What is Incoterms 2020
In logistics, Incoterms (International Commercial Terms) are essential rules established by the International Chamber of Commerce (ICC) to prevent misunderstandings between buyers and sellers regarding trade obligations. Here’s an overview of Incoterms 2020 and their importance.
What is Incoterms 2020?
Incoterms are official guidelines by the ICC that define standard terms for domestic and international trade. They outline responsibilities related to transporting goods from seller to buyer, including shipping, export and import duties, and insurance for risk during transit. The Incoterms rules specify which party is responsible for each stage of the transport process, including delivery, customs clearance and risk management, depending on the agreed Incoterms standard.
Incoterms have undergone several updates, moving from Incoterms 2000 to Incoterms 2010, and most recently to Incoterms 2020.
Differences between Incoterms 2010 and 2020
In the 2020 version, responsibilities for safety requirements and additional costs are shifted to the seller, with further updates to delivery terms.
For example, in FCA (Free Carrier), Incoterms 2020 provides more flexibility for where goods can be delivered:
- Seller’s Location: Delivery is considered complete when goods are loaded onto the transport provided by the buyer at the seller’s premises (like a warehouse or factory).
- Agreed Location: Delivery takes place at a specified location (like a port or terminal) that the seller arranges, but they are no longer responsible for unloading goods.
Incoterms 2020 also clarifies who bears the cost and risk of customs clearance at borders and in transit, depending on the terms of the contract. The responsibility lies with the party taking on the risk for transportation to the delivery location.
Primary Groups of Incoterms 2020
Incoterms 2020 are grouped into four categories (E, F, C, and D), based on obligations and the extent of the seller’s responsibility:
Group E – EXW (Ex Works): the seller only provides the goods at their premises, and the buyer handles transport from there.
Group F – FCA, FAS, FOB: the seller arranges delivery to a carrier appointed by the buyer.
Group C – CFR, CIF, CPT, CIP: The seller arranges and pays for transportation but does not assume risk or additional costs arising after dispatch.
Group D – DAP, DPU, DDP: The seller assumes all costs and risks necessary to deliver goods to the destination.
The 2020 edition of Incoterms does not invalidate previous versions. Current Ukrainian legislation also allows for the use of terms from earlier Incoterms editions. It’s recommended to specify the edition of Incoterms used in all documents to ensure smooth execution.