INCOTERMS 2020: What Shippers Have to Know

INCOTERMS are a set of definitions and rules used by importers and exporters to facilitate global trade. The INCOTERMS provide universal guidelines for buyers and sellers around the world on things like purchase order, packaging and labeling a shipment for freight transport, or preparing a certificate of origin at a port. INCOTERMS are an acronym for international commercial terms and are published by the International Chamber of Commerce (ICC).

The latest edition of guidelines is the INCOTERMS 2020, which comes into effect on January 1, 2020.

But the INCOTERMS 2010 are still in effect.

If a contract is entered into before January 1 2020, then the INCOTERMS 2010 rules apply.

After January 1, 2020, it will be assumed that contracts are written using INCOTERMS 2020.

You can enter into a contract using INCOTERMS 2020 before January 1, 2020, if that is specified in the contract.

Similarly, you can enter into a contract using 2010 INCOTERMS after January 1, 2020, if it is specified in the contract.

A new Incoterm DPU (Delivered at Place Unloaded) has been created to replace the DAT (Delivered at Terminal). It is a change of acronyms or renaming; the obligations and functions of both terms are precisely the same. DAT meant that the goods are delivered once unloaded at the named terminal. DPU drops the word terminal and uses more general terms to cater to delivery at places other than a named terminal. For example, a manufacturer can now divert on site.

CIP and CIF Insurance

Under Clause A of the Institute Cargo Clauses (IUA/LMA), CIP (Carriage and Insurance Paid to) requires the seller to take out transport insurance in favor of the buyer with extensive coverage which has the seller deliver to the carrier and pay for the carriage and insurance to the named destination. Although, under (Clause C of the Institute Cargo Clauses), the parties may agree to take out reduced insurance coverage.

Under Clause C of the Institute Cargo Clauses (IUA/LMA), CIF (Carriage Insurance and Freight) requires the seller to take out insurance with minimum coverage. CIF is similar to CIP except that it can only be used for maritime transport as the delivery is onto a ship, and the destination needs to be a port.

CIF is more suited for bulk commodity trades, while CIP (as a multimodal term) is more suited for manufactured goods.

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