Updated: Jan 29, 2020
Incoterms are a set of standard packages of terms and conditions relating to the sale and transportation of cargo outlined by the International Chamber of Commerce (ICC). They define the point at which the buyer assumes responsibility of cargo and all related transport charges and risks from the seller for each trade term. To improve clarity and accuracy of the incoterm chosen during the time of sale, the ICC recently published Incoterms 2020. The updated version is meant to more clearly explain each term as well as give delivery and risk more prominence.
Broader Scope of DAT/DPU
Delivered at Terminal (DAT) is being replaced with Delivered at Place Unloaded (DPU), underscoring that delivery may occur outside of the terminal, such as at a warehouse. As with DAT, DPU is the only rule that requires the seller to unload the goods at their destination.
CIP to Require Higher Level of Cargo Insurance
Though sellers previously needed to provide minimal insurance under the Carriage Insurance Paid to (CIP) incoterm, All-Risk insurance is now required for CIP under Incoterms 2020. This applies only to CIP, the default level of coverage will remain unchanged for cargo transported using Cost Insurance and Freight (CIF). The ICC determined CIP will require additional insurance because it is more often used when transporting manufactured goods, while CIF is often used with bulk commodity trades.
Obtaining an on-board bill of lading under FCA
Under the Free Carrier (FCA) trade term, buyers can now explicitly instruct the seller to issue an on-board bill of lading at the buyer’s own expense since this document is often required by the bank if the buyer is importing on the bank’s credit. Though the ICC cannot force change in trade finance, the wording has been amended to allow the buyer to make this request of the seller.
Buyer and Seller Costs Outlined for Each Trade Term
To improve clarity, the ICC created a list of costs by responsibility (buyer or seller) for each trade term. This will help importers and exporters understand fully which costs they are obligated to pay for each shipment and where the transfer of cargo ownership occurs.
Previously referred to as “Guidance Notes” in the 2010 publication, Incoterms 2020 includes “Explanatory Notes for Users” which appear at the start of each section. The notes explain the fundamentals of each trade term such as when it should be used and when risk transfers.