If we think about international trade and the principles guiding it, Incoterms or international commercial terms definitely need to be taken into account.
Created in 1936 by the International Chamber of Commerce, these terms have undergone different modifications until reaching their current version, in force since 2010, and are about to be modified again into their 2020 version, which we are about to thoroughly review in this article.
Incoterms and international trade
Incoterms were created with the aim of enabling a better understanding between the parties involved in an international trade transaction, avoiding possible misunderstandings in the event that the parties speak different languages or operate in different industries. Incoterms comprise an agreement between buyer and seller, importer and exporter, underpinned by four basic principles:
-The delivery of the goods, which may be direct (buyer-seller) or indirect (if a freight forwarder or logistics operator is involved in the process).
-The transfer of risks and liabilities between the parties.
-The distribution of transaction costs: the seller often assumes transportation expenses to ensure the proper receipt of goods. The buyer often assumes the remaining expenses.
-Customs formalities: Export documents are usually at the seller’s expense, with the only exception of following the Incoterm EXW, through which the buyer would be in charge of the export, often hiring the services of a freight forwarder operating in the country of origin to carry out the process.
Incoterms 2020: What’s New?
Each update involves changes to existing Incoterms and often brings new Incoterms and removes others. These are some of the main novelties expected for the new Incoterms 2020:
-A new incoterm arises, with the acronym CNI, which refers to Cost and Insurance. Its purpose is to cover the deficiencies of Incoterms CFR and CIF. This incoterm, belonging to group C, which refers to cargo’s liability assumed by the buyer, is aimed at enabling a relationship whereby the exporter can choose to take care of both maritime transport insurance and export customs costs.
-On the other hand, 3 incoterms disappear with this new version: FAS, DDP and EXW.
The incoterm FAS, which refers to Free Alongside Ship, disappears in the 2020 version of the international commercial terms due to its reduced applicability, as it is very similar to FCA. FAS was only used in transactions comprising utilities, but instead, the International Chamber of Commerce is now considering drafting a specific Incoterm for this type of goods.
DDP, or delivered duty paid, disappears as it goes against the current customs code. The incoterm EXW, Ex Works, disappears due to the same reason.
-Another of the novelties expected for 2020 is the division of incoterms into subunits. More specifically, incoterm DDP will be split into DTP and DPP, and so will FCA, in two variants.
On the one hand, DTP, or delivered at terminal paid, applies in cases where the goods are delivered in the buyer’s country, within a terminal, at the seller’s expense.
On the other hand, DPP, or delivered at place paid, establishes the delivery of the merchandise in a different place than a terminal, such as a private home.
With regard to FCA, it will be split into two different variants, one corresponding to cases of maritime shipping and the other to cases of inland transportation.
These are some of the main novelties expected for the next Incoterms, which will come into force at the beginning of 2020. However, ICC will soon be publishing official data, as the official version of incoterms 2020 is expected to be published in the last quarter of the year.
