Nine years later the International Chamber of Commerce (ICC) has released a revision of 2010 Incoterms. The new set of Incoterms® 2020 features significant changes. So what’s in and what’s out for Incoterms® 2020.
What are Incoterms®?
Incoterms® is the abbreviated name for International Commercial Terms. The standard abbreviations have made international trade easier and fewer conflicts have occurred. By using the standard trade definitions, the buyer or the seller knows who is responsible for the shipping, insurance and tariffs.
The ICC was created in 1919 to facilitate world trade. In 1923, the ICC published their findings of the commercial trade terms used by merchants and the disparities in their interpretation. They included only 13 countries in the first study. A second study in 1928 included over 30 countries. They published the first set of Incoterms in 1936.
Incoterms® three-letter abbreviation explains the contract between the buyer and seller including:
- Duties of the buyer and seller
- Party that arranges and pays for insurance, licenses and customs
- Party that arranges and pays for transport
- At what point in the goods journey does cost and risk transfer from seller to buyer?
What are the Key Changes in Incoterms® 2020?
These are the most important changes to the terms that will come into force on 1 January 2020.
Renaming of Incoterm® DAT (Delivered at Terminal)
A new Incoterm® DPU (Delivered at Place Unloaded) is created to replace DAT. This is a simple acronym change as the rules, obligations and functions are exactly the same. The name change underlines the fact that delivery can occur anywhere, not just at a transport terminal.
Changes to Freight Insurance
The Incoterm® CIP (Carriage and Insurance Paid to) and CIF (Carriage Insurance and Freight) require the seller to deliver the goods to the carrier and pay for carriage and insurance to the named destination. The quality of the insurance was a problem under Incoterms® 2010. The basic level of insurance was suitable for commodity cargo but not manufactured goods. Under 2020, CIP has increased insurance requirements to Clause A (Institute of Cargo Clauses) while CIP stays as Clause C.
Clarification of Costs
The clarification of costs between the seller and buyer has improved with Incoterms® 2020 following feedback of an increased number of disputes about the allocation of costs, particularly around the port or place of delivery.
Mandatory screening of containers has become prevalent since 2010. There is a cost for screening and a risk of delay if not fulfilled however Incoterms® 2010 didn’t include which party was responsible for screenings. Incoterms® 2020 makes security obligations more prominent.
Using Buyer/Seller Transport
Incoterms® 2010 assumed goods would be transported by third party carriers. It didn’t consider transporting goods using the seller’s truck, for example. Incoterms® 2020 includes arrangements for carriage using own means of transport in FCA (Free Carrier), Delivered at Place (DAP), Delivered at Place Unloaded (DPU), and Delivered Duty Paid (DDP).
There are still eleven Incoterms® and no change to how these rules are divided. Four rules relate to "water", and seven rules are used for any type of transport mode.
EXW - Ex Works
FCA - Free Carrier
CPT - Carriage Paid To
CIP - Carriage and Insurance Paid To
DPU - Delivered at Place Unloaded
DAP - Delivered at Place
DDP - Delivered Duty Paid
FOB - Free On Board
CFR - Cost and Freight
FAS - Free Alongside Ship
CIF - Cost, Insurance and Freight
Incoterms 2010 to 2020
While Incoterms® 2020 came into effect on 1 January 2020, there is a phase-in period. Due to the long time between signing a contract and goods delivered, it could be 18 months before most goods are being transported under Incoterms® 2020. Also, it can take 12-18 months for organisations worldwide to be aware of the new Incoterms and may continue using Incoterms® 2010.
If you need any help with sourcing products or shipping goods from China to Australia, contact Vara Allied on (08) 6115 0118 or contact us online.