INCOTERMS® 2020: DIFFERENCES AND NEWS12/08/2022
The terms of sale known as Incoterms® are a set of rules issued by the International Chamber of Commerce (ICC) of Paris with the aim of clearly defining the meaning of 11 commercial terms used in international transactions. Since they indicate the obligations and risks of sellers and buyers for the sale of goods, highlighting their transfer from one party to the other, they are a set of international rules which have to be incorporated in the contracts of sale especially in those involving trade across national borders.
The first rules, known as Incoterms 1936, were published by the ICC back in 1936. New and improved editions were introduced in 1953, 1967, 1976, 1980, 1990, 2000 and in 2010. The study that produced the latest revision, known as Incoterms® 2020, started off in 2016 and the new release was published on September 10, 2019 at the end of the celebrations for the ICC centenary. Incoterms® 2020 became effective as of January 1, 2020.
Although ICC recommends using the current version of the rules, all contracts made under any other previous edition remain valid; parties to a contract for the sale of goods can agree to choose any version of the Incoterms® rules as long as the version used is clearly specified in all trade and sales documentation.
The 11 Incoterms® 2020 can be grouped into four main groups:
- GROUP E: within group E (EXW), the responsibility is placed on the buyer.
- GROUP F: within Group F (FCA – FAS – FOB), the seller is responsible for delivery according to the pre-arranged shipping method. After that, the buyer is responsible for costs and risks.
- GROUP C: within Group C (CPT – CIP – CFR – CIF), the seller is responsible for the transportation cost, whereas the risks are the buyer’s responsibility.
- GROUP D: within Group D (DAP – DPU – DDP), the seller is obliged to deliver the goods to a specific place or the port of destination and take responsibility for the risks.
The 11 Incoterms® 2020 can also be classified as per the means of transportation:
- Incoterms for any mode of transport: EXW, FCA, CPT, CIP, DPU, DAP and DDP;
- Incoterms only for sea and inland waterway transport: FAS, FOB, CFR and CIF.
Compared to the 2010 edition, these are the key changes in Incoterms® 2020:
- DPU (Delivered at Place Unloaded) replaced DAT (Delivered at Terminal) therefore now it is not mandatory to deliver the goods at a transport terminal;
- in previous editions, CIF (Cost Insurance and Freight) and CIP (Carriage and Insurance Paid To) entailed the obligation for the seller to pay an Institute Cargo Clause C insurance (minimum level). Now the same insurance requirements apply for CIF, but CIP has increased the insurance coverage at the maximum level All Risk (Institute Cargo Clauses A);
- within Incoterms® 2020, all costs are now grouped in article A9/B9 allowing users to see the full list of expected costs at a glance;
- arranging for carriage with seller’s or buyer’s own means of transport is now allowed in FCA, DAP, DPU and DDP.
Despite having been overlooked in the past, Incoterms® are now more important than ever. Their knowledge is vital for any company that wants to safeguard its interests when stipulating a contract.