF to a destination port means the seller arranges and pays the ocean carriage, but risk still passes at the origin port, not at destination.
• A delivered rule (DAP, DPU or DDP) moves risk all the way to the named destination, and correspondingly changes the price.

Two quotations on the same coffee can differ substantially on price for no reason other than where the named place sits, and a buyer comparing them without normalising for that is comparing different things. The sequence and timing of that overland leg is set out in the harvest and shipping calendar.

There is no universally correct rule. There is a rule that matches your capability, and the honest test is what you can actually do.

If you have no freight capability

A delivered rule or a C-rule puts the carriage arrangement with the seller. You pay for it inside the price, and you accept less visibility over routing and cost. For a first shipment this is often the right trade, and it removes the failure mode where a buyer nominates a vessel they do not understand.

If you have a freight forwarder you trust

FCA gives you control of the ocean leg and its cost, with risk passing at a named point you have agreed. This is the rule the ICC recommends for containers, and it usually produces the most transparent cost breakdown.

If your bank requires an on-board document

Use the FCA on-board bill of lading option introduced in Incoterms 2020 rather than defaulting to FOB. It satisfies the bank without adopting a rule drafted for a loading model your cargo does not use.

Whichever you choose

Write the rule, the named place and the edition into the contract in full; agree who insures and at what level; and confirm which party files the import declaration and pays duty. Under DDP that is the seller, and a seller who has not registered in your market cannot perform it.