Incoterms 2020: what has changed in this version?

INCOTERMS are the international guidelines published by the International Chamber of Commerce , or ICC.

The 2020 version of INCOTERMS comprises the terms of sale that regulate the responsibilities of each party involved in an import or export process. In other words, certain obligations now exist between buyer and seller, covering conditions such as:

1. supply of goods;
2. transportation;
3. insurance;
4. customs procedures;
5. place of delivery and collection of the cargo.

These are aspects regulated by INCOTERMS and accepted worldwide. This designation is extremely important for international trade, as it clearly explains how to treat each cargo in question.

However, it is important to remember that, for INCOTERMS to be incorporated, those involved must correctly reference the chosen term in the contract (or equivalent documents) from the purchase negotiation stage.

These terms are understood as a language of international sales and, when used, bring more credibility to the global commercial system.

What Are INCOTERMS?

INCOTERMS (International Commercial Terms) were first used after their creation by the ICC in 1936. Since then, their purpose has been to simplify the problems commonly found in international trade, especially communication problems.

INCOTERMS 2020, the new version of the terms, recently came into force. Already published by the ICC, it brought some changes compared to the last version, published in 2010.

The ICC has been responsible for the INCOTERMS rules for more than 80 years. Since its foundation, more studies have been carried out and matters related to international negotiations have been explored in greater depth. This culminated in the creation of INCOTERMS in 1936.

Historically, the creation of the trade terms was necessary to standardize international rules, given the great cultural and language differences between countries.

They are three-letter acronyms that determine the beginning and end of the responsibilities and obligations of the parties involved in an international purchase or sale. Their importance is so great that even domestic contracts have used INCOTERMS to define negotiations. Currently, 11 terms are in force.

Main Changes in the 2020 Version of INCOTERMS

Some changes were expected in the 2020 update of INCOTERMS that did not happen. The elimination of the EXW (Ex Works) INCOTERM was one of them. The main changes were the following:

1. The DAT (Delivered At Terminal) INCOTERM is now DPU (Delivered At Place Unloaded), meaning that delivery will be made at a named place of destination;
2. Arrangements were introduced for different levels of insurance coverage in the CIF (Cost, Insurance and Freight) and CIP (Carriage and Insurance Paid To) INCOTERMS, transferring costs and risks at different moments;
3. The FCA, DAP, DPU and DDP INCOTERMS now include arrangements for the use of the parties' own means of transport;
4. INCOTERMS 2020 also include rules on security in transport obligations and costs;
5. The FCA (Free Carrier) INCOTERM now allows the issuance of an on-board Bill of Lading.

Technological innovations were also introduced, such as the pocket guide and the INCOTERMS 2020 mobile app.

List of INCOTERMS 2020

The 2020 version of INCOTERMS did not undergo major changes, so the 11 terms were maintained. Even so, one change was made: DAT became DPU. These are the INCOTERMS currently in force:

• EXW – Ex Works (named place of delivery);
• FCA – Free Carrier (named place of delivery);
• FAS – Free Alongside Ship (named port of shipment);
• FOB – Free On Board (named port of shipment);
• CPT – Carriage Paid To (named place of destination);
• CIP – Carriage And Insurance Paid To (named place of destination);
• CFR – Cost And Freight (named port of destination);
• CIF – Cost, Insurance And Freight (named port of destination);
• DAP – Delivered At Place (named place of destination);
• DPU – Delivered At Place Unloaded (named place of destination);
• DDP – Delivered Duty Paid (named place of destination).

Why Do I Need to Understand INCOTERMS?

INCOTERMS are part of all international trade agreements. So, to take part in a process involving a commercial transaction between different countries, one of the 11 INCOTERMS currently in operation must be used.

Knowing each of them and their specifications is important so that there are no misunderstandings between buyer and seller during the negotiation. This way, all responsibilities and obligations are clarified from the start, avoiding unnecessary costs and unpleasant surprises during the import or export process.

The INCOTERM to be used is usually defined at the very beginning of the negotiation and is recorded in the purchase and sale contract or in the Commercial Invoice.

Count on Allink to Understand INCOTERMS 2020

We have seen that understanding INCOTERMS 2020 is essential for anyone doing international business. Allink , a specialist that acts as a facilitator in cargo transport worldwide, can help your company understand every detail involved in international trade. In addition, its more than 25 years of experience is a recognized differentiator, built through partnerships with freight forwarders, customs agencies and customs brokers.

Get in touch with one of our experts and discover the best solutions for your business.