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… and understand ICC Incoterms® 2020 !
Master the risks and costs of your international operations !

What Are Incoterms?

Incoterms are an internationally recognized set of terms that define the responsibilities and obligations of the parties involved in the transport of goods. Incoterms are used to clearly communicate the division of the cost of carriage and risks associated with the international transportation and delivery of goods between the seller to the buyer.

Incoterms were first introduced in 1936 by the International Chamber of Commerce (ICC) as different practices and legal interpretations between traders around the world necessitated a common set of rules and guidelines for interpreting the most commonly used terms in foreign trade. Incoterms are revised periodically, roughly every 10 years, by the ICC to conform to changing trade practices.

What Incoterms Do

It is important to note that the Incoterms of a contract for sale pertain only to the delivery terms (carriage freight costs) and insurability of the product. Incoterms define the respective obligations, costs and risks involved in the delivery of goods.

What Incoterms Do Not Do

Incoterms by themselves do NOT:

Specify the amount of the contract or the terms of financing,Supersede the law governing the contract, Address the transfer of ownership of the goods, Will not release funds for the delivered goods, Determine when revenue is recognized, Address the consequences of a breach of contract or exemptions of liability.
These items are defined by the terms of the sales contract and the governing law.

While it may seem that not much has changed, ICC Incoterms® 2020 was revised to make the terms easier to understand in order to avoid situations were Incoterms are misinterpreted or mis-used, often with costly consequences.

1. DAT is Replaced with DPU

In Incoterms 2010, DAT (Delivered at Terminal) deemed the goods to be delivered once they had been unloaded at the named terminal. In Incoterms 2020, the term has been deleted and replaced with the DPU (Delivered at Place Unloaded) term in order to make the place of delivery more general.

2. FCA and Bills of Lading

The FCA term was changed to allow the parties to agree to issue a Bill of Lading (BOL) to the Seller for shipments financed by a letter of credit. The BOL can now be exchanged when the goods arrive at the port, once delivery has been deemed to occur.

3. Change of Insurance

The CIP term has been changed to require the seller to procure a higher level of insurance coverage – from the “minimum” coverage to “nearly maximum” Clause A (Institute of Cargo Clauses) coverage. CIF keeps the same insurance requirements, which is the basic “minimum” level Clause C (Institute of Cargo Clauses).

4. Costs are Clarified

Costs have been clarified to respond to user feedback that there were increasing disputes over the allocation of costs between the seller and buyer, especially those at the port or place of delivery. The broad principle is that the seller is responsible for costs incurred up to the point of delivery while the buyer is responsible for costs beyond that. The allocation of costs now appear in the A9/B9 section of each rule.

5. Security Requirements

Cargo security has become increasing important since 9/11, and the 2020 rules now address many of the security-related requirements. Security requirements have been updated to make security obligations, such as mandatory cargo screening, more prominent. Security-related allocations have been added to the A4 and A7 section for each rule.

6. Own Transport

Incoterms 2010 assumed that the transport of goods would be carried out by a third party carrier. They did not deal with instances where the transport was provided by the seller or buyer (e.g., seller’s own truck). The terms now expressly state that sellers and buyers can provide their own transport for carriage from the named place of delivery. Buyers can contract for carriage or arrange their own transportation using the FCA rule while sellers should use any of the D rules.

7. Improved Presentation

The terms have been updated to include pictures and Explanatory Notes, which explain the fundamentals of each Incoterm, such as when the term should be used, when the risk passes from the Seller to the Buyer, and how costs and obligations are allocated between the parties. The Incoterms have also been reordered so that the delivery obligation is now more prominent.