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Incoterms 2020 Overview

January 1st 2020 the new Incoterms 2020 became effective. The terms replaced Incoterms 2010 and are an optimisation made in order to avoid pitfalls from the changes in trade practices and regulations. The 2020 terms are very alike the previous version but with slight, yet important, adaptions. It is essential to acquaint oneself with the changes and what they mean. Read the article below and download our visual illustration of the Incoterms, 2020.

What are the Incoterms? 

The Incoterms (international commercial terms) are a set of globally recognised terms that clarify the rules and terms buyers and sellers use in international and domestic trade contracts. Consisting of a set of eleven of the most commonly used three-letter trade terms, the Incoterms facilitate commerce around the world by offering a kind of shorthand that helps parties understand each other and the exact responsibilities of their business arrangements.  

In short, the Incoterms rules describe the following three dimensions of business-to-business sale and purchase of goods: 

• ‍Obligations: Who does what as between seller and buyer, e.g. who organises carriage or insurance of the goods or whoobtains shipping documents and export or import licences. 
• ‍Risk: Where and when the seller “delivers” the goods, in other words where risk transfers from seller to buyer. 
• Costs: Which party is responsible for which costs, for example transport, packaging, loading or unloading costs, and checking or security-related costs. 

Hence, the Incoterms – which only apply when buyer and seller have agreed – enable commercial players to minimise trade disputes and litigations whilst clearly outlining responsibilities and charges in both the buyer and the seller’s best interest.
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The Incoterms rules 2020 

The Incoterms consist of eleven rules: seven of which regard all models of transportation and four that pertain only to sea and inland shipping.  

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EXW – Ex-Works or Ex-Warehouse

• Ex-works is when the seller places the goods at the disposal of the buyer at the seller’s premises or at another named place (i.e., works, factory, warehouse,etc.).
• The seller does not need to load the goods on any collecting vehicle. Nor does it need to clear them for export, where such clearance is applicable.
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FCA – Free Carrier

• The seller delivers the goods to the carrier or another person nominated by the buyer at the seller’s premises or another named place.
• The parties are well advised to specify as explicitly as possible the point with in the named place of delivery, as the risk passes to the buyer at that point.
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FAS – Free Alongside Ship

• The seller delivers when the goods are placed alongside the vessel (e.g., on a quayor a barge) nominated by the buyer at the named port of shipment.
• The risk of loss of or damage to the goods passes when the products are alongside the ship. The buyer bears all costs from that moment onwards.
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FOB – Free On Board

• The seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment or procures the goods already so delivered.
• The risk of loss of or damage to the goods passes when the products are on board the vessel. The buyer bears all costs from that moment onwards.
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CFR – Cost and Freight

• The seller delivers the goods on board the vessel or procures the goods already so delivered.
• The risk of loss of or damage to the goods passes when the products are on board the vessel.
• The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.
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CIF – Cost, Insurance and Freight

• The seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the products are on the ship.
• The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.
• The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage.
• The buyer should note that under CIF the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.
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CPT – Carriage Paid To

• The seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such site is agreed between parties).
• The seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination.
   

CIP – Carriage And Insurance Paid To

• The seller has the same responsibilities as CPT, but they also contract for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage.
• The buyer should note that under CIP the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.
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DAP – Delivered At Place

• The seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination.
• The seller bears all risks involved in bringing the goods to the named place.
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DPU – Delivered At Place Unloaded (replaces Incoterm 2010 DAT)

• DPU replaces the former Incoterm DAT (Delivered At Terminal). The seller delivers when the goods, once unloaded, are placed at the disposal of the buyer at a named place of destination.
• The seller bears all risks involved in bringing the goods to, and unloading them, at the named place of destination.
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DDP – Delivered Duty Paid

• The seller delivers the goods when the goods are placed at the disposal of the buyer, cleared for import on the arriving means of transport ready for unloading at the named place of destination.
• The seller bears all the costs and risks involved in bringing the goods to the place of destination. They must clear the products not only for export but also for import, to pay any duty for both export and import and to carry out all customs formalities.
   

What is new in Incoterms 2020?

The most essential changes from the 2010 version to the new 2020 version are listed below:

• DAT is changed into DPU
• FCA can be combined with on-board bill of lading
• CIP assumes “all risk” goods insurance, i.e. ICC A terms. (CIF still requires ICC C terms only)
• The seller or buyer can handle the transport on their own (as opposed to having an outside carrier do it)
• Greater clarification of the distribution of costs between the seller and the buyer, e.g. for security, screening of containers, etc.
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Who is behind the Incoterms rules? 

The International Chamber of Commerce (ICC) publishes the Incoterms rules. Differing standards, practices, and legal interpretations across the world forged the need for a common set of rules and guidelines. In 1936, the ICC meet this need by publishing the first Incoterms rules, thereby unifying international trade. The ICC has continuously amended the Incoterms in accordance with changing times. The Incoterms rules have been amended nine times, with the latest version – Incoterms 2020 – having been published in 2019.
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Are the Incoterms rules 2010 still accepted? 

Yes, the 2010 Incoterms are still valid. However, both buyer and seller must agree on which version of the Incoterms rules apply to the transaction. All parties need to clearly specify the exact version (i.e. Incoterms 2010, Incoterms 2020, or any other version) and identify this on the export-related documents.  

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Disclaimer: This information has been provided in good faith to familiarise clients and industry professionals with the Incoterms. This page is not legal advice. We encourage you to visit ICC’s website to learn more about the Incoterms or contact our offices for guidance on your project.

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