International Commercial Terms, known as Incoterms, are internationally accepted terms defining the responsibilities of exporters and importers in the arrangement of shipments and the transfer of liability involved at various stages of the transaction. Incoterms do not cover ownership or the transfer of title of goods. It is crucial to agree on an Incoterm at the start of a negotiation/quotation of a sale, as it will affect the costs and responsibilities involved in shipping, insurance and tariffs.
The Incoterms 2020 consider of the growth of the economy, increasing attention to security in the transportation of goods, insurance coverage flexibility and on-board bill of lading under Free Carrier (FCA) rule.
Some of the new issues and changes in the new edition of the Incoterms 2020 are:
DAT is changing to DPU.
DAT means Delivered-At-Terminal, will be replaced by DPU – Delivery-At-Place Unloaded. DPU mean that the seller delivers the goods and transfers risk to the buyer once the goods unloaded at place of destination agreed. The import customs clearance and related costs remain for the account of the buyer. DPU is basically a DAP Delivered at Place, with unloading. The reference to terminal has been removed to make it more general.
Change of insurance in CIP/CIF.
Cost of Insurance and Freight (CIF) means the seller delivers to the carrier and pays the carriage and insurance to named destination in any mode of transport. For 2020, the same insurance requirements apply but Carriage and Insurance Paid (CIP) has increased the insurance required under this term. The reason is CIF is generally used with bulk goods (waterways only) and CIP (multimodal)I s often used for manufactured goods. This is revised for the need of flexibility depending on the type and transport of goods.
Incoterms 2020 has all the cost obligations for both buyer and seller. The principle is that the seller is responsible for costs up to the point of delivery and the buyer for costs beyond that. This change is in response to feedback received about the increasing number of disputes about allocation of costs especially those in or around the port of place of delivery.
Transportation security has become the new norm (example: mandatory screening of containers). Incoterms 2020 brings security related obligations to the forefront in each Incoterm at A4 and A7 of each rule and the costs are featured under A9/B9 of each rule.
FCA and FOB
FOB term is generally used for container shipments, for this the seller takes risks as seller loses control of container on arrival at port and still liable until container is loaded which exposes the seller to cost and risk. FCA has been changed to allow the parties to agree for the buyer to direct the carrier to issue the onboard bill of lading to the seller.
In 2020, the buyer can instruct the carried to issue an on-board bill of lading after loading to the seller. The seller will be obliged to tender the bill of lading to the buyer. When this option is used the seller does not take on an obligation to the buyer in respect of the terms of contract of carriage.
In Incoterms 2020 the explanatory notes for each incoterm has been modified to provide more details and with useful pictures. It is important to use the appropriate Incoterm per contract.
The Guidance Notes that were previously at the start of each individual Incoterms have now been amended to Explanatory Notes for Users section in the new Incoterms 2020 publication.
B = Buyer Pays S = Seller Pays
|Delivered duty paid||Delivered at place (state name of destination)||Carriage Paid To||Delivered at Place Unloaded||Cost, Insurance and freight||Cost and Freight||Free On Board||Free Carrier||Ex-Works|
|Loading at sellers premises||S||S||S||S||S||S||S||S||S|
|Domestic pre-carriage/Local cartage||S||S||S||S||S||S||S||S||B|
|Contract of carriage and dispatch||S||S||S||S||S||S||S||B||B|
|Trade documentation in country of exportation||S||S||S||S||S||S||S||S||B|
|Customs clearance in country of exportation||S||S||S||S||S||S||S||S||B|
|Loading at carriers terminal (THC)||S||S||S||S||S||S||S||B||B|
|Transport (Cargo) Insurance||S|
|International main carriage (Ocean Freight)||S||S||S||S||S||S||B||B||B|
|Unloading at terminal (THC)||S||S||S||S||B||B||B||B||B|
|Trade documentation in country of importation or transit||S||S||S||S||B||B||B||B||B|
|Customs clearance in country of importation*||S||B||B||B||B||B||B||B||B|
|Import Charges (Duties & Taxes)||S||B||B||B||B||B||B||B||B|
|Local cartage/Domestic on-carriage||S||S||S||B||B||B||B||B||B|
|Unloading at buyers premises||B||B||B||B||B||B||B||B||B|
*Under DAP or DPU terms customs clearance can be included, but should be stated. If no reference made to Customs clearance it is assumed to be at the buyers risk
*Under DPU terms, responsibility for local cartage/domestic on-carriage in the destination country will depend on the point specified in the Terms of Sale, i.e for DPU New York Port, the Seller will pay the charges to the landing of the container on the quay, and the Buyer pays the charges thereafter, but if DPU is an inland named place, then the seller will pay the cartage to that point.
