Incoterms are acronyms for International commerce terms. These are trademark words used by the international chamber of commerce for trading all around the world. First introduced in 1936, these terms get renewed every ten years. The last draft of the incoterms was released back in 2010. New incoterms 2020 released this year by the international chamber of commerce address the flaws and different issues not covered by the 2010 draft. This article points out the key differences among incoterms 2010 and new incoterms 2020.
Table of Contents
Bills of Lading
FOB (Free on Board) should be avoided for container shipments. This is because the seller loses control of the container as it arrives on the export port but is still responsible for any damages to the container before loading. Seller also takes care of the cost of the export, port terminal handling charges, and loading costs/risks.
New Incoterms 2020 identifies this risk for the seller and eases it by introducing FCA (Free Carrier). This means that once the seller brings the container to the carrier based on mutual terms agreed upon both by the buyer and seller, the carrier can issue the seller a complete bill of lading.
Compared to incoterms 2010, security measures have been more stressed upon in new incoterms 2020. Although it affects the cost of the carriers, it is essential in safeguarding the transport system. For example, CPT (Carriage Paid to) includes a specific amount that the seller must comply with for transporting goods to the destination. Failure to do so may incur several risks and costs.
DAT (delivered at terminal) has changed to DPU (delivered at place unloaded)
Incoterms 2010 states that goods are delivered once unloaded at named terminals. Thus this limits the place of delivery as the terminal. This may not be the case in most transactions as the goods may still have to be transported from the place of unloading. To accommodate this structure, DAT has been changed to DPU according to new incoterms 2020. This differentiates between the various places a product has to go while shipping and thus makes the whole system more generalized.
Insurance under CIF (carriage insurance and freight) and CIP (carriage and insurance paid to)
The incoterms 2010 state that CIP is applicable for sellers who want to ship and deliver goods to a named destination and thus insures for them and pays for the carrier. The only job they have is to bring the goods to the carrier. CIF is the same set of rules applicable specifically for transport via freights.
The International chamber of commerce has changed the insurance coverage amount under CIP via the incoterms 2020. Sellers now need to take higher insurance coverage for goods transporting with CIP coverage. This is because the CIP mode is mostly used to transfer manufactured goods in low numbers. Thus, these require higher insurance coverage for safeguarding.
CIF has been kept the same. The reason behind that is, freights are still used to transport raw materials or other goods in bulk and thus the insurance coverage can below
It is always recommended that the involved traders discuss and decide if insurance coverage is required for the products and if yes then what kind and the value.
Use of transportation vehicle
Incoterms 2020 clarifies the position of transport companies in the whole structure. These third-party transporters will be commissioned to move the goods from the seller to the buyer. All the necessary details of commission and payment for the carriage are to be arranged by the buyer.
Apart from the following changes, new incoterms 2020 also includes a matrix comparison tool. This allows traders to choose the best way of transactions in a fast and efficient manner. The matrix tool incorporates all the changes of the incoterms and thus the results can be viewed horizontally or vertically to get a full view of the costs involved.