Incoterms 2020: Here’s What’s New

incoterms 2020 solar

There are a lot of transformations in the world of international trade and Solarnub as an expert in international trade of the photovoltaic industry wants to inform you about the new Incoterms 2020.If you are still not sure what an incoterms is or which we use you can check our blog post on The Incoterms 2010.

And why are they new?

The new 2020 incoterms are already beginning to be written within the ICC International Chamber of Commerce the body that publishes since 1930. In recent decades, a review of the Incoterms has always been carried out coinciding with the first year of each of them: 1990, 2000, 2010, which is the latest version and the one currently in force. The new INCOTERMS 2020 rules will enter into force on January 1. The main objective of the ICC for the next 10 years is to democratize the use of Incoterms and make them more accessible.

How many and which are the Incoterms?

Get to know the Incoterms and their acronyms:

  • EXW In factory (Ex Works) (named place)
  • FCA Free Carrier (named place)
  • FAS Free Alongside Ship (named port of shipment)
  • FOB Free On Board (named port of shipment)
  • CFR Cost and Freight (named port of destination)
  • CIF Cost, Insurance & Freight (named port of destination)
  • CPT – Carriage Paid To (named place of destination)
  • CIP – Carriage and Insurance Paid to (named place of destination)
  • DAT – Delivered At Terminal (named terminal at port or place of destination)
  • DAP – Delivered At Place (named place of destination)
  • DDP – Delivered Duty Paid (named place of destination)

Description of Incoterms 2020 and main changes:

Incoterms 2020 are a set of  11 simple  three-letter combinations that clarify the distribution of tasks, costs and risks related to the delivery of goods. They are not obligatory, but they make the transaction much easier, so they are usually included in sales contracts. Incoterms users do not have to switch over to Incoterms 2020. Users can, if they clearly specify it in the contract, continue using Incoterms 2010 if they want to.

DAT to DPU:

The most obvious change to the old Incoterms is renaming the term Delivered at Terminal (DAT) to Delivered at Place Unloaded (DPU). The ICC renamed this term because it became apparent that sometimes the buyer and/or seller want the delivery of goods to occur somewhere other than a terminal. This term is often used for consolidated containers with multiple consignees, and it is the only term that tasks the seller with unloading the goods.

The DPU has the following obligations for the seller (exporter):

  • Packaging, checking and marking of goods.
  • Loading of the goods at the first carrier.
  • Inland transportation (pre-carriage) to transport center, port, airport in the seller´s country, either with a carrier contracted by the buyer or with his own means of transport.
  • Obligation to comply with transport safety requirements to the place of delivery.
  • Costs and taxes of export and transit clearance.
  • Terminal costs (warehousing, handling, loading) in seller´s country.
  • Main transport to the country of destination.
  • Insurance transport (if it is take out).
  • Terminal costs (warehousing, handling, loading) in seller´s country.

Obligations of the buyer (importer) are:

  • Costs and taxes of import clearance.
  • Inland transportation (on-carriage) from the place of delivery, to the buyer´s premises, either with a carrier contracted by the buyer or with his own means of transport.
  • Unloading of goods on the buyer´s premises.

Change of insurance in CIP/CIF:

The Incoterm CIP (Carriage and Insurance Paid to) means that the seller delivers to the carrier, but then pays for the carriage and insurance to the named destination. CIF (Carriage Insurance and Freight) is the same except that it can only be used for maritime transport (delivery is onto a ship and the destination needs to be a port).Under Incoterms 2010 the seller is obliged to provide insurance for the buyer that is equivalent to Clause C (Institute of Cargo Clauses). This is

a basic level of insurance which typically might be suitable for bulk commodity cargoes but may not be appropriate for manufactured goods. In ICC Incoterms 2020 CIF keeps the same insurance requirements (i.e. Clause C) but CIP has increased the insurance required to Clause A (Institute of Cargo Clauses). The reasoning behind this is that CIF is more often used with bulk commodity trades and CIP (as a multimodal term) is more often used for manufactured goods.

FCA, FOB and bills of lading:

The Incoterm FOB is often used for container shipments. In doing this, the seller takes on a significant risk. Typically a seller of a container shipment loses control of the container on arrival of the container at the port. But even though the seller has lost control, they are still liable until the container is loaded onto the ship. This exposes the seller to cost and risk. The answer to this issue is for the seller to insist on using the Incoterm FCA. However, sellers often want to secure payment with a letter of credit. Letters of credit often require the presentation of an onboard bill of loading. For the seller using FOB involves it in lading and therefore gives it a chance of obtaining an onboard bill of lading. A seller using FCA will have little prospect of obtaining the onboard bill of lading. The long-term solution to this issue is for trade finance providers to shift from requiring an onboard bill of lading. Incoterms cannot force change in trade finance. Therefore, as a limited “sticking plaster” in ICC Incoterms  2020 FCA has been changed to allow the parties to agree for the buyer to direct the carrier to issue the onboard bill of lading to the seller.

Incoterms 2020 includes safety requirements in transportation obligations and costs.

Conclusion:

The transport companies have to update their work to adopt the new regulations. Although it will not be binding until 2020, its application will be widespread. For this reason, it is good to know, from now on, which are the main variations that will have to be applied. In this way, problems arising from ignorance of the common rules will be avoided. However, although this new nomenclature will come into force at the beginning of the year, earlier versions can still be used, such as the 2010 version, although the most up-to-date version is recommended.

Víctor Mengual

VÍCTOR MENGUAL CPO

It is the direct link with manufacturers and distributors, Foreign Trade Technician, Sourcing Management, his objective is to obtain the best purchase and offer opportunities, and cover the management of specific needs. The team’s “millenial”, with a promising future.

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