Note: Marine insurance is only stated requirement under CIF terms, but we recommend all parties to ensure suitable cover for all other items.
INCOTERMS 2020 EXPANDED SUMMARY
Ex-works terms make the seller responsible to place the goods at the disposal of the buyer at the seller’s facilities or any other named place. The named place can be other than the seller premises. Delivery occurs when goods are placed for the buyer’s disposal without necessarily to be loaded. If the loading operation is performed by the seller, it is difficult for the buyer to assume any responsibility. A good alternative for the buyer is to choose FCA.
This rule can be used for any mode of transport.
EXW terms do not obligate the seller to clear exports or load goods into the collecting vehicle.
Depending on local practice, the seller can load goods into transport vehicles if agreed by mutual parties. In other cases, where the buyer wants to avoid additional loading fees, the buyer arranges the loading with their own equipment or manually (i.e. loading of goods by hand). If the buyer is not able to clear customs on origin, it is recommended to use FCA Place of Receipt.
If the place of delivery is at the seller premises, the seller must load the goods. If delivery takes place in a different place, the seller is not responsible for unloading.
The term carrier refers to any party who is in charge of the contract of carriage and will transport the goods by any mode of transportation.
There can be 2 types of places of receipt when using FCA, sellers facility or another place (usually a freight forwarders facility or port/airport terminal). The seller must load goods into a transport vehicle (arranged by the buyer) only when the place of receipt is the seller’s facility.
When the place of delivery is an inland point, Incoterms® 2020 allows the buyer to instruct the carrier to issue a bill of lading with an ‘onboard’ notation. The seller must provide the buyer with the documentation with the same clause as explained in the contract. It has to be noted that the seller is under no obligation to carrier clauses.
The seller must clear customs for exports and freight and international transport arrangements must be performed by the buyer.
In CPT the seller clears the goods for export and delivers to the carrier nominated by the seller at the agreed place of shipment at the origin. At this point, the risk is transferred to the seller. The seller is responsible for contracting and paying the main carriage until the agreed named place of destination. The contract of carriage must specify origin and destination. This term can be used for any mode of transportation.
It is advised to mention the destination place as clearly as possible in the contract of sale. Unless otherwise agreed, unloading at the named place of destination will be under sellers account.
Under CIP terms, the seller clears the goods for export and is responsible for delivering the goods to the carrier nominated by the seller. The seller must pay the cost of carriage, but the seller risk ends at the place of shipment. The seller must procure the minimum insurance until the named place of destination. The buyer has the option to contract additional insurance.
The risk is passed when the goods are received by the first carrier. This term can be used for any mode of transportation.
New Term – Replaces DAT and may be used for all transport modes
In DPU, Delivery at Place, the seller is responsible for moving the goods from origin until their delivery at the disposal place agreed unloaded at destination. The seller bears the risk until delivery of goods to the named place and should get a contract of carriage that matches the contract of sale until the agreed delivery point. This term can be used for any mode of transportation. The seller must be confident to arrange the unloading of goods at the named place.
In DAP, Delivery at Place, the sellers is responsible for moving the goods from origin until their delivery at the disposal place agreed with the buyer ready for unloading at destination. The seller bears the risk until delivery of goods to the named place and should get a contract of carriage that matches the contract of sale until the agreed delivery point. If there is an extra fee for unloading the goods, the seller cannot charge it to the buyer. This term can be used for any mode of transportation.
The seller is responsible for delivering the goods to the named place in the country of importation, including all costs and risks in bringing the goods to import destination. This includes duties, taxes and customs formalities. This term may be used irrespective of the mode of transport.
The seller has fulfilled his obligation when goods have been placed alongside the vessel at the port of shipment. The buyer is responsible for all costs and risks of loss or damage to the goods from that moment. The buyer is also required to clear the goods for export. This term should only be used for sea or inland waterway transport.
Once the goods have passed over the ship’s rail at the port of export the buyer is responsible for all costs and risks of loss or damage to the goods from that point. The seller is required to clear the goods for export. This term should only be used for sea or inland waterway transport.
The seller must pay the costs and freight required in bringing the goods to the named port of destination. The risk of loss or damage is transferred from seller to buyer when the goods pass over the ship’s rail in the port of shipment. The seller is required to clear the goods for export. This term should only be used for sea or inland waterway transport.
The seller has the same obligations as under CFR however he is also required to provide insurance against the buyer’s risk of loss or damage to the goods during transit. The seller is required to clear the goods for export. This term should only be used for sea or inland waterway transport.