Are you 2020 Ready? New Year, New Incoterms
With the world renowned Incoterms changing from 1 January 2020, we cover everything you need to know in order to keep up to date and prepare for the coming year in logistics. But first, here is a brief overview of what Incoterms are and why they are important.
What are Incoterms?
Incoterms are international rules of trade for the sale of goods set out by the International Chamber of Commerce (ICC). ‘Incoterms’ is an acronym which stands for International Commercial Terms. They hold a set of specific acronyms which are relevant and universal for buyers and sellers around the world, these include:
- EXW – Ex Works
- FCA – Free Carrier
- FOB – Free On Board
- FAS – Free Alongside Ship
- CFR – Cost and Freight
- CIF – Cost, Insurance and Freight
- CPT – Cost Paid to…
- CIP – Carrier and Insurance Paid to…
- DAT – Delivery at Terminal
- DAP – Delivery at Place
- DDP – Delivery Duty Paid
These 11 Incoterms are then divided into four categories depending on the delivery location and who is responsible for covering costs at each stage of the journey. These can then be broken down further to refer to different possible scenarios. As an importer or exporter it is important to familiarise with the Incoterm best suited to your type of shipment.
Why are they Important?
They are an important reference for any importer or exporter of goods as they outline important criteria such as who is responsible for different parts of the import/export journey for example, covering costs at each interval of the international journey, arrangement of transportation, goods insurance and documentation among others.
Whether you have to file a purchase order, pack and label freight shipments, or prepare documentation, these Incoterms are in place to assist you in ensuring your goods reach their destination safely, securely and as your customer expects.
What is Expected to Change in 2020?
Some criteria are expected to be retired. EXW is likely to be retired as it tends to only apply to domestic trade, and it is thought it could go against the EU’s new customs code. FAS may also be expired as it is rarely used and not seen as a necessary option.
- One of the most common Incoterms, FCA is also expected to be split into two criteria, one for land and one for sea.
- 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 any place and not only a “terminal”.
- The Incoterms® 2020 now explicitly shifts the responsibility of security-related requirements and ancillary costs to the seller.
Also due to change is the splitting of DDP, this is due to the same reasons outlined above, it is thought that they will be split as follows:
- DTP – Delivered at Terminal Paid: this will mean the seller is responsible for all transport – related costs which includes custom duties when the goods are delivered to a port or airport, for example.
- DPP – Delivered at Place Paid: this will refer to the seller being responsible for all transports cost when an item is delivered to anywhere other than a terminal, such as an address.
There is also the introduction of a new criteria, CNI which stands for Cost and Insurance. This will instruct that the exporter is responsible for insurance from the departure port and the buyer is responsible for the risk of transporting.
The Incoterms are also thought to become easier to understand with a clearer interpretation to avoid mistakes or issues within the import/export processes.