The Incoterms 2020: What Are They and How Can They Help?
August 13, 2020
Table of Contents
If you’re doing international business you probably came across Incoterms. These are standard terms for the trade of goods beyond borders.
What you may not know is that these have been updated: are you familiar with Incoterms 2020?
This article covers:
- What are incoterms
- Why they are so important for international trade
- Whom they concern
- What’s new with Incoterms 2020
Let’s start with a useful video from the US International Trade Administration that explains the Incoterms in greater detail!
What are the Incoterms?
The Incoterms are the world’s essential terms of trade for the sale of goods. Whether you are packaging and labelling a shipment for freight transport, preparing a certificate of origin at a port, or filing a purchase order, the Incoterms rules are there to support you. The Incoterms rules offer specific guidance to entrepreneurs participating in the import and export of goods on a daily basis.
“Incoterms” is an acronym for international commercial terms. “Incoterms” is a trademark of The International Chamber of Commerce (ICC), which is registered in various countries.
The ICC’s mission is to foster open markets and encourage global economic prosperity through commerce and trade. The Incoterm rules facilitate trillions of dollars in global trade each year.
Since it was founded in 1919, ICC has committed itself to the facilitation of international commerce. ICC developed Incoterms in 1936 and reevaluates them regularly to conform to changing trade practices.
Why are they important?
Although other clauses for global trade exist around the world, such as the Harmonised Tariff Schedule of the United States, Incoterms rules have a global reach. Similarly, Incoterms rules do not take into account trade terms codified for national purposes, such as the “less than truckload shipping” (LTL) rule of the United States. Unlike national trade policies, Incoterms rules are universal, providing clarity and predictability to business.
Globally recognized, Incoterms avoid misunderstandings in foreign trade contracts by clarifying the obligations of buyers and sellers.
Main Differences Specific to a Country
The guidelines cover most countries in most scenarios. For instance, customs procedures are much more relaxed at porous borders, like within the EU. The three other exceptions likely to affect shipments are: importing into the UK requires a Deferment Account, exporting from India includes a withholding tax, and the US is the only country that requires a Customs Bond.
Whom do they concern?
Parties involved in domestic and international trade often use them as a shorthand in order to help understand one another and the exact terms of their business agreements. Some Incoterms apply to any mode of transport; others apply strictly to transportation across the water.
The Incoterms rules are accepted by governments, legal authorities, and practitioners all over the world for the interpretation of most commonly used terms in international trade.
The seven Incoterms 2020 rules for any mode(s) of transport are:
EXW – Ex Works (insert place of delivery)
FCA – Free Carrier (Insert named place of delivery)
CPT – Carriage Paid to (insert place of destination)
CIP – Carriage and Insurance Paid To (insert place of destination)
DAP – Delivered at Place (insert named place of destination)
DPU – Delivered at Place Unloaded (insert of the place of destination)
DDP – Delivered Duty Paid (Insert place of destination).
Note: the DPU Incoterms replaces the old DAT, with an additional requirement for the seller to unload the goods from the arriving means of transport.
The four Incoterms 2020 rules for Sea and Inland Waterway Transport are:
FAS – Free Alongside Ship (insert name of the port of loading)
FOB – Free on Board (insert named port of loading)
CFR – Cost and Freight (insert named port of destination)
CIF – Cost Insurance and Freight (insert named port of destination)
What Incoterms Do Not Cover
Incoterms are most often included in the contract of sale. Still, they do not:
- Identify the goods being sold nor list the contract price;
- Address all the conditions of a sale;
- Reference the method nor timing of payment negotiated between the seller or buyer;
- Specify which documents must be provided by the seller to the buyer to facilitate the customs clearance process at the buyer’s country;
- When a title, or ownership of the goods, passes from the seller to the buyer; and
- Address liability for the failure to provide the goods in conformity with the contract of sale, delayed delivery, nor dispute resolution mechanisms.
Differences between The Incoterms 2010 and 2020:
- The Incoterms FCA (Free Carrier) now provides the additional option to make an onboard notation on the Bill of Lading prior loading of the goods on a vessel.
- The costs now appear centralized in A9/B9 of each Incoterms rule.
- CIP now requires at least an insurance with the minimum cover of the Institute Cargo Clause (A) (All risk, subject to itemized exclusions).
- CIF requires at least an insurance with the minimum cover of the Institute Cargo Clause (C) (Number of listed risks, subject to itemized exclusions).
- The Incoterms rules Free Carrier (FCA), Delivered at Place (DAP), Delivered at Place Unloaded (DPU) and Delivered Duty Paid (DDP) now take into account that the goods may be carried without any third-party carrier being engaged, namely by using its own means of transportation.
- The rule Delivered at Terminal (DAT) has been changed to Delivered at Place Unloaded (DPU) to clarify that the place of destination could be any place and not only a “terminal”.
- The Incoterms 2020 now explicitly shifts the responsibility of security-related requirements and ancillary costs to the seller.
How to get them
Incoterms® 2020 is available on ICC’s new e-commerce platform ICC Knowledge 2 Go in both print and digital formats.
The 2020 edition is available in no fewer than 29 languages — from Estonian and German to Pashto and Spanish.
The print format is available for €45,00 and the e-book is available for €40,00.
Updates since COVID-19
ICC is committed to helping small businesses impacted by COVID‑19.
Whether you are looking for new ways to go global or interested in finding a neutral framework for your contractual relationships without the cost of a lawyer, the International Chamber of Commerce (ICC) has a variety of dedicated digital tools to support and guide small businesses in the face of the worst health and economic crisis of our time.
To help SMEs, ICC is also offering a range of essential digital business resources, for free or at a 50% discounted rate.
How CONNECTS can help members with international trade
The Incoterms are particularly helpful for companies that are members on CONNECTS.
CONNECTS is a digital Business Matchmaking Platform that allows entrepreneurs to initiate trustworthy business opportunities worldwide.
Strong business relationships can only be developed through trusted networks. Working with Chambers, we provide access to leads, suppliers, partnerships, skills, and business communities you can trust, throughout the world.
CONNECTS facilitates business networking worldwide, which is where the Incoterms come into play since they allow companies to avoid confusion in international trading contracts by clarifying the obligations of buyers and sellers.
Companies using CONNECTS thus have a lot to gain by using the Incoterms.
If your company operates on an international level, you might also be interested in reading our article about nearshoring and how it can help improve your business activities.
Want to learn more about CONNECTS?
Trading internationally and interested in making your company grow and prosper?
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If you are a member of a participating chamber, join our business matchmaking platform for free.
Business is all about confidence in the future. At CONNECTS we believe we can only develop strong business relationships through trusted networks.
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