Incoterms 2020: update or save
The Incoterms International Trade Rules were first developed in 1936 to simplify communication problems connected with international trade.
It was “worn down” by life: Incoterms were amended in 1953, 1967, 1976, 1980, 1990, 2000, and nowadays, users get the necessary information from the 2010 version, pending a new edition of Incoterms 2020. Let us see what the future set is preparing for us.
WHAT ARE INCOTERMS?
The Incoterms are international rules drawn up in a dictionary format. It provides a clear-cut interpretation of the most widely used trade terms in the field of foreign trade of a private nature. Primarily it regards the point when responsibility transfers from seller to buyer.
The structure of the current Incoterms 2010 contains 11 supply bases designated by a three-letter abbreviation. The frst letter indicates the transition point of obligations from seller to buyer:
E – at the place of departure;
F – at the departure terminals of the main carriage, the main carriage is unpaid;
C – at the arrival terminals of the main carriage, the main carriage paid;
D – at the arrival.
WHO DEVELOPS INCOTERMS 2020?
Incoterms 2020 is being developed by the Committee of Experts (drafting group), which includes representatives from China and Australia for the frst time in history. The Interdisciplinary Working Group for the preparation of Incoterms 2020 in Russia started its activity in January 2018. Two years after the international one. There is not any logistics, forwarding or transport company in the Working Group. Also, representatives of insurance companies were not invited to discuss new edition of Incoterms. At the same time, according to my data, in addition to CIP and CIF in 2020, there will be introduced a new rule “Cost and Insurance” – CNI. Together with it, we should not forget about some differences in the views of logisticians and representatives of banks on the terminology used in the cargo transportation. However, despite all the rumors and assumptions, we will be able to learn the content of new Incoterms only at the end of 2019 - after its official publication.
WHY TO CHANGE IF IT WORKS?
The main reason for Incoterms revision is the need to adapt the rules to modern commercial practice. For example, in the 1990 edition of Incoterms, there are articles relating to the seller’s obligation to provide proof of delivery. Now it is possible to replace paper documentation with electronic messages (EDI), if the parties agreed to implement electronic communication. Needless to say, specialists constantly make eﬀorts to improve the text of Incoterms in order to facilitate their practical application. It is expected that the new rules of Incoterms 2020 will be published in the last quarter of 2019, simultaneously with the centenary of the International Chamber of Commerce, and will enter into force on January 1, 2020. According to preliminary data, the following changes are expected:
EXCLUSION OF EXW AND DDP TERMS
We should start by saying that these concepts contradict the new Customs Code of the European Union (adopted on May 1, 2016). The reason is that the responsibility of exporters and importers comes after customs clearance of exports and imports. In addition, the term EXW imposes minimum obligations on the seller, and the term DDP – the maximum. However, it cannot be applied if the seller is not able to provide an import license directly or indirectly. At the same time, two new rules will be introduced in Incoterms 2020 to replace the term DDP:
- DTP (Delivered at Terminal Paid): a delivery basis to be used in cases when the goods are delivered to the terminal (port, airport, transport center, etc.) in the country of the buyer. As for the seller, he assumes the payment of customs duties.
- DPP (Delivered at Place Paid): a delivery basis involving the delivery of goods to any place other than the transport terminal (for example, at the buyer’s address), and the seller assumes the payment of customs duties.
EXCLUSION OF FAS TERM
FAS (Free Alongside Ship) term is not widely-used and extremely similar to FCA term. With the help of FCA, the exporter can also deliver the goods to the dock, as in the case with FAS, since the dock is part of the marine terminal. On the other hand, if FAS is used and there is a delay in the arrival of the vessel, the goods will be available to the buyer at the dock for several days. On the contrary, if the vessel arrives in advance, the goods will not be available for shipment. In fact, FAS is usually used only for the export of certain bulk goods (minerals and grains). In this sense, the Editorial Committee considers creating specific Incoterms for this type of product.
FCA TERM DIVISION
FCA (Free Carrier) is one of the basic trading terms of Incoterms, meaning the seller’s release from the obligation to pay for the delivery of cargo to the recipient. According to the latest data, about 40% of international trade operations are carried out with its help. This Incoterms is universal and does not impose restrictions on the use of various types of transport. Meanwhile, the Committee is analyzing the possibility of dividing the term into two. One of them will be used in the case of land delivery, and the other for sea container shipments.
CHANGE IN TERMS OF DELIVERY FOR CONTAINER SHIPMENTS
According to the current version of Incoterms, the terms of delivery FOB and CIF are applicable to cargoes transported by water transport with placing goods on board in bulk or in packaging. When placing goods in a container, the seller transfers the goods to the carrier at the terminal, rather than placing them on the ship board. In such cases, at present, the terms FCA or CIP should be used. But, as practice shows, they are not used by the majority of exporting and importing companies, as well as agents involved in international trade. This is due to the fact that FOB and CIF are very old and well-established Incoterms (FOB was used in England at the end of the XVIII century). It is possible that in the version of Incoterms 2020, FOB and CIF can be re-used for container transport, as it was made for Incoterms 2000 and earlier versions.
INTRODUCTION OF CNI TERM
It is possible that Incoterms 2020 will include a new term of delivery – CNI, which stands for “Cost and Insurance” and will cover the gap between FCA and CFR/CIF. The delivery basis for CNI will be in group “C”, i.e. the risk of transportation and damage of the goods will be transferred from the seller to the buyer at the port of departure.
In addition to eliminating and creating some new Incoterms supply bases, the editorial committee analyses other issues. Among them:
- Transport safety.
- Regulation on transport insurance.
- The relationship between Incoterms rules and an international sales contract.
We hope that the version of Incoterms 2020, which will come into force on January 1, 2020, will contribute to the development of international trade between exporters and importers, adapting to the changes that have occurred over the past decade. For the current edition of Incoterms 2010 you can apply to ACEX specialists.
Incoterms were originally created for using when goods are sold for subsequent delivery across national borders. In practice, at present, Incoterms concepts are included in contracts of sale within national markets.
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