As every decade, the International Chamber of Commerce (ICC) has updated the International Trade Terms, known as Incoterms, (International commercial terms), this being the eleventh modernization of the terms, in order to adapt to the market of today and ensure its usability.
What are Incoterms
Incoterms, first produced in 1936 by the ICC, are a series of terms and conditions that must be met in an international sale. They help to manage and stipulate the details of the transaction, such as when and where the transfer of risk occurs, who assumes the obligation of costs, etc. In a sector so closely linked to international trade such as industrial, these terms represent a totally basic and necessary tool.
Since January 1, 2020, the 2020 incoterms have come into effect. However, the revisions of the previous years (1945, 1953, 1967, 1976, 1980, 1990, 2000, 2010) are still valid. That is why whenever we mention an incoterm, it must be accompanied by the year of update to which we are referring specifically. For example, DAT 2010 or DAT 2020. In this way, everyone can know which terms or modifications of each incoterm we are dealing with.
There are 11 incoterms that exist to date, classified into four groups, depending on their terms: EXW, FCA, FAS, FOB, CFR, CIF, CPT, CIP, DAT, DAP and DDP.
Although there are eleven incoterms in total, there are only four that have undergone a modification in the last update of 2020:
- The DAT (Delivered at Terminal, “Delivery at Terminal”) incoterm has disappeared, replaced by DPU (Delivered at Place Unloaded, “” Delivery at the unloaded place “). This incoterm maintains the same standards as the DAT, but with the update that allows delivery to be established anywhere, it does not have to be in a terminal as before.
- This incoterm, specialized in maritime transport, has added in its possibilities, the facility for the buyer to ask the shipping company for the BL (Bill of Lading, “Loading Guide”).
- CIF and CIP. In this case, both incoterms (CIF: Cost, insurance and freight, “cost, insurance and freight”; CIP: Carriage and insurance paid, “Transport and insurance paid to”) have undergone modifications when contracting insurance. In this new update, it is recommended that the insurance clauses be equivalent to the ICC-A clauses of the IUA.
That is to say, the insurance of the new CIF and CIP have to cover until the merchandise arrives at the destination port. “They cover fires, explosions, collisions, collisions, overturning, derailments, general average sacrifice and eventual contributions, wave dragging, salvage expenses,” according to the ICC-A clause of the International Underwritting Association of London.
On the other hand, the 2020 incoterms have added other novelties of general aspects. These are:
- The Incoterms that we are using must always be clarified and correctly indicated in the sales contract. In other words, accompany each acronym with the exact year of revision to which we refer. Example: CIF 2000, CIF 2020.
- House BL. The Bill of lading (BL) is a contract for international transport and is undoubtedly one of the most important documents in maritime transport.
The House BL stipulates that the “shipper”, the person in charge of shipping the product, must be in charge of sending the notification to the customs agency so that they can give the order to start the process.
2020 incoterms clarify that to consider valid the BL “house”, it must be indicated in the document that it is governed by the UCP 600 regulation.
It is important to keep these developments in mind, especially in sectors such as industrial or commercial. With all these modifications, the ICC ensures that Incoterms will continue to be the terms through which international trade will be governed.