As you know, each country has its own national language. In this case, a proper medium of transmission is needed, which different parties can easily understand. For this reason, this Incoterm has been created. The existence of Incoterm then becomes one of the means for international traders to make trade easier.
Table of Contents
What is Incoterms?
Incoterms stands for International Commercial Terms. The aim is for international traders when shipping goods as part of a transaction or contract. Hence, this includes all duties, risks and costs associated with the purchase and sale of goods on an international scale.
In 1936, Non-Governmental Organization (NGO) International Chamber of Commerce (ICC) published Incoterms. As time goes on, there have been several amendments and additions in 1953, 1967, 1976, 1980, 2000, 2010, and 2020.
Purposes of Incoterms
The aim of Incoterms is to provide an international set of rules for the interpretation of a number of terms commonly used in international trade.
The first purpose of incoterms is to minimize misinterpretation of responsibilities between exporters and importers. By having incoterms, it can prevent misunderstanding between both parties.
The second is to provide information about the payment. When doing export-import, there has to be a clear line about who is going to be responsible for the pay bill.
Then, Incoterms also explain about whom responsibility of the transported goods.
Differences between Incoterms in 2010 and 2020
As explained above, ICC usually updates some things inside incoterms every decade. The International Chamber of Commerce has published new Incoterms® 2020 that have come into effect from the 1st of January 2020. The differences between 2010 and 2020 are :
1. Clearer and Stronger Definitions
In Incoterms 2020, the definition and more simple, clearer, and stronger. Therefore, all the parties involved can choose the right term based on their sales contract.
2. Detail Security in Transportation
After WTC 2011 tragedy happened, NGO decided to create more strict security requiremenst for transport process of goods.
3. Replacing DAT to DPU
Under the Incoterm DPU, delivery of the goods by the seller to the buyer occurs when the goods are unloaded from the transport vehicle. Afterward, it is made available to the buyer at the destination or at an agreed point at the destination if any.
It is the only Incoterm that obligates the seller to deliver the goods at the destination. Also, under the Incoterm DPU, the place of delivery and the place of destination are the same. Hence, the seller bears the risk until the goods are unloaded at the place of destination.
4. Costs in 1 Term
The guide to the Incoterms 2020 rules now summarises the costs in 1 term. With the basic aim of clearly stating the costs for each party.
5. Bill of Lading with Onboard Notation in FCA
Under FCA, the buyer can give instruction to the carrier to issue a bill of lading with an on-board Notation to the seller. Because of that, the seller can meet the terms of a letter of credit.
6. Insurance Cover Level in CIF and CIP
Under CIP, the seller is now responsible for obtaining higher insurance coverage. This should be at least 110% of the value of the goods.
7. Allowance to Use Own Transportation
Inside incoterms 2020, it allows sellers to use their own transport for the delivery of the goods.
Classification of Incoterms
There are 4 groups inside Incoterms, which are :
1. C Group
In C groups, the seller is responsible for issuing the export license. In addition to the export license, they also make and pay for the shipping contract with the forwarder. After the goods are shipped, all responsibility is transferred to the buyer.
- CFR (Cost and freight)
- CIF (Cost Insurance and Freight)
- CPT (Carrier To)
- CIP (Carrier and Insurance paid to)
2. D Group
For group D, the seller has the responsibilty to deliver the goods to a specified place or port of destination.
- DAP (Delivered at Place)
- DDP (Delivered Duty Paid )
3. E Group
Afterward, the pay for export clearance, customs, and loading charges are not the seller’s obligations in the E group. In this case, the seller shall make the goods available to the buyer at the delivery point specified by the seller.
4. F Group
Group F requires that the seller perform export customs clearance. However, the seller is not required to pay for transportation and insurance costs. The terms that belongs to the group C are :
- FCA (Free Carrier)
- FAS (Free Along Ship)
- FOB (Free on Board)
On the whole, understanding the latest update in incoterms will benefit your export and import activities. Especially when arranging the sales contract between all parties. Do not hesitate to contact us as we are ready to help you as an Importer of Record services.