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Incoterms, officially known as International Commercial Terms, were developed by the International Chamber of Commerce (ICC) to facilitate trade and have become a globally recognized standard. Their main purpose is to prevent confusion in foreign trade transactions by clarifying the obligations of buyers and sellers. Incoterms are currently in their 8th version (Incoterms 2010).
Incoterms 2020 were released in early September 2019, and will come into effect on January 1, 2020. As per the ICC, Incoterms 2020 reflect the ever-changing nature of today’s international trade system. During the drafting process, several revisions were made in order to ensure that the Incoterms rules clearly and accurately reflect current trade practices.
The key changes being implemented for Incoterms 2020, are as follows:
DAT is changed to DPU
- In Incoterms 2010, DAT (Delivered at Terminal) means the goods are delivered once unloaded at the named terminal. Feedback received was that users wanted an Incoterm that allowed delivery not just at a terminal. Therefore, the reference to terminal has been removed to make it more general and the Incoterm was changed to DPU (Delivered at Place Unloaded).
Change of insurance under CIP/CIF
- The Incoterm CIP (Carriage and Insurance Paid to) means that the seller delivers the cargo to the carrier and also pays for the carriage and insurance to the named destination. CIF (Carriage Insurance and Freight) is the same, however, it can only be used for maritime transport (delivery is onto a ship and the destination needs to be a port).
- Under Incoterms 2010 the seller is obliged to provide insurance for the buyer that is equivalent to Clause C (Institute of Cargo Clauses). This is a basic level of insurance, and is applicable to both CIF & CIP terms.
- Under Incoterms 2020, CIF keeps the same insurance requirements (i.e. Clause C), but CIP has increased the insurance required to Clause A (All Risk – Institute of Cargo Clauses). The reasoning behind this is that CIF is more often used with bulk commodity trades and CIP (as a multimodal term) is more often used for manufactured goods.
For more information, contact David Lychek, Manager – Ocean & Air Services.
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