On September 10th 2019, new Incoterms were published by the International Chamber of Commerce (ICC). Although the substance of the Incoterms has not changed considerably, it is still very important to be informed correctly about the practical consequences of these changes. In this way, unpleasant surprises and expensive fines in international trade will be avoided.
The International Commercial Terms (Incoterms) are globally accepted standards that define the mutual obligations of the buyer and seller involved in international trade. They lay down the rules of the game in terms of responsibilities, costs and risk of deliveries, customs obligations and VAT aspects. The Incoterms also ensure that the risk of a legal battle between a buyer and seller decreases at a possible dispute.
Incoterms were first developed in 1936. Since then these sets of standard rules have altered throughout time, just as the parameters of trading internationally have, such as in the field of transport, electronic documentation and invoicing.
In 1980, a major adjustment took place that took into account the emergence of multimodal transport. Since then, the Incoterms have been updated every ten years. A new set of Incoterms will be effective for January 1st 2020.
What changes should you take into account?
All Incoterms (eleven in total) persist. The substance of Incoterms 2020 will not change considerably, but the small subtle changes are absolutely crucial for trade specialists.
These are the main changes compared to the previous version:
- The DAT Incoterm (Delivered at Terminal) changes to Delivered at Place Unloaded (DPU) to broadly cover ‘any place, whether covered or not’.
- Limited insurance coverage under CIP (Carriage and Insurance Paid to) is extended. The insurance obligation under CIF (Carriage Insurance and Freight), reserved for maritime transport), remains unchanged.
- FCA (Free Carrier) will now be better suited for maritime transport: parties can also agree that the bill or cargo is awarded to the seller, to avoid the use of FOB (Free On Board).
- With the Incoterms 2020, parties with their own means of transport can arrange the transport of goods at Free Carrier (FCA), Delivery at Place (DAP), Delivery at Place Unloaded (DPU) and Delivered Duty Paid (DDP).
- The Incoterms 2020 provide additional regulations and clarifications in the context of transport safety, cost distribution and transport with own means of transport.
These updated Incoterms will become the new standard in national and international trade transactions from January 1st 2020.
The importance of using the correct Incoterm
As a company, it is crucial that you are aware of all the changes and the consequences for daily practice. After all, it is regular that a vendor with a Delivery Duty Paid (DDP) agreement commits itself to its buyer to take on all obligations – including paying all rights – until the final destination.
If it subsequently appears that a foreign company in the country concerned is not allowed to import goods, the seller will be unable to deliver the promised goods. Therefore is it essential to get more information and further clarifications in advance.