On January 1, 2020, the eighth edition of Incoterms has already been launched. Incoterms themselves have been known since 1930.
Incoterms are non-mandatory and companies and individuals are free to negotiate their own terms of service. Nevertheless, their use is widespread, since their main task is to simplify the harmonization of the terms of delivery of goods and not only. They define a wide range of issues, from the formation of purchase orders to the packaging and labeling of goods or the preparation of a certificate of origin of items – Incoterms rules have become part of all types of daily business activities, helping to carry out related trade transactions.
Today, the International Chamber of Commerce, located in Paris, is responsible for their creation and updating. They are reviewed every 10 years. All logistics companies take into account all the adopted changes in their work.
The study of Incoterms is of interest to exporters & importers, customs agents, carriers, insurance companies, international banks and more.
The purpose of Incoterms is to clearly delineate these aspects:
- Distribution of costs associated with logistics between the seller and the buyer.
- Specification of the risks that are associated with the transportation of various goods.
- It specifies the documents and customs formalities that are important to consider when conducting foreign trade operations.
- DAT (delivery at the terminal) is being replaced by the new Incoterms DPU (delivery on the spot without loading), according to which it is possible to continue to organize door-to-door transport. Also with the obligation that the seller does not take responsibility for tax formalities at the destination, and the recipient takes them on.
- With regard to CIP (Carrier and Insurance Paid To – Transport and Insurance Paid To), new maximum insurance conditions have now been established to cover high risks. The seller, as before, bears the obligation to pay for insurance, but with other insurance premiums. By default, the shipper must pay for cargo insurance in the amount of at least 110% of the value of the goods. Although the parties are also allowed to independently determine the level of insurance compensation.
- In the case of FCA (Free Carrier-Free Carrier), the 2020 rules provide for the possibility that the seller may have a copy of the transport document deemed necessary to prove that the delivery has been made. FCA Incoterms 2020 minor changes have been made to the item on shipping – an additional function has been introduced. If the buyer is responsible for arranging the transport, he can arrange with the carrier for the latter to issue an onboard bill of lading, as in some situations it is required for letters of credit. The document must contain information that the items were loaded onto a ship in a particular country and a note that the goods were received for transportation in that country.
There will still be 11 new Incoterms in total, with their distribution between Intermodal Incoterms and Maritime Incoterms. They will continue to be led by classics such as EXW, CIF or FOB.