International Commercial Terms, or Incoterms, are a set of sale terms that apply to international trade. These set of rules detail the standard commercial terms concerning international trade. Also, they help to divide the transaction costs, as well as responsibilities between the exporter and importer. The International Chamber of Commerce (ICC), the organization responsible for Incoterms, updates Incoterms every ten years. The last update to Incoterms was in 2020, and before that in 2010. In this article, we will take a look at the differences between Incoterms 2010 and 2020.
In 2010, the ICC lowered the number of Incoterms from 13 (in 2000) to 11. The ICC retained the same number of Incoterms in 2020 as well. However, a few revisions were made to the 2010 Incoterms.
These revisions were primarily made to ensure that parties carefully select the Incoterms that best suit them. Moreover, the latest revisions help to better understand the rules and responsibilities with the main focus on transferring the risk from one party to another. Further, the revisions also include changes to other responsibilities, such as export and import clearance, certain costs, insurance, and more.
Now that you have an idea of the changes to Incoterms 2020, let’s take a look at the differences between Incoterms 2010 and 2020.
Differences Between Incoterms 2010 and 2020
Following are the differences between Incoterms 2010 and 2020:
DAT changed to DPU
The ICC changed DAT (Delivery at Terminal) Incoterm to DPU (Delivery at Place Unloaded). As per the change, the word ‘terminal’ was replaced with ‘place’ as the former was causing confusion. In DAT, the requirement was delivery at the terminal, but the word ‘place’ now means any place, whether or not it is covered. This place could be a terminal, warehouse, port, or any other place.
Change in Insurance Coverage in CIP
In 2010, under CIP (carriage and insurance paid to), the seller was responsible for providing only minimum insurance coverage (as per Clause C). In 2020, the seller is now responsible for providing the maximum coverage (as per Clause A).
The primary reason for the change is that in CIP the cargo could travel through one or more modes of transportation. This exposes the cargo to more risk, and thus, raises the need for more coverage.
On the other hand, the coverage terms remain the same for CIF (carriage insurance and freight) in 2020 as in 2010. The seller is responsible for providing only minimum insurance coverage.
Listing of Costs
In order to avoid confusion, the ICC now requires all costs to be listed in the ‘Allocation of Costs’ segment. Since the ordering of the items also changed in 2010, the costs now show up in the A9/B9 section of each rule. The A9 sections show all the costs to ensure each party is clear on the costs.
Costs were a major issue for the seller. This is because carriers were used for revising their pricing structure to account for the add-ons. It resulted in the seller suffering from back-charged terminal handling charges. But with new structuring, sellers will have a better idea of the costs.
Cargo security was emerging as a big issue, and Incoterms 2020 addresses this. The latest revisions clearly detail the security requirements under each Incoterms. For example, under CPT (carriage paid to), the seller will now need to fulfill all security-related requirements to send the cargo to the destination.
A point to note is that Incoterms 2010 were silent on any safety and security measures from the seller’s side. Now, the security-related allocations with regards to carries are added to A4 and A7 of each Incoterms rule. And necessary costs are included in A9 to B9.
In Incoterms 2010, it was assumed that the parties use third-party services to transport the goods. With 2020, however, the buyer and seller are now allowed to deploy their own means of transport to send the cargo. Specific requirements for this are there in the literature of Incoterms 2020.
The Incoterms 2020 are much more detailed and explanatory than 2010. Moreover, they come with better diagrams to support the explanation. Also, they have an easy-to-understand structure for users. The Incoterms 2020 also does a reordering of rules to ensure parties are able to easily identify delivery and risk rules.
Bills of Lading under FOB
Sellers mostly use FOB (free on board) when they normally should be suing FCA (Free Carrier). Under FOB, the seller loses control of the cargo once it arrives at the export port, i.e. even before the loading. However, the seller is responsible for all the risks and costs, including handling charges and loading costs/risks.
Even though sellers are at a disadvantage, they still use FOB mainly because of the LoC (letter of credit). Usually, the seller needs to produce an onboard bill of lading to get the payment against the letter of credit. Since sellers are responsible for loading under FOB, they are more likely to get the onboard bill of lading.
Sellers can easily avoid some risks and costs by using FCA. But they may not get the onboard bill of lading under FCA. The Incoterms 2020, however, made FCA more favorable to sellers. Now, sellers can get an onboard bill of lading under FCA if both buyer and seller agree to it.
With Incoterms 2020, the ICC has tried to make Incoterms more effective and easy to understand. Even though the general idea is the same as of 2010, the Incoterms 2020 are clearer, more understandable, and easily identifiable as well as more suitable to the current economic scenario.