Incoterms 2020: new developments and anticipated changes
The new Incoterms 2020 are being drafted by the International Chamber of Commerce (ICC), the body responsible for publishing the same since 1930. Recent decades have seen the Incoterms reviewed in the first year of each decade: 1990, 2000 and 2010, which is the latest version and remains in force.
The Incoterms 2020 are being drafted by a Committee of Experts (Drafting Group), which for the first time includes representatives from China and Australia, although the majority of members are European. The Committee meets periodically to discuss various issues brought forward by the 150 members (mainly Chambers of Commerce) that comprise the International Chamber of Commerce.
The new Incoterms are expected to see the light of day in the final quarter of 2019, coinciding with the centenary of the International Chamber of Commerce, and come into effect on 1 January 2020.
Some of the new aspects and changes being discussed for inclusion in the Incoterms 2020 are as follows:
Removal of EXW and DDP Incoterms
This would represent a very significant change, as EXW is an Incoterm used extensively by many businesses with little export experience, while DDP is also commonly used, especially for goods (e.g. samples and spare parts) sent by express shipping firms that deal with all logistics and customs procedures through to delivery at the buyer’s address. The grounds for eliminating the two terms is that they are really for domestic operations: by the seller-exporter in EXW, and the buyer-importer in DDP. Furthermore, these two Incoterms seem to contradict the new Customs Code of the European Union, since the responsibility of the exporters and importers is effective following clearance of export and import, respectively.
Scrapping the FAS Incoterm
FAS (Free Alongside Ship) is a rarely used Incoterm and barely contributes anything to FCA (Free Carrier Alongside), which is used when goods are delivered at the port of departure in the exporter’s country. With FCA, merchandise can also be delivered at the dock, in the same way as FAS, since the dock is part of the maritime terminal. On the other hand, when the FAS Incoterm is used, if the ship’s arrival at port is delayed the merchandise will be available to the buyer at the dock for several days. On the other hand, if the ship arrives ahead of time, the merchandise will not be available for shipment. In fact, FAS is only used to export certain commodities (minerals, cereals), with the Drafting Group therefore considering creating a specific Incoterm for such products.
Splitting FCA into two Incoterms
FCA is the most commonly used Incoterm (used in around 40% of international trade operations), given that it is highly versatile and allows for merchandise delivery at a number of different locations (seller’s address, land transport terminal, port, airport, etc.), usually in the seller’s country. This may now be split into two FCA Incoterms; one for land delivery and another for maritime delivery.
FOB and CIF for container shipping
The Incoterms 2010 included a change indicating that the Incoterms FOB and CIF should not apply to non-containerized merchandise, instead using the FCA and CIP Incoterms. Said change is not being put into practice by the vast majority of export and import firms, nor by agents involved in international trade (freight forwarders, logistics operators, banks, etc.). This is because FOB and CIF are two very old Incoterms (FOB was used in Britain at the end of the 18th century) and nor did the International Chamber of Commerce suitably convey the change, which is a very important as approximately 80% of global trade is containerised. The Incoterms 2020 may state that FOB and CIF can again be used for container shipping, as was the case under the Incoterms 2000 and earlier versions.
Introducing a new Incoterm: CNI
The new Incoterm would be called CNI (Cost and Insurance), intended to cover the gap between FCA and CFR/CIF. Unlike FCA, the cost of international insurance would be covered by the seller-exporter, and, in contrast with CFR/CIF, it would not include freight. As with all the “C” Incoterms, this would be an arrival Incoterm, which means the risk of transport would be transferred from the seller to the buyer at the port of departure.
Splitting the DDP Incoterm into two
As with FCA, DDP has also been the cause of some problems, as customs tariffs in the importing country are paid by the seller, regardless of where the merchandise is delivered. Therefore, the Drafting Group may opt to create two new Incoterms based on DDP:
- DTP (Delivered at Terminal Paid): when the merchandise is delivered to a terminal (port, airport, transport hub, etc.) in the country of the buyer, and the seller assumes payment of customs duties.
- DPP (Delivered at Place Paid): when the merchandise is delivered anywhere that is not a transport terminal (e.g. the buyer’s address), and the seller covers customs duties.
In addition to eliminating and creating Incoterms, the Drafting Group is evaluating other aspects to be included in the new 2020 Incoterms. Among these are:
- Transportation Security.
- Regulations on transport insurance types.
- The relationship between Incoterms and the International Sale Contract
The Group is due to meet on a regular basis over the coming months to discuss these and other matters for potential inclusion in the Incoterms 2020. We expect the new Incoterms, which come into effect on 1 January 2020, to facilitate international trade between exporters and importers, adapting to the changes in the industry over the last decade.
Notice: this article was written based on the changes forecast according to various online sources (GlobalNegociator, among others). As yet no official changes have been announced by the International Chamber of Commerce (ICC).
Incoterms 2020: new developments and anticipated changes