The new decade has begun with a major change in the Transport & Logistics industry as the International Chamber of Commerce (ICC) has rolled out the Incoterms® 2020 rules and regulations after nine years since the last revision in 2010. They have come into effect from January 1, 2020. This is done in order to further organize the channel between sellers and buyers for the delivery of goods in international trade. Here are the biggest changes that Incoterms® 2020 brings along and the impact that they would have on your business.
DAT is now DPU
The most prominent change when compared to the old Incoterms is renaming the term Delivered at Terminal (DAT) to Delivered at Place Unloaded (DPU). This ICC decided to rename it since it’s evident that in many instances the delivery of goods takes place at a different place than a terminal. Hence, now it makes more sense since DPU specifies and reduces miscommunication.
Implying different levels of Insurance
The only two incoterms that specifically identify which the party to purchase insurance for a part of the journey are Cost Insurance and Freight (CIF) and Carriage and Insurance Paid To (CIP). The 2010 Incoterms stated that the seller was responsible under both these terms for obtaining the minimum insurance coverage as per Clause C of the Institute Cargo Clauses.
However, according to the Incoterms® 2020 rules, the seller is now responsible for obtaining a higher level of insurance coverage for the export cargo. This stands at least 110% of the value of the goods as mentioned in Clause A of the Institute Cargo Clauses—under the revised term CIP. However, the insurance regulations haven’t been modified for CIF.
Recognition to DIY Sellers
The previous version of Incoterms worked on the basis of contracting a third for goods delivery which was quite evident in Incoterms 2010. However, with the newer trends in the Transportation & Logistics industry, ICC has finally given recognition to do-it-yourself or DIY sellers who contrary to the bigger players, may use their own transportation for delivering goods. The new rules state that these sellers can now have a contract for carriage or can arrange transportation on their own.
Incoterms® 2020 has also brought an increased requirement for import and export security. During the last decade, the Transport & Logistics industry has gone through many instrumental transformations and these security revisions are necessary to keep up with the international trade terms at both the sellers’ and buyers’ ends.
In order to avoid confusion and miscommunication, all costs are now listed in the ‘Allocation of Costs’ sections for each rule. Since the ordering of articles has also changed within the Incoterms® 2020 rules, they are now mentioned in the A9/B9 section of each rule.
Bills of lading
As per FCA, part B4, ‘The buyer must contract or arrange at its own cost for the carriage of the goods’. Since there’s a delivery gap between FCA and FOB, your delivery point is different from FOB, when you’re selling FCA. Being a seller, this difference between FCA and FOB becomes more significant in terms of cost and risk.
This posed a challenge as even the large sellers wished to use FOB as a standard LOC or Letter of Credit requires to be presented with an onboard Bill of Lading. Hence, the Incoterms® 2020 FCA extra provision now states that “When the parties have agreed in their contract that the seller is to be given a transport document stating that the goods were loaded, such as an “on board” bill of lading, the buyer must instruct its carrier accordingly at the buyer’s cost and risk.”
Design and Layout
Incoterms® 2020 emphasizes on making things on bringing clarity with the help of diagrams and explanatory notes. It also features a different structure for users in order to make delivery and risks more evident. However, rules pertaining to Maritime haven’t undergone any change and are present at the back of the rulebook.
Here’s what John W.H. Denton, General Secretary of ICC has to say about the new regulations, “Incoterms2020 rules make business work for everyone by facilitating trillions of dollars in global trade annually. Because they help importers and exporters around the world to understand their responsibilities and avoid costly misunderstandings, the rules form the language of international sales transactions, and help build confidence in our valuable global trading system.”
Tips on how to use Incoterms correctly:
• Select the right rule
• Mention the place/port precisely
• Incorporate them into the contract as well as the LC and invoice