Incoterms (International Commercial Terms) are the commonly accepted rules and definitions by international traders worldwide. They are updated every 10 years by the ICC (International Chamber of Commerce). Incoterms 2020 has already been published and it is in effect from January 1st, 2020, it includes detailed information on how to choose the appropriate Incoterm for a given transaction. There are few major updates in Incoterms 2020 made by ICC that every shipper must be aware of since these terms identify the risks and responsibilities of both seller and buyer in goods transfer such as freight cost, insurance, payment terms, etc. A shipper can facilitate documentation and services according to the updated rules and definitions, they can also advise their clients in choosing the right Incoterms for given shipping requirements and responsibilities.
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4 updates in Incoterms 2020 that every shipper must know about
Increased Insurance for CIP:
The incoterm CIP (Carriage and Insurance Paid) and CIF (Cost Insurance and Freight) are the two Incoterms for freight insurance. CIF is Insurance cost to the seller since the destination in CIF is either on a destination ship or port of buyer, wherein CIP incoterms seller needs to cover the insurance cost till the goods’ end destination. Incoterms 2020 has no changes in CIF but CIP needs sellers to obtain increased insurance coverage for goods up to 110% of its value. As of now, both the Incoterms for insurance CIP and CIF require sellers to bear the insurance cost.
Delivery Incoterm DAT renamed to DPU:
Incoterms 2020 has changed the term DAT (Delivery At Terminal) to DUP (Delivered at Place Unloaded). What it means for the shipper is that now the shipper needs to deliver/unload the goods at the instructed location of the buyer rather than delivering at a terminal. It increased the flexibility for buyers in terms of internal transportation; also it is needed as the modern infrastructure demands and facilitates this option.
FCA gaps closed for Bill of Lading:
Shippers/ International carriers are required to issue a Bill of Lading (BOL) to sellers confirming receipt of the goods so that sellers can get the payments from the buyer’s bank. Sellers are responsible for making the goods available for shippers at the Seller’s premises or a named place. International Carriers often may not issue the BOL to the seller if they don’t receive the goods directly from the seller. Under FCA (Free Carrier) Incoterm buyer can instruct the carrier to provide a Bill of Lading to the seller once the goods are loaded onto the carrier vessel. It gives the seller a choice of using an intermediate transport option to deliver goods to Carrier without risking the Bill of Lading.
Seller DIY transportation & Increased security requirements:
Previous narrative Incoterms stated by ICC until 2010 assumes sellers hiring third party shipping/ International Carrier Services to deliver goods to buyers. But in Incoterms 2020, ICC clearly states that Sellers may use their transportation methods if available or contract a third party carriage for necessary shipping requirements. DIY transportation could mean a lot of change in business as more and more manufacturers are opting to ship goods by their own means of transportation such as trucks and flights. The new Incoterms also informs the increased security requirements for imports and exports. Security responsibilities of sellers in terms of goods, payments, and documentation have increased exponentially.
It is essential for all the shippers and International Carrier Services to understand the changes mentioned in Incoterms 2020 to extend the services to clients such as delivering at specific and instructed locations and issuing the Bill of Lading upon loading the goods.