The term Incoterms® is derived from the English terms of International Commercial Terms (IN. CO. TERMS). Defined by the International Chamber of Commerce (ICC), Incoterms® are revised every 10 years following the evolution of international trade practices. These terms reflect the distribution of costs (such as the cost of transportation) and risks between the parties.
They then define certain obligations, costs and risks generated by the transfer of a product. Incoterms® will help the buyer and seller define which of them will bear the costs. They will also allow specifying the time when the risk passed. Effective January 1, 2020, the new version, like its predecessor, consists of 11 Incoterms®, still classified into two groups according to the mode of transport the goods.
The major changes to Incoterms® 2020
FCA – New bill of lading option with onboard mention
The 2020 version added an option for parties to meet banking requirements with a documentary credit (or letter of credit).
This new option allows the seller to obtain delivery of the transport document certifying the cargo on board. It will now be possible to arrange with the buyer to issue a bill of lading (or any other transport document) marked “On board” or “Received for shipment”
This option was created to comply with the legislation of some exporters who require documentary credit and only recognize classic transport documents (CMR, LTA, bill of lading).
CIF – CIP Differentiation of insurance coverage.
The 2010 version required the vendor to have an identical minimum level of coverage for both rules. The Incoterms® CIP rule now requires “all risks” to be covered, which increases the level of insurance and thus the cost of the premium to the seller.
DAT 2010 becomes DPU 2020
This is the development with the most significant impact in terms of customs valuation.
In the Incoterms® 2010 rules, the only difference between DAT and DAP was that for DAT the seller delivered the goods once unloaded from the arriving means of transport at the terminal, while for DAP the goods were considered delivered once made available to the buyer on the means of transport without being unloaded.
