At the beginning of 2020, the existing Incoterms trading conditions were updated. Incoterms trading rules are widely accepted around the world. They are of great importance for the TSL industry as they allow the parties to a sales contract to easily determine the rules for the delivery of goods.
Incoterms (International Commercial Terms) reflect the principles of the UN Convention on Contracts for the International Sale of Goods signed in Vienna 1980. They may be used by the parties to a contract of sale when trading in tangible goods, but are not mandatory for the parties to such a contract. Certainly, the possibility of using them facilitates the professional trade of goods, especially for imports and exports, as it unifies the rules that the law in different jurisdictions may regulate differently.
As a rule, carriers and freight forwarders are excluded from the application of Incoterms. Within the scope of their responsibility for the performance of transport services, the provisions of widely understood transport law (CMR Convention and local law) apply. However, when operating in the TSL industry, it is worth knowing the Incoterms to know the rules of the customers who order transport.
The rules determine which of the parties to the sales contract (buyer or seller) shall bear the costs of transport, customs and insurance of goods. The Incoterms also specify who bears responsibility and transport risk under the sales contract concluded between the parties.
11 basic rules
Incoterms have already been amended many times to adapt to current standards and business practices. It has been accepted that trade rules should be reviewed every 10 years. Recently we used the Incoterms 2010 standard, and since January Incoterms 2020 has entered into force.
Eleven basic trade rules have been preserved under Incoterms 2020:
– EXW (EX Works),
– FCA (Free Carrier),
– CPT (Carriage Paid To),
– CIP (Carriage and Insurance Paid To),
– DAP (Delivered at Place),
– DPU (Delivered at Place Unloaded),
– DDP (Delivered Duty Paid),
– FAS (Free Alongside Ship),
– FOB (Free On Board),
– CFR (Cost and Freight),
– CIF (Cost Insurance and Freight).
Key changes in Incoterms 2020
The current changes are as follows:
– the order of the rules proposed by ICC has been changed so that in Incoterms 2020 the DAP rule was placed earlier, before the previous DAT rule,
– replacement of the existing DAT (delivery at the terminal) conditions by DPU (delivery at place unloaded) conditions. The rules remain the same, only the name has changed. This is to highlight the fact that the terminal is not the only proper place to deliver the goods/shipments,
– amendment of the CIF rule by introducing a new way of determining the applicable level of insurance cover,
– the modification of the FCA rule – Incoterms 2010 provided that it is the seller who is obliged to provide the buyer with the proof of delivery of goods (transport document). Incoterms 2020 complements this by providing that where the buyer has instructed the carrier to issue a transport document stating that the goods have been loaded to the seller, the seller is obliged to provide the buyer with such a document. Likewise, the buyer is obliged to give the carrier the above-mentioned instruction if it is agreed by the parties.
– other minor ‘cosmetic’ changes to sort out the classification used.
More information about Incoterms 2020 is available on the International Chamber of Commerce (ICC) website.
Infographics: ICC