Incoterms 2020 is here. Is your business ready?
The new Incoterms 2020 have been published by the International Chamber of Commerce (ICC). They will take effect on January 1, 2020. This update replaces Incoterms 2010 and is expected to be the standard for the next decade, through December 2029. For the first time, representatives from China and Australia also provided input to the ICC’s Drafting Committee, along with the other 150 plus members of the organization.
There were numerous changes and simplifications. A summary of the key changes introduced in Incoterms 2020 are as follows:
DPU Replaces DAT
Incoterms 2020 introduces a new Incoterm: DPU (Delivered at Place Unloaded). It replaces the former DAT (Delivered at Terminal). The change was made to recognize the fact that sometimes the goods cannot be unloaded at the point of entry (port, airport, dock etc.). Instead, they must be unloaded at another point in the destination country, such as an intermediate, third-party warehouse.
DPU is often used for consolidated containers with multiple consignees. It is the only term that makes the seller responsible for the unloading of the goods.
FCA Now Includes the Option to Issue a Bill of Lading with On-Board Notation
The most significant change in Incoterms 2020 is probably the modification of the term Free Carrier (FCA). Under this term, the seller is now responsible for either making the goods available at its own location, or at another named place. In either case, the seller is responsible for loading the goods onto the buyer’s transport.
In the past, problems had occurred with this term when the seller was responsible for loading the goods on a truck hired by the buyer, and not directly onto the equipment of the international carrier. If the seller and buyer are using a Letter of Credit as means of payment, as is often the case, banks typically require the seller to present a Bill of Lading with an on-board notation before they can get paid.
An international carrier won’t typically provide a seller who did not present the goods directly to them with such a bill of lading. Under the new Incoterms 2020 rules, FCA terms now allow the parties to agree in their contract that the buyer should instruct its carrier to issue a Bill of Lading with the “on-board” notation to the seller.
Insurance Responsibilities Under CIP and CIF Terms
Cost Insurance and Freight (CIF) and Carriage and Insurance Paid To (CIP) are the only two Incoterms that identify which party must purchase insurance for at least part of the export journey. In both cases that responsibility falls on the seller.
Incoterms 2010 specified that under both these terms the seller was responsible for obtaining the minimum level of coverage identified by Clause C of the Institute Cargo Clauses. Under Incoterms 2020 rules, the seller is now responsible for purchasing a higher level of insurance coverage—at least 110% of the value of the goods as detailed in Clause A of the Institute Cargo Clauses—under the revised term CIP. The insurance requirement hasn’t changed for CIF.
Under all other Incoterms 2020, responsibility for purchasing insurance remains negotiable.
Responsibility for Customs Clearance is More Clearly Defined
Under Incoterms 2020, responsibility for customs clearance and the associated costs, is much more clearly defined. Specifically, the liability for clearance is assigned to whoever assumes the risk of transport to the place of delivery. Therefore, under EXW, FCA, FAS, FOB, CPT, CFR, CIP and CIP terms, where the risk of transport is transferred at country of origin (country of the seller), the liability for customs clearance is borne by the buyer. In the case of DAP, DPU and DDP terms, the risk is passed on at the destination (country of the buyer), and the seller bears the liability.
Import and export security requirements have increased significantly and have become more formalized during the past decade. Incoterms 2020 rules specifically call out those requirements in its discussion of buyer and seller responsibilities under each of the trade terms.
Learn More about Incoterms 2020
If your job requires that you understand and use Incoterms, we strongly recommend purchasing a copy of the ICC’s Incoterms® 2020 book. For a basic understanding of the new Incoterms 2020 rules, download our free Incoterms 2020 Chart. The chart summarizes the responsibilities for the seller and the buyer under each of the terms and can be used as a supplement to the ICC’s book.
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