09 Jan ICC INCOTERMS® 2020
The International Chamber of Commerce (will shorten it as ICC in the rest of the article.) has released the “ICC Incoterms® 2020” on September 10, 2019.
Basically it’s the updated version of ICC Incoterms® 2010 include international trade terms for the sale of goods. Incoterms® represent sellers and buyers responsibilities engaged in cross-border trade. These are the standards regarding the delivery terms created by the “ICC”.
Incoterms® 2020 rules include a total of 11 delivery terms.
Who will organize the shipment? Who will pay for the costs incurred in the various stages of the shipment? Who owns the insurance liability? Who will do the customs clearance? You will find answers to all these questions and in our article. But first, we’ll talk about the changes.
Incoterms® 2020 rules include a total of 11 delivery methods. Each Incoterms® , shipment and insurance costs, risks and responsibilities contain clear rules in order to be understood clearly by the parties.
Basically, answers are sought for the following questions:
Who will organize the shipment? Who will pay for the costs incurred during the shipment process? Who is responsible for making insurance? Who will organize the customs procedures, and who will pay the taxes and expenses?
What are the key changes in Incoterms®?
We have listed the main differences between Incoterms® 2020 and Incoterms® 2010 under basic headings:
- In Incoterms® ® 2020; We have briefly listed the changes that occurred compared to the 2010 version.
- The term DAT (Delivered at Terminal) has been changed to Delivered at Place Unloaded (DPU). So DAT dont use anymore
- FCA (Free Shipping to Carrier) term now allows waybills (B / L) to be printed after shipment.
- Other changes:
- In the condition of CIF and CIP delivery terms, the level of insurance continues to be a bargain between buyer and seller. In CIF, the insurance subject will be unchanged according to Clause (C) terms and in CIP according to Clause (A) terms.
- Where specified, cost distribution between buyer and seller is specified more precisely. Incoterms® 2020 lists all costs for which the seller and buyer are responsible.
- FCA, DAP, DPU and DDP delivery terms allow buyers and sellers to ship with their own vehicles.
- Security obligations are now more clearly stated.
- For each Incoterm®, the “Explanatory Notes for Users” section replaces the “Guide” in the 2010 version. More simple language, more detailed explanatory with less legal content.
- An Incoterms® system that is compatible with commercial contracts and shows the distribution of costs and risks more clearly.
Incoterms® 2020: Main Changes
a) Free Carrier (FCA) Key Changes & Updates:
The most crucial change in Incoterms® 2020 rules relates to FCA. FCA delivery term is divided into two subgroups for sea and road freight. The reason for this was the problems experienced in ship loading, especially in sales with letters of credit, although there were no problems in truck loading. The seller’s responsibility ended when the freight was delivered at the port, but banks request a bill of lading with an on-board notation.
The seller could not control shipments under the FCA term, so the carrier had no obligation to the seller. Incoterms® 2020, making a reorganization on this issue. With new rules, the buyer company “importer” will be able to add a condition to a contract with the seller that “the shipping company should give the BL to the seller company “exporter”. As Incoterms® 2010, shipment charges and all risks belong to the buyer. However, the BL will be giving up to the buyer. Finally, the buyer controls the BL process and add it to the Bank document set according to the Letter of credit conditions.
In Incoterms® 2010 and earlier versions, FCA’s main problem was that, in multi-shipments and especially in maritime transport, before loading the export cargo on the ship, for example, the seller’s delivery obligation was completed at the port entrance. For instance, according to LC payment terms, the bank requested the bill of lading from the seller company with fully appropriate LC conditions. So the seller company responsible for the details that should be written on the BL. In the event that the Bank detects any mistake (reserve) in the BL content, the seller company may request a change from the carrier to BL.
Briefly, in Incoterms® 2010 and before, the seller was responsible for the shipping document, even though the shipping company’s relationship was completed, that is, delivered the goods to the carrier at the desired point.
