INCOTERMS® 2020 - What's New?
The wait is finally over. Nine years after the last revision, the new Incoterms® 2020 from ICC have arrived. But what does this mean for you? The new terms will grasp significant changes, regardless of being a buyer or seller, these new terms may be noteworthy to you. Here’s everything you need to know, summarized for a concise overview.
The new terms, which came into effect on January 1, 2020, aim to respond to the global growth in the economy and traders market and to enhance the clarity of each term.
What are Incoterms® & what changes have been made?
Incoterms® are used to describe obligations, risks and costs when transporting goods under a specific term. The three main objectives are; who does what between seller & buyer, where does the risk transfer from seller to buyer and which party is responsible for which costs. The terms are split into two categories, which are the following;
For all transport methods:
- EXW– Ex Works
- FCA– Free Carrier
- CPT– Carriage Paid To
- CIP– Carriage and Insurance Paid To
- DAP– Delivered at Place
- DPU– Delivered at Place Unloaded
- DDP– Delivered Duty Paid
For sea-freight and in-land waterways:
- FAS – Free Alongside Ship
- FOB – Free On Board
- CFR – Cost and Freight
- CIF – Cost Insurance and Freight
With the exception of three terms, these clarify that the risk of transport is transferred at origin (country of seller). This means that the liability in customs transit clearance is assumed by the buyer.
Following on from this, the terms DAP, DPU and DDP allocate the risk being passed on at the destination of the buyer, which means the seller carries the liability.
So one may ask, what exactly has been changed? As you may have noticed, the previous term “DAT” has now been changed to ‘DPU’. This is to implicate the fact that the destination for a DAT/DPU delivery could be at any place that is appropriate for unloading goods, such as a factory or warehouse, and not just a terminal.
Furthermore, beforehand both CIF and CIP required minimum insurance cover at the level of Clause C, whereas in the new edition, it is now mandatory for the seller to acquire insurance cover at the level of Clause A for CIP, which covers all risks. This has consequently been increased for the benefit of the buyer.
Under the new terms, there is an additional option in accordance with FCA, meaning that the delivery shall take place at the container terminal. In this case, both parties may decide that the buyer will instruct his carrier to issue an “on-board Bill of Lading”. This B/L is then handed over to the bank by the seller who in turn receives payment from the documentary letter of credit. This is beneficial for the client as many countries and banks require an “on board Bill of Lading”.
Further changes include the comparison of obligations, simplified language with less legal content, and a breakdown in cost allocation to name a few.
How do Incoterms® affect the transport & logistics sector & and why is this significant to me?
“Incoterms2020 rules make business work for everyone by facilitating trillions of dollars in global trade annually. Because they help importers and exporters around the world to understand their responsibilities and avoid costly misunderstandings, the rules form the language of international sales transactions, and help build confidence in our valuable global trading system.” John W.H. Denton, General Secretary of ICC