Incoterms 2020: Changes That you Need to Know

By Cogoport | 13 Feb 20 | Read Time: 2 minutes
Incoterms 2020: Changes That you Need to Know

International Chamber of Commerce has updated world renowned Incoterms to facilitate trillion dollars trade every year. For every importer and exporter, Incoterms 2020 are vital rules for international trade, offering a set of contract terms for global freight delivery. It defines the delivery point, the seller and buyer’s responsibilities, risk and cost of each transaction.

ICC(International Chamber of Commerce) released Incoterms

ICC had introduced Incoterms in 1936 and updates it every ten years. The recently released Incoterms 2020, bringing new changes in international logistics. Incoterm simplifies trade for everyone by avoiding misunderstanding and building confidence in the global trade system.

  • Updated carriage insurance and delivery at terminal

  • Enhanced security for containers

  • Precise allocation of costs

What is Incoterms 2020 for your logistics business?

The term Incoterm is an acronym for International commercial terms. It is a trademark of ICC, registered in many countries including United Kingdom, United States, Australia, China, India and many others. It contains international logistics rules like Free on Board (FOB), Carriage and Insurance paid to (CIP), delivered at place (DAP), and Ex-works (EXW) which have precise meanings for the sale of goods around the world.

The above terms hold universal meaning for importer and exporters across the globe. If you are a financial analyst in California, then you might associate with Financial conduct authority, i.e. FCA of US. However, for importers and exporters across the world, FCA stands from “Free Carrier” or the seller’s obligation to deliver the goods to a carrier nominated by the buyers at the seller’s premises or another named place.

Shipping container at Port


Incoterms 2020 rules for your business

It is essential for you to follow Incoterms rules to facilitate global trade. With these rules you can initiate all international transaction including packaging and labelling shipment of freight, filing a purchase order, preparing a certificate of origin at the port. The Incoterm rules are designed to guide you about participating in the import and export of global trade regularly.

Importance of Incoterms in International trade

After the World War era, when there was no global system of regulations to manage world trade, ICC creates these international standards as a platform for the business across the world. Unlike national trade policies, Incoterms rules are universal, providing clarity and predictability to international companies. While other global trade rules exist in the world, Incoterms provide stability, reliability and trust between the global traders.

What are the main updates of Incoterms 2020?

ICC renew Incoterms every ten years regularly. Every update brings new changes in accord with the latest technology and new trade trends across the world. This year, ICC had conducted a few essential changes in the Incoterm rules, that you need must know:

  • DAT is updated to DPU

DAT stands for “Delivered at Terminal” which means the good is delivered once unloaded at the named terminal. These days, the user wanted to receive the delivery at not just a terminal, but at a particular site. You might agree to provide the offer in a specific factory rather than only a terminal. Thus, the reference of the terminal is removed and DPU, which means “Delivered at Place Unloaded” is added in the rules.

  • Change of insurance in CIP to CIF

The term CIP stands for “Carriage and Insurance Paid” to which means that the seller delivers the goods, but then pays for the carriage and insurance to the named destination. The new term CIF namely “Carriage Insurance and Freight,” is similar to CIP, except it can only be used for maritime transport when the delivery is on a ship and the destination needs to be a port.

  • The precise allocation of costs

The renewed Incoterm 2020 includes improved prices for the buyers and sellers. In each Incoterm, the clause A9/B9 have gathered cost obligations. This change is to address the user feedback that there were increase disputes about the allocation of costs, especially those in or around the port or place of delivery. The updated Incoterm rules stated that the seller is responsible for the costs incurred up to the point of delivery while the buyer is responsible for the damage after that.

  • Security enhancements

The transport security is very much necessary for the freight, which also includes a mandatory screening of containers. This requirement has now become more prevalent. Although transport security affects the cost and even risk the delay in delivery, it is essential to screen the containers. In Incoterm 2010, there were no security amendments. But ICC makes security obligations more prominent with the Incoterm 2020. You can check the clause A4/A7 of Incoterm 2020.

  • Separate Maritime Incoterms

The Incoterm 2020 offers a different approach by setting out the multimodal incoterms and maritime only Incoterms, namely FAS, CIO, FOB and CFR. This is to encourage you to use Incoterms based on the transportation process, delivery and destination.

  • Use of transportation vehicle

In Incoterms 2020, third party will be liable to transport the goods between you and the buyer. The position of the transportation companies is now clarified. The buyer is required to contract or arrange the cost for the carriage.

  • Bills of lading

The FOB namely “Filing of Bills” is necessary for container shipments. Generally, the seller loses the control of the container, but the seller is still responsible for the losses for if the container is damage before loaded on to the ship. This expose seller to increase costs and risks. Incoterms 2020 identifies this issue and prevent it by using the Incoterm FCA i.e. “Free Carrier.” It enables you and the buyer to agree on mutual terms to direct the carrier to issue the onboard bill of lading to the seller.

Final words

The Incoterm 2020 rules are also based on the technology revolution in the shipping industry. In line with the ICC’s commitment to making the technology work for all, you can access the essential information of the Incoterms 2020 through their mobile applications, including the latest news, events and training opportunities and implement them into your logistics businesses for getting fruitful results.

Shipping IndustryExport PolicyIncoterms