Incoterms 2020 at a Glance
Incoterms Limitations
The Incoterms rules are detailed; however, they do not address every contingency of an international transaction and leave some terms to the parties’ discretion. For example, Incoterms rules do not cover terms of payment or ownership /passage of title. And because of their global, universal nature, Incoterms rules do not include national trade terms, such as the U.S. phrase “less than truckload shipping (LTL).”
Incoterms Updates
The ICC regularly updates the Incoterms rules, publishing a major update every 10 years. The latest version, Incoterms 2020, was published on September 10, 2019, and went into effect January 1, 2020.
While the majority of the rules remain unchanged between Incoterms 2010 and Incoterms 2020, there are two notable rule changes in Incoterms 2020:
The rule formerly called Delivered at Terminal (DAT) is now referred to as Delivered at Place Unloaded (DPU)[PB1]
In the rules for Carriage and Insurance Paid (CIP), the level of freight insurance provided is now Institute Clauses (A), versus the lower level Institute Clauses (C)
Do Incoterms rules allow for electronic communication?
Yes. If both parties agree to it, Incoterms allows electronic communication, such as EDI and electronic documents.
Incoterms Shipping Terms Glossary
Some of the most common words and phrases that appear in the Incoterms rules include:
Break Bulk Cargo
Conventional, un-containerized cargo that ships in units of one or packages, such as vehicles, machinery, palletized or boxed cargo.
Bulk Cargo
Cargo that is composed either of 1) free flowing articles, like oil, grain, ore or coal or 2) uniform cargo that stows solid, such as coils, pipes, sheets of metal, timber and lumber.
Bonded Warehouse/Terminal
A warehouse or terminal approved by the U.S. Treasury Department for storing goods until duties are paid or the goods are released.
Carriage
Transportation of cargo while on board main carrier from airport/port of loading to airport/port of discharge.
Carrier
An individual or legal entity in the business of transporting goods for hire.
Customs-Trade Partnership Against Terrorism (C-TPAT)
A voluntary business initiative, administered by U.S. Customs and Border Protection (CBP), to ensure the integrity of the supply chain among importers, carriers, brokers, warehouse operators and manufacturers.
Customs Broker
An individual or firm licensed by U.S. Customs and Border Protection to handle a sequence of customs formalities required for the import and export of goods.
Delivery
In the Incoterms rules, delivery refers to the point when risk transfers from seller to buyer. This is often, but not always, the same point in the transaction through which the seller has agreed to pay, it is not always the same point. “Delivery” is thus when the seller has fulfilled their obligation and bears no more risk, even if still responsible for paying for the next stage in the transaction.
Duty
A tax levied by a government on the import, export and consumption of goods. Duties are based on the value of goods as well as factors like weight and quantity.
Freight Forwarder
A company providing a range of transportation services for cargo shipments.
ICC
The International Chamber of Commerce.
Incoterms / Terms of Sales
Terms that define the obligations, risks and costs of the buyer and seller, involving the delivery of goods that comprise the commercial transaction. Incoterms are organized by modes of transport, either any mode or modes of transport and sea and inland waterway transport terms.
Intermodal
The coordinated transport of long-haul movements using any combination of modes, freight forwarders or motor carriers.
Multimodal (or “any mode”)
The use of more than one mode of transportation to move goods from origin to final destination. The Incoterms for the use of any mode or multiple modes of transportation to move goods from origin to final destination. They are EXW, FCA, CPT, CIP, DAT, DPU and DDP.
On-Carriage
Transportation that takes place after the shipment is offloaded from main carrier at port of discharge.
Pre-Carriage (inland transportation)
Transportation that takes place prior to the shipment being loaded on board main carrier at airport/port of loading.
Ro-Ro Vessel
A category of ships designed to load and discharge cargo that rolls on wheels, such as cars, trucks or locomotives.
Sea and Inland Waterways
Specific Incoterms for maritime shipments that cover both inland waterways and seas and where the seller places the goods alongside or on board the vessel at port (and at which point the risk of loss passes to the buyer). They are FAS, FOB, CFR and CIF.
Terminal
An area that serves as a loading, unloading and transfer point for cargo.
As an expert in international trade and logistics, I bring a wealth of knowledge and hands-on experience to shed light on the intricate world of Incoterms 2020 and related concepts. With a background deeply rooted in the intricacies of global transactions, I aim to provide a comprehensive understanding of the key elements discussed in the article.
Incoterms 2020 Overview: The International Chamber of Commerce (ICC) regularly updates the Incoterms rules to facilitate international trade. The latest iteration, Incoterms 2020, was released on September 10, 2019, and became effective on January 1, 2020. While the majority of rules remained unchanged from Incoterms 2010, there were notable updates.
Two significant rule changes in Incoterms 2020 include the renaming of Delivered at Terminal (DAT) to Delivered at Place Unloaded (DPU) and an adjustment in the level of freight insurance provided in Carriage and Insurance Paid (CIP) from Institute Clauses (C) to the higher Institute Clauses (A).
Despite their detailed nature, Incoterms rules do not cover every aspect of international transactions. Notably, they do not address terms of payment or the passage of ownership/title. Moreover, national trade terms, such as "less than truckload shipping (LTL)," are not included due to the universal nature of Incoterms.
Electronic Communication in Incoterms: Incoterms do permit electronic communication, including Electronic Data Interchange (EDI) and electronic documents, if agreed upon by both parties involved.
Incoterms Shipping Terms Glossary: To navigate the complexities of Incoterms, it's crucial to understand key terms. Here's a brief glossary:
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Break Bulk Cargo: Conventional, un-containerized cargo shipped individually, like vehicles, machinery, or palletized cargo.
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Bulk Cargo: Cargo composed of free-flowing articles (e.g., oil, grain) or uniform cargo (e.g., coils, pipes) that stows solid.
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Bonded Warehouse/Terminal: Approved by the U.S. Treasury Department for storing goods until duties are paid or goods are released.
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Carriage: Transportation of cargo on the main carrier from the loading port to the discharge port.
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Carrier: An entity transporting goods for hire.
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C-TPAT (Customs-Trade Partnership Against Terrorism): A voluntary initiative by U.S. Customs and Border Protection ensuring the integrity of the supply chain.
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Customs Broker: Licensed by U.S. Customs and Border Protection to handle customs formalities for goods import/export.
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Delivery: In Incoterms, the point when risk transfers from seller to buyer.
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Duty: Tax levied by a government on the import, export, and consumption of goods.
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Freight Forwarder: A company providing transportation services for cargo shipments.
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ICC (International Chamber of Commerce): The organization that updates and publishes Incoterms.
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Incoterms / Terms of Sales: Define obligations, risks, and costs for buyers and sellers in the delivery of goods.
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Intermodal: Coordinated transport using any combination of modes.
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Multimodal (or “any mode”): Using more than one mode of transportation for moving goods.
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On-Carriage: Transportation after offloading from the main carrier at the port of discharge.
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Pre-Carriage (Inland Transportation): Transportation before loading on the main carrier.
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Ro-Ro Vessel: Ships designed for cargo that rolls on wheels, like cars or trucks.
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Sea and Inland Waterways: Specific Incoterms for maritime shipments covering both inland waterways and seas.
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Terminal: An area serving as a loading, unloading, and transfer point for cargo.
Understanding these terms is essential for navigating international trade smoothly and ensuring compliance with Incoterms 2020 regulations.
