Proposed Changes to expect in Incoterms 2020
The International Chamber of Commerce (ICC) has drafted proposed changes to the new Incoterms 2020. Incoterms (International Commercial Terms) was first developed by the ICC in 1936 in an attempt to simplify communicational shortfalls involved with international trade. These are a set of pre-defined rules to determine the contractual clause for global commercial sales.
Incoterms were published by the International Chamber of Commerce to make sure a universal rule for container shipping rates. By the Incoterms Consignee and the Shipper decides who is going to pay for what? When you look for container shipping rates, you must always keep Incoterms in mind.
Since 1990 there has always been a revision in Incoterms rules in the first year of the decade. In 1990, 2000, 2010 these Incoterms were revised. Now 2020 is the first year of next decade, so ICC drafted a new updation in Incoterms.
Let’s discuss the proposed changes to be made to Incoterms:
EXW and DDP Incoterms to disappear:
This would be a very important updation in Incoterms as the ICC decided to remove EXW (Ex-works) and DDP (Delivered Duty paid) Incoterms. These are the most commonly used Incoterms for domestic trade. In EXW the almost all charges are paid by the Consignee, and in DDP charges are paid by the Shipper. The justification for removing these terms is they are against the new European Union’s new Customs Code.
FAS (Free Alongside Ship) is the least used Incoterm for international trade. It does not contribute much. FSA is similar to the FCA Incoterm which allows for goods delivery at the dock.
FCA Incoterms Expansion:
FCA (Free Carrier Alongside) is the most used Incoterm for international trade. This is the most versatile Incoterm used for International Trade operations. The main reason to use it that it gives flexibility in the delivery location. The delivery location can be the seller’s address, land transport terminal, warehouse, a seaport, an airport etc. FCA is also applied to all modes of transportation.
But soon we may see it unfolding it into two Incoterms: one for sea transportation (maritime) and another for land transportation(terrestrial).
Modifications in FOB and CIF:
FOB (Free on Board) and CIF (Cost Insurance and Freight) are the very old Incoterms used in Ocean Freight. There was a modification in the Incoterms edition 2010 that these two Incoterms should only be used when merchandise is travelling by waterway alone. But these modifications have not been adequately implemented.
The International Chamber of Commerce is seeking to make the following changes:
- Recommended penalties for the manipulation of the Supplier under CIF terms.
- The ownership of the liability of Insurance between the Buyer and the Seller.
- The addition of DTHC (Destination Handling Charges) in the CIF shipment quotations.
The arrival of new Incoterm CNI:
There will be the arrival of a new member CNI (Cost and Insurance) to the Incoterm Family in the new edition. It would cover all the gaps between FCA and CIF
As in the other Incoterms in the “C” group, this new Incoterm will be an “arrival Incoterm,” i.e., the risks and responsibilities are transferred from seller to buyer at the port of departure.
DDP Incoterm to split:
The committee does not want to eliminate DDP completely. It wants to split it into two new Incoterms: DTP (Delivered at Terminal Paid) and DPP (Delivered at Place Paid).
- In DTP seller assumes the payment of customs duties when the goods are delivered to a terminal.
- In DPP seller assumes the payment of customs duties when the goods are delivered at any place other than a terminal.
Elimination of FAS Incoterms:
In addition to the removal and creation of some Incoterms, the Drafting Committee is analysing other issues to include in the new version of the Incoterms 2020. Among them are:
•Regulations on transportation insurance.
•The relationship between the Incoterms and the International Sale Contract.
Over the next few months, the Committee will meet periodically to address these and other issues that will eventually be incorporated into Incoterms 2020.
New Incoterms will take effect by January 1st, 2020. Hopefully the new version of Incoterms will keep the pace of the ever-evolving global trade landscape.