Updated - they're here! Incoterms® 2020 – How will the new rules impact you?

27.05.2019

 

Updated - The Internation Chamber of Commerce has published the Incoterms 2020

The International Chamber of Commerce (ICC) is gearing up for the publication of Incoterms 2020, the latest update to the rules and regulations surrounding the responsibilities of buyers and sellers working on an international market. These rules haven’t been changed since the 2010 edition and the latest publication includes new obligations on both parties with regards to information sharing.

But let’s start at the beginning: what are incoterms?

Incoterms are international rules, designed to support the international trade of goods. The term is a (very catchy!) acronym for international commercial terms and is a trademark of International Chamber of Commerce. They define key elements such as insurance, risk, transport, documents and deliveries for both buyers and sellers. Businesses across the globe are very much reliant on them for the stability and consistency they bring to the table.

At the moment they can be split into two categories:

  • The first category is made up of seven components and relates to multimodal incoterms. It contains EXW, FCA, CPT, CIP, DAT, DAP and DDP
  • The second is made up of four parts and is focused on sea freight.  It contains FAS, FOB, CFR and CIF

However, changing transport trends mean the split between sea freight and multimodal regulation is no longer as clear cut as it once was.

The main changes and their impact

There are two principal motivations for the new changes. Firstly, the sea freight intercoms category is not particularly well adapted to the current system. These days container transportation is more frequent than bulk, which means multimodal regulations will now be applied to sea freight dealing with containers. The current regulations will continue to apply to bulk.

Secondly, regulations EXW and DDP effectively mean the entirety of the process is handled by the buyer or vendor. Some companies are simply not set-up to manage that process. So while EXW will continue to apply to national deliveries, international deliveries will now follow FCA and DAP instead of EXW and DDP. Meaning that the customs clearance is not ever done by the buyer at origin (FCA) nor the seller at destination (DAP). 

Getting mixed up? Here’s an example. Say you currently ship goods by ocean freight, from Antwerp to Shanghai, as of 2020 you will use FCA or DAP instead of EXW or DDP.

Using FCA instead of EXW means the goods are under the buyer’s responsibility from FCA-point of loading to the final delivery. FCA stands for Free Carrier and as it suggests, it means the origin customs clearance is carried out by the seller and is no longer the buyer’s responsibility. 

Using a DAP instead of a DDP means the goods are under the seller’s responsibility as of the factory/origin loading point to the DAP-point of unloading. DAP means Delivered At Place and requires the destination customs clearance to be careered out by the buyer and no longer the shipper.

It was rarely ideal to have buyers or sellers responsible for managing the risks associated with customs clearance in a territory where they have no sites or presence. These updated rules should go some way to minimizing risks for all parties.

Preparing for the new rules

The updated regulations will officially take effect in 2020 and that’s just around the corner! At TenderEasy, we’re committed to helping our customers get prepared and reap the opportunities of the changes. We will be updating our solutions to reflect Incoterms 2020 and keep you up-to-date with the latest news as it hits.

The best thing to do in these situations is to anticipate and get a step of your competitors. Update your contracts to match the new rules, for example, using a DAP instead of a DDP will reduce seller’s costs as no customs clearance is required. On the other hand, moving to a FCA from an EXW will increase a seller’s expenditure as a customs clearance cost will now need to be factored in.

But, rest assured. With our support, you’ll be perfectly set-up to run new tenders and take advantage of new opportunities!

You can find more information on the ICC's website.

 

Written by
Barbara Lacaze

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