The International Chamber of Commerce’s latest version of Incoterms (Incoterms 2020) came into effect on 1st January 2020.
Why did the ICC replace Incoterms 2010, what’s new with Incoterms 2020 and what do our clients need to know about the new rules?
What was wrong with Incoterms 2010?
Incoterms 2010 are still a very good set of rules for importers and exporters to follow. The International Chamber of Commerce (ICC) needs to stay up-to-date with modern trading practices, so as a rule, they update Incoterms every ten years or so. Incoterms 2020 is just a slightly fresher version of Incoterms 2010 with a handful of differences (explained below).
What’s the difference between Incoterms 2010 and Incoterms 2020?
The biggest difference with Incoterms 2020 is just how user-friendly it is. The Incoterms 2020 document (available on the ICC website here) is a much better ‘working document’ than Incoterms 2010. Language has been simplified and key passages of information have been rearranged; it’s much much easier to find the answers you need in the Incoterms 2020 document.
We’ve compared the 2020 and 2010 versions and listed the biggest differences below:
DAT (Delivered at Terminal) is now DPU (Delivered at Place Unloaded)
The phrase ‘Terminal’ was deemed to be too specific in Incoterms 2010, so DAT (Delivered at Terminal) has been renamed — it’s now called DPU (Delivered at Place Unloaded). This is just a title change; the buyer’s and seller’s respective responsibilities under DPU are the same as under DAT.
CIP Insurance Cover
Under Incoterms 2010, CIP (Carriage & Insurance Paid) required sellers to provide a basic level of insurance (known as “Clause C” cover). Clause C is generally enough for break-bulk goods, but it’s not really appropriate for high-grade manufactured goods. In the 2020 version of CIP, sellers are now expected to buy “Clause A” cover (a more expensive, more comprehensive insurance).
Security & Customs Responsibilities
Over the past few years, transport security has become more important (and more costly), but Incoterms 2010 didn’t offer enough clarity in this area. Incoterms 2020 now sets out which transport security costs the buyer and seller are responsible for under each Incoterm. There’s also clearer information on customs clearance formalities and procedures.
Sellers using FCA can now get the Bill of Lading
For many sellers dependent on trade finance, the bill of lading has become a vital document when applying for funds. The ICC have adjusted the 2020 version of the FCA (Free Carrier) Incoterm so that sellers can get the bill of lading sent to them directly.
Am I using Incoterms 2020 or Incoterms 2010?
Incoterms 2020 came into force on the first day of the year, but — depending on how your contracts were written — you might still need to use Incoterms 2010. The first thing you should do is check your contracts for any specific reference to ‘Incoterms 2010’; if “2010” isn’t mentioned anywhere, then you’re most likely covered by Incoterms 2020. If any specific contracts are causing you concern, you might need to take legal advice.
Do I have to use Incoterms 2020?
Incoterms 2010 are still valid workable terms (you don’t need to ‘upgrade’ all of your contracts to the 2020 version), but Incoterms 2020 is now the most up-to-date version and there probably won’t be another update until 2030.
Technically, you don’t have to use any form of Incoterms at all, but we recommend it. Incoterms are a very good thing — they have existed, in one shape or another, for the best part of a century, and they’re recognised all over the world. Thanks to Incoterms, buyers and sellers have a flexible, sensible set of common rules with which to estimate costs, resolve disputes and overcome language barriers.
If you’re not sure whether Incoterms are relevant to your business, get in touch with Baku GLS– our expert planners are happy to help.