With each new decade comes a lot of “new.” The United States conducts a new census, we all get to hear a lot of “new year, new me,” and we’ll all struggle to remember to write the new year every time we sign a form. Most importantly for supply chains, though, are new Incoterms, which went into effect on January 1st. Fortunately, Incoterms 2020 didn’t bring too many dramatic changes. You’ll certainly want to make sure you know them well before booking your next shipment, though.
The rules we call Incoterms®, which set global standards for interpreting and enforcing trade agreements, got their start back in 1936, following the end of WWI. Since then, the International Chamber of Commerce (ICC) has ensured that these trade terms update at a minimum of every 10 years, keeping them modern and relevant as factors like technology, freight movement, shipping practices, and the industry itself change. The value of these terms is intangible—it helps keep buyers and sellers across the globe on the same page. One important thing to remember, as pointed out by Shipping Solutions, is that Incoterms are voluntary and don’t replace actual sales contracts. Most international sales contracts reference Incoterms, but it is well within the rights of buyers and sellers alike to set their own terms or choose to reference Incoterms that are no longer in use.
The 2020 term updates left sea and water carriage unchanged. Overall, the changes simplify transactions and make transport more secure for all. Here are the main changes to Incoterms for 2020:
CIP Insurance Requirements Increase
Carriage and Insurance Paid To (CIP) is one of only two terms to require sellers to provide insurance. The update to CIP requires more comprehensive insurance, up to Clauses (A) of the Institute Cargo Clauses. The other insurance-requiring term, Cost Insurance and Freight (CIF) remains unchanged, at Cargo Clauses (C).
DAT is Out, DPU is In
Delivered at Terminal (DAT) has been removed from the list of terms, eliminating the specification of a terminal for delivery. Instead, one can use Delivered at Place (DAP) and specify a terminal or other location (“named place”), or use the new Incoterm, Delivered at Place Unloaded (DPU). DPU extends a little bit of the responsibility for the seller to ensure that the product is actually unloaded at the destination. This largely reflects the increased pace in logistics, enforcing more efficiency at an unloading place. The difference, now, is pretty easy—for DAP, the buyer arranges unloading and for DPU, the seller is responsible for unloading. This difference is an important one to note when transporting large or difficult freight.
FCA Bill of Lading on Board
Free Carrier (FCA) terms now makes it easier for notated bills of lading to get to sellers. Carriers, which often refuse to issue notated bills of lading to sellers if goods are received from other transporters, are now instructed to issue bills of lading with on-board notations.
Recognizing DIY Sellers
Previous versions of the Incoterms assumed that sellers contract third parties to deliver goods, leaving out any language that recognizes sellers who may use their own transport. The updated terms now make the distinction between contracted carriage and seller-arranged transport, allowing for sellers who choose to do-it-yourself to utilize the terms more formally.
While this is a quick glance at Incoterms updates for the new year, we highly recommend getting a copy of the ICC’s full book. When using Incoterms, be sure you reference location specifics in addition to the version of the terms themselves to avoid confusion on agreed-upon terms. If you’re looking for more help understanding the changes above, where your risk lies, or which terms your company should be using, contact a Navegate customs expert today.