Incoterms are a fundamental and essential aspect in international trade that we have talked about repeatedly in our blog (you can consult the related posts in the following link: Incoterms information). Their great importance requires that all the entities involved in any international commercial relationship have extensive knowledge about them, their management and application; and for this it is necessary to be attentive to their possible updates. Today in our blog they are again the main elements to discuss the changes they are going to experience and which will come into effect on January 1, 2020.
Incoterms, what are they?
Incoterms is the acronym for “International Commerce Terms”, a concept that groups 11 international rules created, managed and governed by the International Chamber of Commerce (ICC). The first ones date from 1936 and have been experiencing changes and updates; the last update, from this 2020, makes the 2010 Incoterms obsolete.
These terms have been established to define the obligations between buyer and seller in certain aspects of the delivery of the goods. I.e. place of delivery, mode of transport, risk transfer, cost sharing, etc.
The main objective of Incoterms is that there is a complete understanding between the different parties involved in an international trade action. It is very common in this type of commerce that the buyer and the seller do not speak the same language or do not belong to the same industry sector; a possible misunderstanding could mean great economic and/or time losses.
We can say, therefore, that Incoterms make international trade easier to carry out since they allow entities from various countries to understand each other when using them in different sales contracts. In this way, communication and interpretation problems are reduced.
What do Incoterms determine?
ncoterms are reflected – through their acronyms – in the invoices since in 95% of international sales and purchases it is the document that exercises the function of “contract”.
These eleven terms define the obligations that are related to the delivery of the goods that bind the seller and the buyer.
Some of these obligations are as follows:
- Costs of the operation
- Time of risk transfer
- Choice of mode of transport
- Cost distribution of the operation
Incoterms 2020. Changes and updates
It should be noted that the ICC is currently studying and determining the updates that the Incoterms will undergo in 2020, so there is no official confirmation. We can still anticipate, based on statements from the drafting group and reliable online sources, some of the changes that we will discuss below.
- The “drafting group” is the editorial committee of the Incoterms which, on this occasion, also includes representatives from China and Australia (in addition to the representatives from the UK, Germany, France, the USA and Turkey). This committee receives recommendations from companies, chambers of commerce, associations belonging to the ICC for the elaboration of the new Incoterms.
Changes in Incoterms for 2020
New Incoterms have been created, others have disappeared and others will be duplicated in 2020.
New Incoterms. 2020 Update
On 1 January 2020, the latest version of the Incoterms came into force. The aim is to adapt the defined terms to current commercial practices.
Repeal of the Incoterm “Delivered at Terminal” (DAT) by the “Delivered at Place Unloaded”. The DPU rule is the only one that requires the seller to unload the goods at a destination without establishing a specific place.
The term “Fre Carrier” (FCA) provides for the possibility of the buyer instructing the carrier to issue a bill of lading with the word “on board” by the seller.
The term “Cost Insurance and Freight” delimits the seller’s purchase of limited transport insurance risk coverage which complies, at a minimum, with the MAL/IUA C-clauses or a similar clause, and not with the “A” clauses. However, the parties continue to have the possibility of entering into an agreement with a higher level of coverage.
The main objective of the new update of the Incoterms in 2020 is to make them much more practical and simple. Working, moreover, on a wording that is even easier to understand.