The ICC released Incoterms 2020 on Jan. 1, ushering in a new era of some of the most important trade rules for international sale transactions. After surveying and indicating some of the issues with the prior decade’s Incoterms, the ICC compiles a list of updated, more applicable versions of the past decade’s terms.
The revisions are made considering the growth of the international economy, security measures, and the basic need for change in insurance flexibility, with an overall aim at bettering trade responsibilities between a buyer and seller for tasks, costs, and risks involved in any trade transaction.
Here are some of the main changes to Incoterms for 2020:
DAT → DPU
Previous name: DAT- Delivered at Terminal
New Name: DPU - Delivery at Place Unloaded
Meaning: With DPU, the seller delivers goods and transfers risk to the buyer once the goods are unloaded at an agreed-upon place of destination. The buyer must assume responsibility for import customs clearance and other related costs.
Main Difference: Ultimately, DPU is DAT, except it offers unloading. Additionally, the term ‘terminal’ has been removed to make it more general and applicable to any place of delivery.
Change of Insurance in CIP and CIF
Cost of Insurance and Freight (CIF): the seller delivers goods to the carrier and pays the carriage and insurance to named destination in any or all modes of transport. For Incoterms 2020, the same insurance requirements apply, except Carriage and Insurance Paid (CIP) has increased the required insurance under this term.
Why: The reason for this change is because CIF is mostly used with bulk goods being transported only via waterways and CIP being transported intermodal, is often used for manufactured goods. Thus, the rule was revised to provide flexibility when considering transport and type of goods.
FOB & FCA
Change: Free on Board or FOB, is a term that is generally used for containerized shipments for which the seller remains responsible even after the goods arrive at the port until the container is loaded, which in turn exposes the seller to cost and risk. Under Incoterms 2020, the FCA or Free Carrier has been changed, allowing the parties to decide and agree for the buyer to direct the carrier to issue the onboard bill of lading to the seller.
Transport Security Requirements
As part of Incoterms 2020, transportation security has come to the forefront of operations of each Incoterm. During the transport of goods, security liability is assumed by the party who executes and assumes the carriage of goods contact. Here are seller/buyer responsibilities:
|FAS||Free Alongside Ship|
|FOB||Free on Board|
|CPT||Carriage Paid to|
|CFR||Cost and Freight|
|CIP||Carriage and Insurance Paid to|
|CIF||Cost Insurance Freight|
|DAP||Delivery at Place|
|DPU||Delivery at Place Unloaded|
|DDP||Delivery Duty Paid|
In Incoterms 2020, the cost obligations for both the buyer and the seller is clarified.
Change: This makes the seller responsible for costs up to the point of delivery and the buyer for costs after that. This change was made as a result of feedback from sellers and buyers about the allocation of costs between the two parties, especially around the port of place of delivery.