Incoterms, first released in 1936, had the aim of assigning cost and risk responsibilities to appropriate parties during the shipping of consignments.
It is comprised of a set of rules to make the transfer of goods seamless when they change hands. Today, Incoterm rules serve as a standard for the exporters and importers around the world and helps them avoid costly misunderstandings.
Incoterms 2020 is the latest update in the chapter. The International Chamber of Commerce or ICC released these changes September last year 2019. The last Incoterms update by ICC was in 2010. With Incoterms 2020, ICC wants to continue its goal of keeping international standards up to date with the current scenario.
Here’s a breakdown of 5 key changes that come in effect with Incoterms 2020.
DAT renamed to DPU
Delivered at Terminal or DAT is now replaced with the term Delivered at Place Unloaded (DPU).
DPU is the new Incoterm created in the 2020 update to replace DAT. ICC changed the name to DPU as delivery of goods is made not only to a terminal (port, airport, dock, etc) but to several other facilities as well, like a factory or a warehouse with an unloading facility.
Bill of Landing terms for FCA updated
Seller of goods can now obtain the Bill of Landing (BL) from Free Carriers (FCA). The buyer can now instruct a contracted Free Carrier, to issue a Bill of Landing to the seller, once they have loaded the goods on the ship.
BL is the most common document that the seller needs to obtain a letter of credit. It serves as a proof for delivery of goods by the seller and allows them to avail the credit for the transaction.
New Default Insurance Coverage Level for Carriage and Insurance Paid To(CIP)
The minimum insurance coverage for CIP has been increased and now corresponds to Clause A of Institute Cargo Clauses (IUA/LMA), which offers the most extensive coverage. Previously, both Cost Insurance and Freight (CIF), and Carriage and Insurance Paid To (CIP) had minimum insurance coverage at the level of Institute Cargo Clause C.
However, the parties can freely agree to lower the insurance level, or agree to take out insurance in negotiating an agreement under CIP.
Insurance coverage for CIF deliveries remains the same at Claus C of Institute Cargo Clauses (IUA/LMA).
Rules for Custom Clearance- Export, Transit, and Import
Incoterm 2020 defines who is responsible for custom clearance under different circumstances. For the first time, there are rules incorporated for situations where seller or buyer use their own transport for DAP, DPU, DDP, and FCA deliveries. It also defines which party will have the burden of risk in a given situation precisely.
Transport Security requirements updated
ICC has revised it’s security requirements concerning carriage costs and liabilities. They’ve addressed several security-related concerns in international trade, like defining which party will be responsible for the liability of the security of the goods.
Incoterms 2020 has also introduced the following changes that will be helpful in understanding and implementing incoterm rules. Such as:
- Using simple language with less legal content.
- Better explanation for rules
- Detailed breakdown of cost allocation
- Comparing obligations between 11 other incoterms