Incoterms or International Commercial Terms is an acronym that refers to the conditions of the delivery of merchandise and products. It is fundamental to know the rules of the International Chamber of Commerce for the use of these terms in domestic and international trade.
The Incoterms regulate tangible merchandise and clarify how different parties are to act with issues such as the distribution of expenses and costs, the point where delivery takes place, who takes on the transport risk and the responsibility for customs procedures.
Other areas such as the transfer of legal ownership of merchandise; the price and payment method; the consequences and remedies for breach of contract; obligations regarding intellectual or industrial property issues; the applicable law; and dispute resolution, are not covered by its regulation.
Incoterms 2020 Guidelines
Currently there are 11 Incoterms. As of 1 January 2020 the Incoterms are the following: EXW, FCA, FAS, FOB, CIF, CFR, CPT, CIP, DAP, DPU (new inclusion) and DDP.
There is a new appearance reinforcing the use of pictograms as a key element for improving understanding and making the areas regulated by los Incoterms more visual (party obligations, transfer of risks and costs). In addition, a general introduction will be added as an explanatory note for each rule. Its function being to help in the interpretation of the rules.
Summary of changes
In 2020, there are two kinds of classification of the Incoterms:
- Rules for any mode or modes of transport: EXW, FCA, CPT, CIP, DAP, DPU, DDP.
- Rules for maritime transport or inland waterways: FAS, FOB, CFR, CIF.
From here, the main changes in the Incoterms 2020, with respect to those of 2010, are:
- FCA (Free Carrier + agreed place of delivery). Bills of Lading with an on-board notation can be issued by the carrier to the exporter when agreed by the parties as a result of requested documents in the letter of credit.
- CIF_CIP. While in CIF (Cost, Insurance and Freight) there are no changes and the conditions C in the ICC (Institute Cargo Clauses) of the Institute of London Underwriters are maintained, in CIP (Carriage and Insurance Paid) conditions A are extended, meaning maximum guarantees.
- DAT. disappears and is replaced by a new Incoterm: DPU (Delivered at Place Unloaded).
- FCA (Free Carrier) and DAP (Delivered at Place), DPU (Delivered at Place Unloaded) and DDP (Delivery Duty Paid), now take into account the option that the buyer and the seller use their own transport.
At a formal level, the order of the articles is modified, prioritizing the delivery and the transference of risk. A colour scale and pictograms are used:
- Blue. Indicates seller’s obligations.
- Golden. Indicates buyer’s obligations.
- Green. Indicates mixed or shared obligations.
Golden rules for appropriate use
For an appropriate use of the Incoterms 2020 it is recommended to be explicit when using Incoterms 2020 and to be as specific as possible for the delivery place as well as the destination. The Incoterms must be adequately applied for maritime or multimodal transport.
Lastly, it should be taken into account that the order of obligations has been modified, it is the following:
A1/B1 General obligations
A3/B3 Transfer of risks
A6/B6 Delivery/transport documents
A7/B7 Export/import clearance
A9/B9 Allocation of costs