With the revision made in Incoterms® 2020, this problem was solved. FCA delivery term has been updated with changes that include the delivery of the bill of lading to the seller firm in ship shipments and the carrier to apply the revision requests from the seller.
b) Different Levels of Insurance Coverage in CIF and CIP Delivery Methods:
Under Incoterms® 2010 rules, the CIF and CIP delivery rules had a standard minimum guarantee and meant narrow-scope shipping insurance. With the revisions made in Incoterms® 2020, the CIP delivery method’s insurance coverage limit has been increased as “all risks”, and different minimum insurance guarantees have been introduced for CIF and CIP delivery methods unless otherwise agreed by the parties.
Within the scope of Incoterms® 2020, it has been decided that the “Clauses (C) of the LMA / IUA Institute Cargo Clauses” which is currently valid for CIF will be insured at the minimum insurance level.
If the parties have not taken an additional decision with the contract, the insurance level will not change.
CIP terms are evaluated differently at this point. “Clauses (A) of the Institute Cargo Clauses”, i.e. insurance including all risks, is mandatory. So, the insurance liability in CIF and CIP shipments has changed.
c) DAT (Delivered at Terminal) Changed to DPU (Delivered at Place Unloaded)
The rule is known as DAT (Delivered At Terminal) under Incoterms® 2010 has been changed as DPU. The purpose of renaming DAT to DPU is to emphasize that the delivery point can be any address, not just a terminal. There is no change other than this change. At this point, if the delivery address is not a terminal, i.e. a customs point, it should be a suitable place to unload the goods.
The most important feature of this delivery method is that it requires the unloading of the goods. According to Incoterms® 2020, if the delivery of the goods is not a terminal, the seller must ensure that the place where he wants to deliver the goods is suitable for unloading the goods.
The unloading process will ve finish the seller’s responsibility, after then all the risk passes from the seller to the buyer. As a note, The customs procedures are the buyer’s responsibility.
d) Arranging For Carriage With Seller’s Or Buyer’s Own Truck
Incoterms® 2010 was created assuming that international transportation will be carried out by a third company other than the buyer and seller company, namely a shipping company. With Incoterms® 2020, it is stated that the exporter or importer company can now carry out international transportation with its own vehicle. We see that its effect the delivery terms FCA, DAP, DPU and DDP.
e) The obligation of the Insurance Declaration in DAP, DDP, DPU
The DPU has begun to replace the DAT delivery term. In Incoterms® 2020, for DAP and DPU delivery methods, it was not clearly stated whether the insurance belongs to the exporter or the importer, this was also not clear in previous versions of Incoterms.
Unless specified by a particular clause in the sales contract or proforma invoice between the parties, the seller company organizes the shipment without making insurance. In this case, the buyer company must take out insurance for the cargo’s safety and compensation for possible damages.
Incoterms® 2020 more clearly reveals the costs incurred in the export and import stages. Clearer listing of costs: All costs associated with relevant delivery terms are now listed under A9/B9 “Allocation of Costs” to provide a single list of expenses.
f) In Terms of Customs Transactions: Export, Import & Transit Trade
Incoterms® 2020 more clearly classifies the seller company’s responsibilities and buyer company at the customs clearance stage. The difficulties experienced so far have been studied, and the role of the seller company and the buyer company in customs transactions has been clarified, taking into account the costs and risks for exporters and importers, taking into account these experiences. Incoterms® 2020 also includes additional parts according to incoterms 2010 in terms of including regulations for transit goods.
Incoterms® 2020 Basic Classification
|Multimodal (air / sea / road / railway)
|EXW, FCA, CPT, CIP, DPU, DAP, DDP
|Sea and River
|FAS, FOB, CFR, CIF
In the previous versions of Incoterms® 2010, its clear that a distinction is made according to the delivery types starting with the letter E, F, C and D, or classification has been made according to sea freight and multimodal transport types.
While organizing Incoterms® 2020, the companies’ responsibilities and risks were taken into consideration. The decisive point was the stages of the shipment and the parties’ determination to undertake the transportation risk. 8 Incoterms® consisting of EXW, FCA, FAS, FOB, CPT, CFR, CIP and CIP are delivery terms in which the shipping responsibility belongs to the importer “buyer” partial or complete. DAP, DPU and DDP, where the delivery period’s responsibility and risk are on the exporter “seller” company, were accepted as the second category.