Incoterms® 2020 — Revised Rules for International Shipping ©2019 Purolator International, Inc. Incoterms® 2020 — Revised Rules for International Shipping Introduction When the International Chamber of Commerce delineate responsibilities to buyers and sellers Incoterms is shorthand for “International (ICC) updated its list of international shipping and dictate each party’s obligations throughout Commerce Terms,” and they are developed terms — commonly referred to as Incoterms the shipping process. and maintained by the International Chamber — in 2010, the international shipping world of Commerce (ICC), located in Paris, France. looked vastly different than it does today. Because of Incoterms, buyers and sellers have The first series of Incoterms, adopted in 1936, Global eCommerce, which in 2019 is projected a clear understanding of what constitutes provided a common understanding of specific to exceed $3.53 trillion, was valued at $572 “delivery,” for example, and which party is trade terms. responsible for unloading a vehicle, and who is billion. Today global digital trade is growing liable for certain payments. This avoids costly Since then, the terms have undergone seven faster than goods trade or foreign direct mistakes and misunderstandings. separate updates, with the most recent changes investment, with more than half of the world's set to take effect January 1, 2020. After that, the population now using the internet, according to next update is scheduled for 2030. the Congressional Research Service. Overall, the global retail market in 2010 totaled $14 trillion. "Simply put, Incoterms are hugely important In 2019, that figure is$25 trillion. for anyone selling or moving goods abroad," explained Deepesh Patel, editor of Trade Finance Clearly, change happens quickly in today’s Global. "So, whether you're an importer or global marketplace, so when the ICC exporter, freight forwarding company, trade announced its Incoterms® 2020 update, financier, credit insurer, or law firm, it's likely the changes were intended to reflect the that you use Incoterms to govern trade." current world order. According to analysis by The Paris-based International Trade Finance Global, a marketing partner of As much as Incoterms clarify and simplify the the ICC United Kingdom, the revised Incoterms Chamber of Commerce has shipping process, choosing the correct term reflect today's complex global supply chains, maintained the globally is critically important. Each Incoterm carries the importance of eCommerce, and the recognized list of Incoterms specific implications for transportation and evolution of digital commerce. since 1936. delivery, unloading, customs liability, risk, and cost, among other things. Failure to assign the But what exactly is an Incoterm? correct code could result in significant clearance Essentially, Incoterms set “the rules of the road” delays, added costs, and prolonged disputes. for international commerce and ensure that businesses all over the world abide by the same definitions and processes. Incoterms carefully Introduction ©2019 Purolator International, Inc. 2 Incoterms® 2020 — Revised Rules for International Shipping In addition, the choice of Incoterm will affect other aspects of the shipping process. Logistics solution, ability to consolidate, mode of transport, and compliance issues may all be affected by the choice of Incoterm and the rules associated with that term. As the following discussion will make clear, each Incoterm is crafted to address a unique set of conditions. Therefore, it's critically important for a shipper to ensure the proper term is selected. And that begins with a basic understanding of Incoterms and their role in the shipping process. (Please note that the information included in this report is intended as a basic overview of Incoterms. For more detailed information, please refer to the International Chamber of Commerce's official Incoterms® 2020 materials, which can be accessed via the agency's website.) Introduction ©2019 Purolator International, Inc. 3 Incoterms® 2020 — Revised Rules for International Shipping The List — Incoterms® 2020 terms, Delivered at Place (DAP) and Delivered at EXW is regarded as favorable to the seller Terminal (DAT), essentially consolidated the four since the buyer bears the bulk of responsibility. eliminated terms into two. (Note: The DAT term However, buyers may find EXW advantageous has been renamed DAP — Delivered at Place — since they are free to use their own logistics in Incoterms® 2020.) provider, which may be more economically efficient than using the seller's provider. According to analysis provided by Trade Finance Global, the current list is divided into two X FCA: Free Carrier categories based on mode of transport: This means that the seller is responsible for packaging and loading goods onto a truck Group One: Incoterms that apply to any at its transport hub or port. The seller is mode of transport: also responsible for export clearance of the X EXW: Ex Works Every business involved in goods at the