Incoterms form the basis of international trade.
Take the example of two companies located in two different countries, each with its own language, distinct business practices and cultures, and geographically distant from one another. It is essential for these companies to find a common language if they wish to do business together.
To avoid certain disputes during international buying or selling transactions, the International Chamber of Commerce (ICC) developed the Incoterms® rules.
While their use is not mandatory, it is strongly recommended for international transactions because these rules are recognized by international trade stakeholders worldwide.
These rules define three essential points in international transactions:
- the transfer of risk
- the sharing of costs
- the documentation obligations of the buyer and seller.
The first version dates back to 1936, but since then, with the evolution of international transport and trade practices, the ICC has made several changes to the Incoterms rules. The 9th version of the Incoterms rules came into effect on January 1, 2020.
It comprises 11 Incoterms:
E Ex-works (EXW)
F Free Carrier (FCA)
Free Alongside Ship (FAS)
Free on Board (FOB)
C Cost and Freight (CFR)
Cost, Insurance and Freight (CIF)
Carriage Paid To (CPT)Carriage and Insurance Paid To (CIP)
D Delivered at Place (DAP)
Delivered at Place Unloaded (DPU)
Delivered Duty Paid (DDP)
What are the main changes introduced by the 2020 Incoterms?
- The Incoterm DAT has been eliminated and replaced by DPU
- Differentiation of insurance levels in the case of CIF & CIP Incoterms
- Possible adaptation of the FCA to obtain a maritime bill of lading with a loading endorsement;
- Revision of the order of the clauses referring to the different obligations of the seller and the buyer;
- Advisory notes becoming explanatory notes in the ICC publication and forming an integral part of the Incoterms rules;
- Commitment to wider dissemination of the 2020 Incoterms rules.
Note that in the 2020 version, the ICC once again emphasizes the limited use of maritime Incoterms, which are only suitable for the maritime transport of bulk goods or goods loaded under conventional conditions. As soon as goods are containerized (the most common scenario for businesses), even if it involves maritime transport, only multimodal Incoterms should be used!
If you would like to learn more about Incoterms 2020, or if you need to deepen your knowledge of international trade (purchasing, exporting, customs, international transport, payment methods), please contact us for any training, support, or consulting needs related to international business!
