International Commercial Terms, also known as Incoterms, are a series of terms of sale that apply worldwide. Incoterms determine the allocation of costs and obligations of the seller and the buyer. These rules are updated every ten years. In Incoterms 2010, the number of rules has been reduced from 13 to 11 in comparison to Incoterms 2000. In Incoterms 2020, 11 rules divided into groups C, D, E and F still apply. Below we present you changes that will enter into force on January 1, 2020, known as Incoterms 2020. Check the differences between Incoterms 2010 and Incoterms 2020.
Differences in Incoterms 2010 and Incoterms 2020
The differences between Incoterms 2010 and Incoterms 2020 are not as huge as it was with the changes introduced to Incoterms 2010.
One of the most significant differences is the change of the name DAT (Delivered at Terminal) to DPU (Delivered at Place Unloaded) due to the misinterpretation of the word “terminal.”
Another change is the increase of the level of cover in the CIP rule unless stated otherwise in the agreement. The Institute Cargo Clause changed from level C to A. For the CIF rule, the level of cover is still C.
Incoterms 2020 assists the seller when the FCA rule applies in conjunction with a letter of credit. The buyer may require the carrier to provide the seller with a document confirming the loading of the goods. Banks issuing letters of credit require a bill of lading. The new rules emphasize that the carrier does not have to comply with such a request. A better solution is for the bank to request a “received for shipment” bill of lading instead of a document proving that the cargo was loaded.
In general, the rules have been somewhat simplified to reduce the probability of misuse. The new version specifies safety requirements as part of the obligations and transport costs. Incoterms 2020 includes arrangements for carriage by own means of transport in the rules: FCA, DAP, DPU, and DDP.
Expected and actual changes introduced to Incoterms 2020
The majority of Incoterm users thought that the FAS rule would be removed because of too many similarities shared with FCA. The removal of EXW, often considered more suitable for internal trade, was also expected. Removing EXW would also involve extending the FCA rule, the most widely used standards of all. That would lead to the creation of two FCA subtypes, one for terrestrial delivery and the other for maritime transportation.
The DDP rule was supposed to unfold in two Incoterms: DPP and DTP. The difference would be the locations where the seller is no longer responsible for the costs related to the goods.
A new CNI (Cost and Insurance) rule was to be introduced to fill the gap between FCA, CFR, and CIF.
The FOB and CIF rules were supposed to be modified. Before Incoterms 2010 entered into force, these two rules could have been applied to container shipping. It was possible that in Incoterms 2020, it would be the same case.
It turned out that these changes will not appear in Incoterms 2020.
No rules were removed or added; only one of the rules was renamed.
Further changes to the International Commercial Terms are to be introduced in 2030.
If you are interested in all the Incoterms 2020 rules, check out our Incoterms 2020 free eBook.