World Standard Trade Definitions IncoTerm 2020 Launched
Incoterms or International Commercial Terms, are a set of rules which define the responsibilities of sellers and buyers for the delivery of goods under sales contracts. Our customer worldwide use standard trade definitions, ie Incoterms, to spell out who’s responsible for the shipping, insurance, clearance, duty and tax payment in destination.
They significantly reduce misunderstanding when agreeing a purchase or a sale and therefore reduce trade disputes and litigation.
The variety of Incoterms under the new rules have not changed significantly and ostensibly have served well in the previous 10 year but have it origins back to 1953 so are very well tried and tested. Incoterms 2020 remains largely unchanged but with some tweak which make for clearer guidelines and practical use within each one.
Two Groups of Incoterms: Group 1 for all modes of transport and Group 2 for sea and inland waterway transport only.
Group 1: Incoterms that apply to any mode of transport are:
EXW – Ex Works
FCA – Free Carrier
CPT – Carriage Paid To
CIP – Carriage and Insurance Paid To
DAP – Delivery At Place
DPU – Delivery At Place Unloaded
DDP – Delivery Duty Paid
Group 2: Incoterms that apply to sea and inland waterway transport only:
FAS – Free Alongside Ship
FOB – Free on Board
CFR – Cost and Freight
CIF – Cost, Insurance and Freight
So what has changed
The most noticeable change is the deletion of DAT – Delivery At Terminal and replaced with DPU – Delivery At Place Unloaded.
Bill of lading int he FCA Incoterms rule.
Addresses Cost-sharing issues.
Including safety requirement in the obligation and transport costs.
Interesting fact – FCA is the most common incoterms rule used in international trade due to the versatility of the rule and allows the delivery of the goods to various places (eg address, terminal, port or airport etc). FCA has two possible delivery locations. First is a place which belongs to the seller ie their warehouse or factory. The second is a place which does not belong to the seller (eg seaport, terminal, freight agents warehouse).
By far the Incoterm which we recommend to our customer is FCA (either first or second place but be specific) as it is versatile to accommodate various situations and the cost and risk transfers at the same place. It also binds the supplier or shipper into arranging the export entry which can be a contentious point at times.
Feel free to contact us with regards to navigating Incoterms 2020 and whilst advice and the above is considered non binding we can help to guide your organisation in the right direction when commencing your sales contract.
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