The International Chamber of Commerce has published new Incoterms® 2020 that have come into effect from the 1st of January 2020. While the rules still have 11 terms in place but there are major 6 changes that must be considered before you do your next shipment. It’s crucial for all trading parties to understand the changes clearly before they write their next sales contract.
In this article, we explain the updates made in Incoterms® 2020 and how it’s different then incoterms 2010.
What are Incoterms®?
In vanilla English, Incoterms® are international commercial terms used in Sales contracts to define the liability & responsibility of parties i.e importer or exporter for a particular shipment. In a more simple way how far a supplier is responsible to handle the goods movement & from when the buyer is responsible for the same, it essentially clarifies the tasks, cost, or risks associated with international business.
It’s also important to understand that there are in total 11 Incoterms and not all rules apply in all cases. Transport by all modes of transport (road, rail, air and sea) covers FCA, CPT, CIP, DAP, DPU (replaces DAT) and DDP. Sea/Inland waterway transport (Sea) covers FAS, FOB, CFR and CIF, which we explain below.
Incoterms® 2020: Overview for 11 Terms, 7 for any mode of transport & 4 for waterways transport.
EXW — Ex-Works
FCA — Free Carrier
FAS — Free Alongside Ship
FOB — Free On Board
CFR — Cost and Freight
CIF — Cost, Insurance and Freight
CPT — Carriage Paid To
CIP — Carriage And Insurance Paid To
DAP — Delivered At Place
DAT- delivery at terminal
DDP — Delivered Duty Paid
Major differences between Incoterms® 2010 and Incoterms® 2020?
The main explanations of Incoterms® 2020 have remained the same, The new Incoterms® modernize terminology, raise the bar on security and insurance, and balance flexibility with accountability for all parties.
The main change includes a new DPU term replacing DAT, and rest 4 changes mentioned below.
The rule Delivered at Terminal (DAT) has been changed to Delivered at Place Unloaded (DPU) to clarify that the place of destination could be any place and not only a “terminal” as earlier it use to create a lot of confusion when it was only delivery at the terminal.
Under Incoterms® 2010, insurance cover for both CIF and CIP was provided under Clause C of Institute Cargo. Under the current Incoterms® 2020, CIP provides insurance cover in compliance with Clause A of Institute Cargo. Clause A covers a more robust standard of insurance that is typically appropriate for manufactured goods where Clause C is likely to apply to the commodities.
- CIF remains the same.
- CIP now requires an upgraded ‘Institute Cargo Clause A’ insurance cover — All risk, subject to itemized exclusions.
Costs were quite a concern for certain parties at Incoterms ® 2010. For certain cases, carriers adjusted their prices, and sellers were often faced with new terminal handling charges paid to the back. Incoterms ® 2020 now offers even more information about prices, which now falls under the rule’s A9 / B9 pages. This specifically states which costs will be allocated to which party.
Improved protection for everyone. Security requirements on imports and exports have increased exponentially since Incoterms ® 2010. Under individual trade terms, the 2020 edition expresses specific, new security responsibilities relating to goods, cash, and documents.
Under Incoterms® 2010 a third party transport company was believed to perform all transport. Updates to Incoterms ® 2020 provide for the provision of own means of transportation for the buyer or seller. This acknowledges that certain buyers and sellers use their own transport methods to get products delivered, like trucks or aircraft.
Updates to previous Incoterms ® 2010 were made to promote the use of the FCA Incoterm ® by exporters of containerized products. In fact, when they should have been using FCA, most parties were still using FOB. That is because even seasoned sellers always chose to use FOB because they chose to have a Letter of Credit under the contract.
Accordingly, arrangements have been made for the Incoterms® 2020 to state that the buyer will order the carrier to issue a transport document indicating that the goods were loaded — i.e. a Bill of Lading with a ‘onboard’ notation. In the past, carriers have sometimes declined to give a Bill of Lading with a notation to the seller if they purchased the goods from an indirect transport (such as a truck) rather than from the seller directly.
In line with the dedication of the ICC to make the technology work for everyone, through their mobile apps, you can access the critical details of the Incoterms 2020, including the latest news, events, and training opportunities, and apply it in your logistics sector to produce fruitful results.
Incoterms 2020 is vital international trade rules for every importer and exporter, offering a set of contract terms for global freight delivery. This determines the point of distribution, the obligations of the seller and buyer, the risk, and the expense of each transaction.
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