Are you up to speed on the new Incoterms?
The newly updated Incoterms have now been announced by the International Chamber of Commerce.
Incoterms 2020 – effective from January 1 2020 – features some important changes, so that’s why Team Carousel has been busy reviewing the new terms and their potential implications. Here’s our summary of everything you need to know…
What are Incoterms?
Incoterms are a set of rules issued by the International Chamber of Commerce (ICC) to facilitate global trade. They provide key contract terms that clearly define the delivery point and the seller and buyers’ responsibilities, risks and costs.
First established in 1936, they are updated each decade to keep-up with developments taking place in international trade. The new 2020 terms will come into effect on 1 January 2020. Until then, the current version – Incoterms 2010 – will continue to be used.
What are the key changes in Incoterms 2020?
DAT is changed to DPU
In Incoterms 2010 DAT (Delivered at Terminal) means the goods are delivered once unloaded at the named terminal. However, feedback from users has found that the reference needed to be more generalised.
Consequently, if you currently use DAT Incoterms 2010 then you should change to DPU (ICC Incoterms® 2020).
Change of insurance in CIP/CIF
The Incoterm CIP (Carriage and Insurance Paid to) means that the seller delivers to the carrier, but then pays for the carriage and insurance to the named destination. The new reference, CIF (Carriage Insurance and Freight), is the same except that it can only be used for maritime transport (delivery is onto a ship and the destination needs to be a port).
In ICC Incoterms® 2020 CIF keeps the same insurance requirements (i.e. Clause C) but CIP has increased the insurance required to Clause A (Institute of Cargo Clauses).
Costs are clarified
The detail of the precise allocation of costs between seller and buyer has been improved. This now means the seller is responsible for costs incurred up to the point of delivery, and the buyer is responsible for costs beyond that.
Transport security (e.g. compulsory screening of containers) requirements have become more established. These requirements bring cost, and risk delay if not fulfilled. Incoterms 2010 did touch on the responsibility of security requirements and their costs. ICC Incoterms® 2020 makes security obligations more prominent (e.g. see A4/A7 in each Incoterm 2020).
Seller/buyer using own transport
Incoterms 2010 assumed that the transport of the goods between seller and buyer would be carried out by a third-party, but Incoterms 2020 now clarifies the position. For example, the buyer in FCA Incoterms 2020 is required to “contract or arrange at its own cost for the carriage of the goods from the named place of delivery”.
FCA, FOB and bills of lading
The Incoterm FOB is often used for container shipments. In doing this, the seller takes on a significant risk. This is because typically a seller of a container shipment loses control of the container on arrival of the container at the port, but even then, they are still liable until the container is loaded onto the ship.
The answer is to insist the seller uses the Incoterm FCA. However, sellers often want to secure payment with a letter of credit. The long-term solution therefore is to issue, is for trade finance providers to shift from requiring an onboard bill of lading. In ICC Incoterms® 2020, FCA has been changed to allow the parties to agree for the buyer to direct the carrier to issue the onboard bill of lading to the seller.
Incoterms 2020 features several improvements regarding the presentation of rules and requirements. For instance:
- In ICC Incoterms® 2020 the explanatory note for each Incoterm has been made more detailed and the pictures more useful.
- Each Incoterm 2020 has been reordered so that the delivery obligation (which is the key part of each Incoterm) is made more prominent (it is now at A2).
- At the back of the ICC Incoterms® 2020 book an extra tool has been included. This sets out the position for each element Incoterm in a way that means it can be compared across all Incoterms.
- ICC Incoterms® 2020 has retained the approach of Incoterms 2010 by setting out the multi modal Incoterms first and then the maritime only Incoterms (FAS, FOB, CFR, CIF). This means less risk of using the wrong Incoterm.
How do you prepare for Incoterms 2020?
Firstly, identify the Incoterms your business most commonly uses.
Check they are still appropriate to use, and then review changes introduced by the new Incoterms 2020 and consider the impact this could have on you and your organisation.
The final stage is to refresh your standard contracts and update them with reference to Incoterms 2020. Remember, it could take up to 12-18 months for most Incoterms users to switch to Incoterms 2020.
To get a copy of the new Incoterms, simply visit the ICC’s UK website to purchase a copy alongside other useful tools. For help and support on your import and export arrangements, contact the Carousel experts today.