The International Chamber of Commerce recently published the new Incoterms® 2020, international trade terms for the sale of goods, which became effective from 1st January 2020.
Our Incoterms® 2020 table can be found here for ease of reference.
Incoterms communicate the responsibilities between a seller and buyer in terms of costs and risks associated with the global transportation of goods.
WHAT ARE THE CHANGES?
Many of the existing Incoterms are still included, however some have been slightly amended, and new terms added –
FCA (Free Carrier – named place of delivery) has been amended slightly to allow the seller to require the buyer to procure an on-board bill of lading.
Historically, a seller of a containerised shipment under FOB (Freight on Board) terms lost control of the goods on their arrival at the export container port, but still remained liable until the container was loaded onto the ship. This exposed the seller to potential cost and risk. FCA now answers this problem and allows the parties to agree for the buyer to direct the carrier to issue the on-board bill of lading to the seller.
CIF (Cost Insurance Freight) and CIP (Carriage and Insurance Paid to) require the seller to provide a basic level of insurance for the buyer equivalent to Clause C (Institute of Cargo Clauses).
However, these two terms usually apply to different classes of goods which call for different levels of insurance coverage.
In Incoterms® 2020, the ICC has sought to clarify this distinction.
CIF now keeps the same insurance requirements (i.e. Clause C) but CIP has increased the level of insurance required to Clause A (Institute of Cargo Clauses).
DAT Replaced by DPU
DAT (Delivered At Terminal) will be replaced by DPU (Delivered at Place Unloaded). The ICC says this change was made primarily to eliminate confusion between DAT and DAP (Delivered at Place) in terms of where and how delivery takes place.
DPU is now the only Incoterm where the seller has the responsibilities and costs of unloading at final destination. Import Customs clearance and related costs, however, remain the buyer’s responsibility.
RULES FOR ANY MODE(S) OF TRANSPORT
The seven rules defined by IncoTerms 2020 for any mode(s) of transportation are:
- EXW – Ex Works (named place of delivery) The seller makes the goods available at its premises. This term places the maximum obligation on the buyer and minimum obligations on the seller. The Ex Works term is often used when making an initial quotation for the sale of goods without any costs included.
EXW means that a seller has the goods ready for collection at their premises (works, factory, warehouse, plant) on the date agreed upon. The buyer pays all transportation costs and also bears the risks for bringing the goods to their final destination. The seller doesn’t load the goods on collecting vehicles and doesn’t clear them for export. If the seller does load the good, they do so at buyer’s risk and cost. If parties wish the seller to be responsible for the loading of the goods on departure and to bear the risk and all costs of such loading, this must be made clear by adding explicit wording to this effect in the contract of sale.
- FCA – Free Carrier (named place of delivery) The seller hands over the goods, cleared for export, into the disposal of the first carrier (named by the buyer) at the named place. The seller pays for carriage to the named point of delivery, and risk passes when the goods are handed over to the first carrier.
- CPT – Carriage Paid To (named place of destination) The seller pays for carriage. Risk transfers to buyer upon handing goods over to the first carrier.
- CIP – Carriage and Insurance Paid to (named place of destination) The containerized transport/multimodal equivalent of CIF. The Seller pays for carriage and insurance to the named destination point, but risk passes when the goods are handed over to the first carrier.
- DAT – Delivered at Terminal (named terminal at port or place of destination) The seller pays for carriage to the terminal, except for costs related to import clearance, and assumes all risks up to the point that the goods are unloaded at the terminal.
- DAP – Delivered at Place (named place of destination) The seller pays for carriage to the named place, except for costs related to import clearance, and assumes all risks prior to the point that the goods are ready for unloading by the buyer.
- DDP – Delivered Duty Paid (named place of destination) The seller is responsible for delivering the goods to the named place in the country of the buyer, and pays all costs in bringing the goods to the destination including import duties and taxes. This term places the maximum obligations on the seller and minimum obligations on the buyer.
RULES FOR SEA AND INLAND WATERWAY TRANSPORT
The four rules defined by IncoTerms 2020 for international trade where transportation is entirely conducted by water are:
- FAS – Free Alongside Ship (named port of shipment) The seller must place the goods alongside the ship at the named port. The seller must clear the goods for export. This is suitable only for maritime transport, but NOT for multimodal sea transport in containers (see IncoTerms 2010, ICC publication 715). This term is typically used for heavy-lift or bulk cargo.
- FOB – Free on Board (named port of shipment) The seller themselves must load the goods on board the vessel nominated by the buyer. Cost and risk are divided when the goods are actually on board of the vessel (this rule is new!). The seller must clear the goods for export. The term is applicable for maritime and inland waterway transport only, but NOT for multimodal sea transport in containers (see IncoTerms 2010, ICC publication 715). The buyer must instruct the seller on the details of the vessel and the port where the goods are to be loaded, and there is no reference to, or provision for, the use of a carrier or forwarder. This term has been greatly misused over the last three decades ever since IncoTerms 1980 explained that FCA should be used for container shipments.
- CFR – Cost and Freight (named port of destination) The seller must pay the costs and freight to bring the goods to the port of destination. However, risk is transferred to the buyer once the goods are loaded on the vessel. Maritime transport only and Insurance for the goods is NOT included. This term was formerly known as CNF (C&F).
- CIF – Cost, Insurance and Freight (named port of destination) Exactly the same as CFR, except that the seller must in addition procure and pay for the insurance. Maritime transport only.
SHORTER Incoterms® 2020 DEFINITIONS:
Rules for ANY MODE of Transport
- EXW = Ex Works (Named Place of Delivery)
- FCA = Free Carrier (Named Place of Delivery)
- 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)
Rules for Sea and Inland Waterway Transport
- 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 and Freight (Named Port of Destination)
Every effort has been made to ensure the accuracy of definitions however this document should be used for reference only and is not intended as legal advice. Customers can also seek specific guidance from Incoterms® 2020, available through the ICC at www.iccbo.org
Incoterms® 2020 is a registered trademark of the International Chamber of Commerce.