The Incoterms 2020 rules are a set of terms that regulate the responsibilities of companies in contracts for the sale of merchandise, accepted by governments, businessmen, and professionals throughout the world for the interpretation of the most common terms used in International Commerce. The Incoterms rules regulate the following:
At what time and place does the transfer of risks take place.
The merchandise from the seller to the buyer.
The place of delivery of the goods.
Who hires and pays transportation and insurance costs.
What documentation has to be processed by each of the parties.
The INCOTERMS rules are updates made by the International Chamber of Commerce. In this latest 2020 update, the modifications are minimal. There is a change of name from DAT (Delivered At Terminal) to DPU (Delivered at Place Unloaded or Delivered in place downloaded), due to the little use that companies have made of it and the restrictive vision that the concept "Terminal" implied despite that it was indicated in the 2010 version that it did not only refer to maritime terminals.
Regarding the FCA, the 2020 version establishes the option, in the case of maritime transport, so that the buyer can instruct the carrier (shipping company or its agent) that he has contracted to issue a Bill of Lading on behalf of the seller ( B/L – Bill of Lading) with the annotation “on board” (on board), which indicates that the merchandise has been loaded on board the ship. This is the most common transport document that is used in the operation of letters of credit to justify the delivery of the merchandise and, with it, make the payment to the seller effective.
The rest of the changes are minor, more "formal" and are related to the presentation of the information, the list of expenses, the obligation of the seller or buyer, when indicated by the INCOTERMS term of contracting the transport (what is indicated until now) or provide it by your own means (the novelty in INCOTERMS 2020 if you have your own fleet that does not require hiring third parties), the inclusion of requirements derived from transport safety in a generic way (for example VGM) or the inclusion of explanatory notes that, until now, did not exist.
In the current 2020 version, the Incoterms rules are 11 terms and are divided into Incoterms terms for any mode or transport or multipurpose (EXW, FAC, CPT, CIP, DAP, DPU and DDP) and for maritime transport and navigable waters ( FAS, FOB, CFR and CIF), below, explaining each of them briefly.
EXW Incoterms - The obligations of the seller/exporter end when the merchandise is made available to the buyer/importer at its facilities, at which time all expenses pass to the buyer, the former being exempt from all liability, both for the cargo of the merchandise and export customs formalities. Mode of transport: Multipurpose. The term EXW implies minimal obligations, however, since we do not control customs clearance, we may have difficulties in obtaining the documents that justify the export. These documents (DUA) are necessary to justify the operation and not have problems with the treasury at the tax level (IGV or VAT).
FCA Incoterms - FCA is a very versatile term. We can use FCA Factory or FCA Terminal (port, airport, etc.). FCA Factory (seller's premises): must be used for full loads (trailer or container). The seller must load the merchandise in the transport and, from that moment, the merchandise will become the responsibility of the buyer. The term FCA Factory perfectly replaces the term EXW, since it solves the risks and problems that it causes to the seller. FCA Terminal (other place designated by the buyer): to be used for break-bulk only. The seller must only deliver the merchandise at the designated place. The unloading of the merchandise and its subsequent handling and consolidation in another transport are at the expense and risk of the buyer.
FAS Incoterms - Delivery occurs in the country of origin, when the seller leaves the merchandise at the port dock and with the export clearance already completed. In that place, the responsibility for damage or loss of the merchandise ends for the seller, which, consequently, is assumed by the buyer. It does not include boarding the ship.
FOB Incoterms - Delivery occurs in the country of origin, when the seller leaves the merchandise in the ship's hold, loaded and stowed, and with the export clearance already completed. The seller's responsibility for any damage to or loss of the goods passes to the buyer once the goods have been declared on board the ship, which implies that the carrier has custody and control of the goods
CFR Incoterms - The main transport is paid by the seller, but the risk in this journey is the buyer's. The buyer must be clear that the insurance of the merchandise is his responsibility. Delivery occurs when the goods are placed on board the ship, the same as FOB, with the substantial difference being that with CFR the seller must hire international transport and pay the freight.
CIF Incoterms - The main transport is paid by the seller, but the risk in this section is the buyer's. The insurance of the merchandise is paid by the seller, who has to put the buyer as beneficiary. Delivery occurs when the goods are brought on board the ship. The seller is obliged to obtain insurance with minimum coverage in favor of the buyer (ICC C). However, you can agree on other coverage by agreement with the buyer. It is also common practice to cover 110% of the total cost of the operation.
CPT Incoterms - The main transport is paid by the seller, but the risk in this journey is the buyer's. If there are several carriers, it is given when it is delivered to the 1st. carrier at the point chosen by the seller, over which the buyer has no control. Specify in the contract if they want the risk to pass on at a later stage.
C.I.P. Incoterms - The main transport and insurance is paid by the seller, but the risk in this journey is the buyer's. It is important that the buyer is clear that the insurance of the merchandise is the responsibility of the seller, but that he assumes the risk from the time the merchandise leaves the country of origin, when it is delivered to the main carrier. The seller must list the buyer as the beneficiary of the insurance. The seller is obliged to obtain insurance with maximum coverage in favor of the buyer (ICC A). However, you can agree on other coverage by agreement with the buyer. It is also common practice to cover 110% of the total cost of the operation. And just like the CPT term in case of several carriers, it is given when it is delivered to the 1st. carrier at the point chosen by the seller, over which the buyer has no control. Specify in the contract if they want the risk to pass on at a later stage.
DAP Incoterms - Delivery occurs anywhere in the country of destination, but always on a vehicle (DAP factory, DAP carrier, etc.) and without import customs clearance.
DPU Incoterms - The delivery of the merchandise occurs in the country of destination without the import clearance, at the agreed destination point. It is the only Incoterms rule that obliges the seller to unload at destination. This Incoterms is designed for companies that want to control the logistics chain from origin to destination due to the particularities of their business or merchandise, or where they have to put the merchandise sold into operation at the buyer's facilities.
DDP Incoterms - Delivery occurs anywhere in the country of destination, but always on a vehicle (DDP factory, DDP carrier, etc.). Duties and internal taxes are included in the DDP price. It is advisable to use DDP for low-value merchandise where the transport used is Courier type. The objective is to provide a quick service to the customer who has an emergency.