Incoterms 2020: What are they and what changes are expected?
In an international context of uncertainty (the post-Brexit EU, future US-China relations, Trump's protectionist strategy, etc.), it seems difficult to rely on a model of trade with regulations that provide protection. This is particularly true when it comes to forging stable buyer-seller relationships on differing markets. Incoterms provide the answer to resolve this.
What are Incoterms?
Incoterms are international terms of trade that the International Chamber of Commerce first published in 1936 and that are now updated at the end of each decade (1980, 1990, 2000 and 2010). The aim was clear from the outset: to facilitate trade between buyers and sellers around the world. Until 1920, international traders used a set of commercial terms laying down the rights and obligations of each party in the sale and transport of goods. However, the terms were not interpreted the same way in all countries and with many abbreviations to refer to the various contractual positions, misunderstandings and conflicts ensued. As a result, the International Chamber of Commerce published the International Commerce Terms (Incoterms), standardising who pays what for in trade transactions between countries.
What changes can we expect?
- Contract: A clearer explanation about the link between the buyer-seller contract and the auxiliary contracts.
Delivery and risk: More importance is attached to delivery and risk.
FCA Incoterms: On-board bill of lading and the FCA Incoterms rule.
Costs: More detailed costs.
Coverage: Different levels of insurance coverage for CIF and CIP.
Point of delivery: Group C Incoterms state a point of delivery in the contract.
Transport: Organisation of transport into means of transport FCA, DAP, DPU and DDP for buyer and seller.
DPU: The acronym DAT has been changed to DPU.
- Security: Security-related requirements included in transport obligations and costs.
What will change in the 2020 Incoterms?
With only a few days to go until the latest version of the terms is released, what can we expect? What is likely to change? For experts like Remigi Palmés, a trainer invited by the International Chamber of Commerce to explain the latest changes in Spain, the main thrust of the new Incoterms is to resolve certain issues with misuse, and to provide simpler explanations for each rule to facilitate agreements. There is actually only one substantial change in the 2020 Incoterms: DAT (Delivered At Terminal) has been replaced by DPU (Delivered at Place Unloaded) because the concept of "terminal" was ambiguous and caused problems in many transactions. The aim of DPU is to clearly set down the obligations and duties of both buyer and exporter in this type of transaction.
Aside from this, the lion's share of the changes to the 2020 Incoterms are minor amendments. For instance, costs will be itemised in greater detail, and there are more security-related requirements. In Group C - main carriage paid by seller, the point of delivery must be specified as this has led to misunderstandings in the past.
E-commerce and multimodal transport, which are new features of international trade, will play a more prominent role.
Another small change has to do with freight insurance: to date, for both Incoterms CIP and CIF, the insurance policy had to minimally provide ICC (C) coverage. Under the new terms, if the parties agree on Incoterm CIP, the insurance coverage must be ICC (A) (all risks). However, bear in mind that apart from these two cases, freight insurance is not compulsory for either party.
Where can I get copy of the 2020 Incoterms?
If you want to know more about the new Incoterms that might affect your business, you can read the full version that will come into force on 1 January here. Prodeca will continue to provide training for Catalan exporters on the Incoterms, following on from the session we gave on 4 November to inform the wine sector about which Incoterm is the most appropriate for each type of business.