port or terminal. The buyer is This term describes situations in which then responsible for everything else: international trade should the seller (or shipper/supplier) of goods Shipping the goods acquire a copy of the is responsible for packaging and leaving “Incoterms® 2020” publication, the goods at their factory or place of Unloading the goods at the buyer's manufacture. port or terminal available through the Transporting the goods to the end The buyer (or consignee) is then responsible International Chamber destination or warehouse of Commerce. for everything else: Once the goods have been loaded and cleared Loading goods onto transport for export by customs and the shipment is The International Chamber of Commerce has Transporting goods to a port or terminal accepted, responsibility shifts from the seller to included 11 Incoterms in its 2020 revisions, Shipping the goods the buyer to arrange shipment and delivery to which matches the number included in the 2010 the end warehouse or customer. Unloading the goods at the buyer's port version. Worth noting, Incoterms® 2010 reduced or terminal the number of terms from 13 to 11 by including two new rules for use irrespective of mode of Transporting the goods to the end transport. To accomplish this, four entries were destination or warehouse deleted and two were added. The two new The List — Incoterms® 2020 ©2019 Purolator International, Inc. 4 Incoterms® 2020 — Revised Rules for International Shipping X CPT: Carriage Paid To insurance to cover against the buyer’s risk conveyance, at the named place. Risk of loss of or damage to the goods during transfers from the seller to the buyer when This Incoterm goes into more detail than FCA the carriage. the goods have been unloaded, and the and specifies that the seller bears the costs buyer has responsibility for import clearance for transporting the goods to the location Effective January 1, 2020, the terms of the and any applicable taxes and duties. requested by the buyer. CPT is common CIP Incoterm require the seller to purchase for large importers who have their own the level of insurance outlined in Clause X DAP: Delivered at Place port agents that can manage the delivery A of Institute Cargo Clauses. This ensures of goods upon arrival in their country. Risk protection against fire, explosion, breakage, DAP is regarded as an extension of DPU passes from the seller to the buyer when theft, washing overboard, the vessel sinking, with the critical distinction that, under DAP, the goods are delivered to the carrier (e.g., and jettison. According to the Mantissa the buyer is responsible for unloading loaded onto the ship at the port of the training provider, this is regarded as a the goods. According to analysis from seller's country). high level of insurance, although parties Investopedia, "Delivered at Place" simply "may choose to specify a different level means that the seller takes on all the The buyer is then responsible for of insurance to cover within their risks and costs of delivering goods to an everything else: commercial agreement." agreed-upon location. This means the seller is responsible for everything, including Insuring the goods as they are The seller's risk ends when the goods packaging, documentation, export approval, being shipped have been placed on the ship at the origin loading charges, and ultimate delivery. Unloading the goods at the buyer's destination. The buyer can pay for additional port or terminal insurance during carriage of the goods. "The buyer, in turn, takes over risk and responsibility as of the unloading of the Transporting the goods to the X DPU: Delivered at Place Unloaded goods and clearing them for import." end warehouse The DPU Incoterm is a 2020 change and X DDP: Delivered Duty Paid X CIP: Carriage and Insurance Paid To replaces the previous "Delivered at Terminal" term. This name change was made to clarify DDP is the only Incoterm in which the seller The seller delivers the goods to the carrier that delivery occurs at the destination, which assumes responsibility for the import and or another person nominated by the seller may be at a location other than a "terminal." export clearance process. at an agreed place. The seller must contract Under DPU, the seller is responsible for for and pay the costs of carriage necessary arranging carriage and for delivering to bring the goods to the named place of destination. The seller also contracts for the goods, unloaded from the arriving The List — Incoterms® 2020 ©2019 Purolator International, Inc. 5 Incoterms® 2020 — Revised Rules for International Shipping The seller bears all the costs and risks that point, risk transfers to the buyer, and Effective January 1, 2020, the terms of the involved in bringing the goods to the place the buyer assumes responsibility for loading CIF Incoterm require the seller to purchase of destination and has an obligation to the goods and all costs thereafter. the level of insurance outlined in Clause clear the goods not only for export but C of Institute Cargo Clauses.