The International Chamber of Commerce has released the ICC Incoterms 2020 update of their international trade terms for the sale of goods on September 10, 2019. Incoterms defines the responsibilities of sellers (exporters) and buyers (importers) engaged in cross-border trade regarding the delivery of tradable goods. These are the standards regarding the delivery methods created by the International Chamber of Commerce “ICC”.
There are 11 delivery terms available under the Incoterms 2020 rules. 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.
What are the key changes in Incoterms?
We have listed the main differences between incoterms® 2020 and incoterms 2010 under basic headings:
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 does not control shipments under the FCA term, so the carrier has no obligation to the seller. With Incoterms 2020, the buyer company will be able to add a condition to a contract with the seller that “the shipping company will deliver the bill of lading to the seller company. Shipment charges and all risks belong to the buyer, but the bill of lading will be given to the buyer. Finally, the buyer sends the BL with the document set to the bank by the buyer.
In Incoterms 2010 and earlier versions, the main problem with FCA was that, in multi-shipments and especially in maritime transport, before loading the export cargo on the ship, for example, the delivery obligation of the seller was completed at the port entrance. For example, if a letter of credit was made, the bank requested the bill of lading from the exporter and held responsible for the details that should be written on the bill of lading.
However, the seller was liable for the document that he was not responsible for when his relationship with the shipping company was completed. This problem was resolved with the revision made in Incoterms 2020. FCA has changed to allow the buyer and seller to agree that the seller will get an on-board bill of lading.
Changes Regarding CIF and CIP
In Incoterms 2010, insurance policies on CIF and CIP shipments were prepared with a minimum level of coverage. 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.
For CIP shipments, “Clauses (A) of the Institute Cargo Clauses”, ie insurance including all risks, is mandatory. Therefore, the degree of insurance liability in CIF and CIP shipments, which we can separate as port delivery in the importer’s country and delivery to the importer’s address, has changed.
DAT changed to DPU
The rule is known as DAT (Delivered At Terminal) under Incoterms 2010 has been renamed DPU. DAT was renamed DPU (Delivered at Place Unloaded) to emphasize that the address to which the goods will be delivered can be anywhere, not just a terminal. 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.
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.
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 not clear in previous versions. Unless specified by a special clause in the sales contract or proforma invoice between the parties, the exporter company organizes the shipment without insurance. In this case, the importer company must take out insurance for the safety of the cargo and compensation for possible damage.
Incoterms 2020 more clearly reveals the costs incurred in the export and import stages. Clearer listing of costs: All costs associated with relevant Incoterms® are now listed under A9 / B9 “Allocation of Costs” to provide a single list of costs.
In Terms of Customs Transactions: Export, Import & Transit Trade
Incoterms 2020 more clearly classifies the responsibilities of exporters and importers at the customs clearance stage. The problems experienced so far have been studied, and the role of the seller and the buyer in customs transactions has been clarified, taking into account the costs and risks for exporters and importers, taking into account these experiences. In addition, the transactions included in transit goods were mentioned in Incoterms 2020.
Incoterms 2020 Basic Classification
In the previous versions of Incoterms, we see 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, mainly the responsibilities and risks of the companies were taken into consideration, and the decisive point was the stages of the shipment and the determination of the parties undertaking the transportation risk.
8 incoterms consisting of EXW, FCA, FAS, FOB, CPT, CFR, CIP and CIP are delivery methods in which the shipping responsibility belongs to the buyer wholly or partially. DAP, DPU and DDP, where the responsibility and risk of transportation are on the seller, were accepted as the second category.
| Classification of Incoterms by Transport Type |
| Category | Incoterms |
| Multimodal (air / sea / road / railway) | EXW, FCA, CPT, CIP, DPU, DAP, DDP |
| Sea and River | FAS, FOB, CFR, CIF |
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