In January 1st 2020 the new Incoterms, cornerstone of international trade, entered into force.
Incoterms make international transactions easier, establishing the terms and rules which determine the purchasers’ and sellers’ rights and obligations. These international rules ensure the safety in the interpretation of the terms dealt in between purchaser and seller, helping to overcome barriers such as language gaps or the different national legislations.
Since their publication in 1923, Incoterms have been updated every 10 years to be adjusted to changes in international trade. With the 2020 version, former versions could still be in use but it would be necessary to mention the year of edition.
In the updated version of Incoterms 2020, the 11 Incoterms have been reorganized and classified into two groups: Incoterms applied for any type of transportation or Incoterms specifically applied to ocean freight.
Most relevant updates or changes to the Incoterms 2020
We present here below some of the most relevant updates or changes to the Incoterms 2020. First of all, there are two key changes in Incoterms 2020 compared to the 2010 edition:
- DAT (Delivered at Terminal) is now renamed Delivered at Place Unloaded (DPU).
- FCA (Free Carrier) now allows for Bills of Lading to be issued after loading.
Other important changes to Incoterms 2020 include:
- CIF (Cost, Insurance and Freight) and CIP (Carriage and Insurance Paid To) set out new standard insurance arrangements, but the level of insurance continues to be negotiable between buyer and seller.
- Where listed, cost allocation between buyer and seller is stated more precisely – one article lists all costs the seller and the buyer are responsible for.
- FCA (Free Carrier), DAP (Delivered at Place), DPU (Delivered at Place Unloaded) and DDP (Delivered Duty Paid) now take account of buyer and seller arranging their own transport rather than using a third party.
- Security-related obligations are now more prominent than in the past edition.
- The “Explanatory Notes for Users” for each Incoterm have replaced the 2010 edition’s “Guidance Notes”, and are designed to be easier for users.
- CIP now requires as default insurance coverage ICC A or equivalent (it was ICC C under Incoterms 2010). The required insurance coverage under CIF remains.
Two key changes in Incoterms 2020 compared to the 2010 edition
Apart from these amendments, a simplification in the terms and wording is expected, in order to guarantee the correct use of Incoterms. Likewise, the Drafting Committee of the ICC – International Chamber of Commerce has deeply studied and taken into account other imperative issues related to international trade which are part of the Incoterms 2020, such as safety in the international trade and the regulations in transport insurances.
Thus, it is ultimately expected that the Incoterms 2020 provide an easier launch of these rules and their use, getting adapted to the changes undergone in the last decades and managing to give the right answers to the latest trends in international transactions such as e- commerce, transport safety and intermodality.
For more information about Incoterms 2020, download the following guide about Incoterms 2020 designed by DHL.