Incoterms 2020

Introduction:

What are Incoterms? rules?

The Incoterms? rules are the world’s essential terms of trade for the sale of goods. Whether you are filing a purchase order, packaging and labelling a shipment for freight transport, or preparing a certificate of origin at a port, the Incoterms? rules are there to guide you. The Incoterms? rules provide specific guidance to individuals participating in the import and export of global trade on a daily basis.

Who publishes the Incoterms? rules?

Since its founding in 1919, ICC has been committed to the facilitation of international trade.

Different practices and legal interpretations between traders around the world necessitated a common set of rules and guidelines. As a response, ICC published the first Incoterms? rules in 1936. We have been maintaining and developing them ever since.

As ICC celebrates its Centenary in 2019, the world business organization is pleased to announce the publication of Incoterms? 2020. The newest edition of the Incoterms? rules will help prepare business for the next century of global trade.

Why use Incoterms? rules in international trade?

Although other clauses for global trade exist around the world, such as the Harmonised Tariff Schedule of the United States, Incoterms? rules are global in their reach. Similarly, Incoterms? rules do not include trade terms codified for national purposes, such as the “less than truckload shipping” (LTL) rule of the United States. Unlike national trade policies, Incoterms? rules are universal, providing clarity and predictability to business.

What does “Incoterms?” stand for?

“Incoterms?” is an acronym standing for international commercial terms. “Incoterms?” is a trademark of International Chamber of Commerce, registered in several countries.

The Incoterms? rules feature abbreviations for terms, like FOB (“Free on Board”), DAP (“Delivered at Place”) EXW (“Ex Works”), CIP (“Carriage and Insurance Paid To”), which all have very precise meanings for the sale of goods around the world.

These terms hold universal meaning for buyers and sellers around the world. If you are a financial analyst in the City of London, then you might associate the acronym “FCA” with the United Kingdom’s Financial Conduct Authority. However, for importers and exporters around the world, FCA are the initials used for “Free Carrier,” or the seller’s obligation to deliver the goods to the carrier nominated by the buyer at the seller’s premises or another named place.

Rules for any mode or modes of transport:

EXW – Ex Works (named place of delivery)

Often used when making an initial quotation for the sale of goods without any costs included, EXW means that the seller makes the goods available at their premises or at another named place (works, factory, warehouse etc). The seller does not need to load the goods on any collecting vehicle, nor does it need to clear the goods for export.

FCA – Free Carrier (named place of delivery)

FCA can have two different meanings, each with varying levels of risk and cost for the buyer and seller. FCA (a) is used when the seller delivers the goods, cleared for export, at a named place which is their own premises. FCA (b) is used when the seller delivers the goods, cleared for export, at a named place which is not their premises. In both instances, the goods can be delivered to a carrier nominated by the buyer, or to another party nominated by the buyer.

CPT – Carriage Paid To (named place of destination)

Under CPT the seller pays for the carriage of goods up to thenamed place of destination. 

CIP – Carriage and Insurance Paid to (named place of destination)

Similar to CPT with the exception that the seller is required to obtain minimum insurance for the goods while in transit. 

DAP – Delivered at Place (named place of destination)

The seller is deemed to have delivered when the goods are placed at the disposal of the buyer on the arriving means of transport and ready for unloading at the named place of destination. Under DAP terms, the seller needs to manage all risks involved in bringing the goods in.

DPU – Delivered at Place Unloaded (named place of destination)

This Incoterm requires that the seller delivers the goods, unloaded, at the named place. The seller covers all the costs of transport (export fees, carriage, unloading from main carrier at destination port and destination port charges) and assumes all risk until arrival at the destination place.

DDP – Delivered Duty Paid (named place of destination)

The seller is responsible for delivering the goods to the named place in the country of the buyer, and pays all costs in bringing the goods to the destination including import duties and taxes. The seller is not responsible for unloading.

Rules for sea and inland waterway transport:

FAS – Free Alongside Ship (named port of shipment)

The seller delivers when the goods are placed alongside the vessel (e.g., on a quay or a barge) nominated by the buyer at the named port of shipment. The risk of loss of or damage to the goods passes when the goods are alongside the ship, and the buyer takes on responsibility for all costs from that moment onwards.

FOB – Free on Board

The seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel, and the buyer takes on responsibility for all costs from that moment onwards.

CFR – Cost and Freight

The seller delivers the goods on board the vessel. The risk of loss of or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.

CIF – Cost, Insurance and Freight

The same as CFR with the addition that the seller must also obtain minimum insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage.

 Differences between Incoterms? 2010 and 2020:

The Incoterms? FCA (Free Carrier) now provides the additional option to make an on-board notation on the Bill of Lading prior loading of the goods on a vessel.

The costs now appear centralized in A9/B9 of each Incoterms? rule.

CIP now requires at least an insurance with the minimum cover of the Institute Cargo Clause (A) (All risk, subject to itemized exclusions).

CIF requires at least an insurance with the minimum cover of the Institute Cargo Clause (C) (Number of listed risks, subject to itemized exclusions).

The Incoterms? rules Free Carrier (FCA), Delivered at Place (DAP), Delivered at Place Unloaded (DPU) and Delivered Duty Paid (DDP) now take into account that the goods may be carried without any third-party carrier being engaged, namely by using its own means of transportation.

The rule Delivered at Terminal (DAT) has been changed to Delivered at Place Unloaded (DPU) to clarify that the place of destination could be anyplace and not only a “terminal”.

The Incoterms? 2020 now explicitly shifts the responsibility of security-related requirements and ancillary costs to the seller

What happened to Incoterms 2015, Incoterms 2016, Incoterms 2017, Incoterms 2018, and Incoterms 2019…?

Don’t worry, you didn’t miss them. They don’t exist! The latest edition of the Incoterms? rules is Incoterms? 2020. However, Incoterms? 2010 remains in effect for those using them.

To learn more about the evolution of Incoterms? rules, please visit Incoterms? rules history.

By Raza Abbas