Updated with every new decade, the trade definitions known as Incoterms® are on track for some minor adjustments on January 1, 2020. Here’s what you need to know about it.
Originally published by the International Chamber of Commerce (ICC) in 1936, Incoterms® are a set of rules establishing the simple, 3-letter acronyms that importers, exporters, insurers, and other supply chain partners use to “talk” to one another. Updated every 10 years by the ICC, Incoterms include common abbreviations like FOB (“Free on Board”), DAP (“Delivered at Place”) EXW (“Ex Works”), CIP (“Carriage and Insurance Paid To”).
Whether a shipper is filing a purchase order; packaging and labeling a shipment for transport; or preparing a certificate of origin at a port, Incoterms provide specific guidance regarding the import and export of global trade.
Shippers worldwide use these standard trade definitions to spell out who’s responsible for the shipping, insurance, and tariffs on an item. Commonly used in international contracts and protected by ICC copyright, “Incoterms significantly reduce misunderstandings among traders and thereby minimize trade disputes and litigation,” Export.gov points out.
Known and implemented by all major trading nations, Incoterms are voluntary, authoritative, globally adhered-to text for determining buyers’ and sellers’ responsibilities for the delivery of goods under international trade sales contracts.
They fall into two different groups:
Incoterms that apply to any mode of transport
· EXW Ex Works
· FCA Free Carrier
· CPT Carriage Paid To
· CIP Carriage and Insurance Paid To
· DAT Delivered at Terminal
· DAP Delivered at Place
· DDP Delivered Duty Paid
Incoterms that apply only to sea and inland waterway transport
· FAS Free Alongside Ship
· FOB Free on Board
· CFR Cost and Freight
· CIF Cost, Insurance, and Freight
7 Changes to Keep in Mind for 2020
Over the last few decades, Incoterms rules revisions have coincided with the first year of each decade (i.e., 1990, 2000, 2010, etc.). The latter is the latest version and currently in force.
According to the ICC, the changes that will come with Incoterms 2020, which goes into effect on January 1, include:
1. Rules that are more accessible and easier to use, and that includes more detailed explanatory notes with enhanced graphics to illustrate the responsibilities of importers and exporters for each rule.
2. A more detailed explanation on how to choose the most appropriate rule for a given transaction, or how a sales contract interacts with ancillary contracts.
3. Demonstrated market need in relation to bills of lading (BL) with an onboard notation and the Free Carrier (FCA) Incoterms rule.
4. Alignment of different levels of insurance coverage in Cost Insurance and Freight (CIF) and Carriage and Insurance Paid To (CIP).
5. Arrangements for carriage with own means of transport in FCA, Delivered at Place (DAP), Delivered at Place Unloaded (DPU), and Delivered Duty Paid (DDP).
6. Change of the three-letter name for Delivered at Terminal (DAT) to DPU.
7. Security-related requirements within carriage obligations and costs.
Although the ICC recommends using Incoterms 2020 beginning January 1, 2020, parties to a sales contract can agree to use any version of Incoterms after that date. Shippers should clearly specify the chosen version of Incoterms being used (i.e., Incoterms 2010, Incoterms 2020, or any earlier version), Export.gov advises.
Incoterms® 2020 is available on ICC’s new e-commerce platform ICC Knowledge 2 Go in both print and digital formats. The 2020 edition is available in no fewer than 29 languages — from Estonian and German to Pashto and Spanish. Click here to see an infographic outlining the history of Incoterms.
Odyssey recommends working closely with your overseas trading partner to make sure there are clear terms of sale and transfer of risk agreements in place vis a vis Incoterms® 2020.