Incoterms
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What are the Incoterms?
Incoterms, or International Trade Terms, are a set of rules set by the International Chamber of Commerce (ICC) used in international trade to define the responsibilities and obligations of the buyer and seller in a commercial transaction. They arose to avoid misunderstandings due to different commercial interpretations in different countries and to simplify international contracts.These terms regulate aspects such as the distribution of responsibilities, transport and customs costs, and transport risks. By using the Incoterms, clear rules are established which help to avoid confusion and conflict between the contracting parties.Incoterms simplify contracts by entering the initials of the specific term agreed between the parties. Their legal force comes from the agreement between the parties and they are recognized internationally.
What is the ICC?
The ICC, or International Chamber of Commerce, is the organization that establishes the Incoterms. Founded in 1919, it is the largest private international business organization and represents the business interests of companies from all sectors and regions of the world. The ICC is considered an important consultative entity by international organizations such as the UN, the WTO and the IMF, among others.Incoterms have existed in various forms since the 19th century, but the first formal list of Incoterms was published in 1936. Since then, they have been regularly updated and revised to adapt to changes in international trade and trade practices.
What are Incoterms used for?
In short, Incoterms are a set of standardized rules that help facilitate international trade by clearly defining the responsibilities and obligations of parties involved in a commercial transaction. Its use helps to avoid misunderstandings and conflicts, and provides a sound basis for international commercial contracts.
The Incoterms 2020(Existing from 1/01/2020)
The modifications introduced in Incoterms 2020 by the International Chamber of Commerce (ICC) respond to several challenges and needs of the global market:
- Transport safety: The changes seek to improve safety in the transport of goods between countries, ensuring that responsibilities are clearly defined and distributed between the seller and the buyer.
- Facility in documentary credit transactions: It is intended to streamline and make more secure commercial transactions involving documentary credits, providing a clear framework of responsibilities for both parties.
- Growth of the global economy: The Incoterms 2020 are designed to adapt to the constant growth and change in the global economy, allowing any place in the world to participate in international trade effectively.
What’s new in Incoterms for 2020?
The main developments in Incoterms 2020 compared to 2010 include:
- Replacement of DAT by DPU: The Incoterm DAT (Delivered At Terminal) has been replaced by DPU (Delivered at Place Unloaded), which involves the delivery of goods unloaded at an agreed place, not necessarily at a terminal.
- Changes in CIF and CIP: Changes have been made in the clauses CIF (Cost, Insurance, Freight) and CIP (Cost, Insurance, Paid to) related to the insurance of the goods, differentiating the minimum requirements of coverage.
- Specific use of FOB and CIF for container shipping: The terms FOB (Free on Board) and CIF (Cost, Insurance, Freight) are now used exclusively in container shipping.
- Improvements to FCA: Incoterm FCA (Free Carrier) now allows providing a copy of the bill of lading to the bank that manages the documentary credit if so stipulated.
- Removal of EXW and DDP: The Incoterm EXW (Ex Works) and DDP (Delivery Duty Paid) are removed and replaced by new terms such as DTP and DPP.
- Adding DTP and DPP: The new Incoterms DTP (Delivered at Terminal Paid) and DPP (Delivered at Place Paid) have been added to cover specific delivery needs in terminals and other agreed locations.
Incoterms 2020 assessments and suggestions
The possible advantage of eliminating the term FAS can be considered positive due to its low use. This is because, if the goods arrive late, they must stay on the dock for several days for the buyer to pick them up, whereas if they arrive early, they cannot be available for shipment. In addition, the removal of the term EXW and the introduction of two new ones instead of DDP also seems to be a wise move. This is because the former was often used by companies with little experience in international trade, while the latter was more common.These changes highlight the importance of Incoterms knowledge by commercial and advisory operators. This allows them to select the most suitable term for each situation.
Full list of Incoterms 2020
The implementation of the new Incoterms list, which will take place on January 1, 2020, has led to the publication of the final version of the list during the second half of this year, with the modifications mentioned above. However, these would not be the only modifications, since it is planned to include a series of guidelines related to safety during the transport of goods, rules on the type of insurance to be contracted for transport, better integration of the Incoterms with the respective international sales contracts and a series of instructions to better adapt to the changes foreseen in the Incoterms for the next decade.Thus, the final list of Incoterms is presented as follows:
- EXW (Factory): The seller only has the obligation to make the goods available to the buyer in the warehouse. The buyer takes care of the collection and transport to his country and assumes all the expenses.
- FCA (Free Carrier) The seller agrees to deliver the goods at an agreed point of transport in the country of origin, taking charge until their deposit at the indicated place.
- FOB (Free on board)The seller is responsible for delivering the goods on board the vessel contracted by the buyer. The entry can be delivered on board from 1 January, which is important for collection.
- CFR (Cost and freight): The seller takes over the transport to the port of destination for maritime transport, and the risk is assumed by the buyer since the goods are on the ship of the country of origin.
- CIF (Cost, insurance and freight): It does not undergo significant modifications, since its main use is for commodities, which would entail a high cost if changed. The policy is issued in the name of the buyer at 110 %, covering the insurance of Clause C of the London Institute.
- CPT (Transport paid up): The seller bears the costs of transport to the agreed place of destination, and the risk is borne by the buyer from the moment the goods are transferred to the first carrier in the country of origin.
- CIP (Transport and insurance paid up): It has been incorporated in Clause A of the London Institute, which means that the seller takes out insurance at all risk and issues it in the name of the buyer.
- DPU (Delivered in place, unloaded): With this clause, the seller’s responsibility ends when delivering the goods at the agreed point, including the export process and transit customs, but not the clearance at destination.
- DAP (Delivered instead)Seller covers all transportation and insurance costs except import costs.
- DPP (Delivered instead, paid): It is a novelty in the Incoterms 2020 and replaces the old Incoterm DDP. It involves delivery at an agreed point other than a transport terminal, and customs expenses are the responsibility of the seller.
- DTP (Delivered in terminal, paid): Another novelty derived from the former DDP, where the seller assumes customs duties and delivery in a terminal in the buyer’s country.
INCOTERMS 2020 - Rules for any transport
INCOTERMS 2020 - Maritime and inland waterways rules
Seller
Depending on the place of delivery: Seller or buyer
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