A brand new set of revised Incoterms are expected to come into play from 1 Jan 2020, but what changes should we expect? We’ll take a look at the revisions that industry insiders think are being considered – but first, a handy reminder of what Incoterms are.
What are Incoterms?
Incoterms are a set of international rules set by the International Chamber of Commerce, which relate to the terms of international commercial sales contracts. They’re an essential consideration for importers and exporters as they determine:
- who is responsible for covering the cost of each part of the international journey
- who is responsible for the shipment at each part of the international journey
- who is responsible for arranging transportation
- who is responsible for ensuring the goods are insured
- what documentation is required and who is responsible for this
There are currently 11 different Incoterms, which are divided into four groups, E, F, C and D, depending on the delivery location and who is responsible for covering the cost of each part of the journey. Each category is then further broken down into different types of Incoterms to cover different types of scenarios.
As an importer or exporter, you’ll want to choose the Incoterms that best suit you and your shipment, so it’s important to be familiar with them. The current set of Incoterms is as follows:
Incoterms Group E
Buyer is responsible for collecting goods at seller’s warehouse and for all associated risks and costs.
- EXW (Ex-Works)
Incoterms Group F
Seller is responsible for delivering goods to the buyer’s pre-agreed method of transportation. From this point onwards the buyer is responsible for all costs and risks.
- FCA (Free Carrier, any means of transport)
- FAS (Free Alongside Ship, exclusive to shipping)
- FOB (Free on Board, exclusive to shipping)
Incoterms Group C
Seller responsible for all costs to the destination port (including international transport), however, when goods are loaded on the means of transport, risk transfers to the buyer.
- CPT (Carriage Paid To, any means of transport)
- CIP (Carriage & Insurance Paid to, any means of transport)
- CFR (Cost & Freight, exclusive to shipping)
- CIF (Cost, Insurance and Freight, exclusive to shipping)
Incoterms Group D
The seller bears all risks and costs incurred to bring the goods to the destination country.
- DAT Incoterm (Delivered At Terminal)
- DAP Incoterm (Delivered At Place)
- DDP Incoterm (Delivered Duty Paid)
Incoterms 2020 – Expected Changes
FAS and EXW Retired
The above types of Incoterms are expected to be retired. The reasoning is that EXW tends to apply more to domestic trade, and could be considered to go against the EU’s new customs code. FAS is rarely used and no longer deemed a necessary option.
DDP is also being retired in its current form, for the same reasoning as EXW. However, the powers that be are thought to be considering splitting it into two different categories as follows:
- DTP – Delivered at Terminal Paid: Seller is responsible for all transport-related costs, including customs duties, when goods are delivered to a terminal at the destination (e.g. to the port, airport or transport centre).
- DPP – Delivered at Place Paid: Seller is responsible for all transport-related costs, including customs duties when goods are delivered to somewhere other than a transport terminal (e.g. to an address given by the buyer).
FCA is one of the most commonly used Incoterms and the consideration is that it will be split into two different variations – one for land transportation and one for sea.
- CNI – Cost and Insurance: A brand new Incoterm that’s likely to come into play in 2020. CNI terms dictate that, from the departure port, the exporter has responsibility for cargo insurance, while the buyer is responsible for the risk of transportation.
Another very welcome change to Incoterms 2020 is the intention to make them more straightforward and easier to understand, which should help to minimise the risk of misinterpretation. Of course, one of the benefits of using an experienced freight forwarder like John Good is that we can explain the different Incoterms in detail, and help you to decide which terms are the right choice for your shipment.