7 Key changes to Incoterms 2020

1. DAT Incoterm changed to DPU

2. Insurance points are clarified in CIF and CIP incoterms rules
3. Costs and cost structures are now clarified
4. Security in relation to transport is now clearly detailed
5. Provisions to allow for own transport rather than assuming 3rd party transport
6. FCA, FOB and Bills of Lading
7. Presentation and design is much more user friendly
The substance of Incoterms 2020 has not changed considerably, but the small subtle changes are
absolutely crucial for trade specialists.

Who uses incoterms?

Incoterms 2020 are used today by practitioners and traders, anyone involved in the supply chain of delivering goods
overseas will probably come across incoterms, including:
 Traders
 Producers
 Buyers
 Sellers
 Governments
 Banks

What do Incoterms cover?

The language that was agreed by incoterms guidance covers the following areas of international commerce and trade
by the International Chambers of Commerce:

 Tasks involved in shipping

 Which parties hold contract
 Responsibility of risk
 Delivery of goods (buyers and sellers)
 Insurance duties
 Customs and taxes

What is the purpose of Incoterms?

The main purpose of Incoterms is to provide a uniform, constant and authentic interpretation
of the commercial terms of delivery of goods, most frequently used in International
transactions, and, by means of their application, removing any uncertainty due to divergent
interpretations.
Operators from different countries, with different legislations, can at last rely on uniform,
unambiguous and authentic interpretive sources for properly and fairly sharing the costs and the
risks arising from the delivery of the goods.

The use of such clauses is discretionary and, for the sake of their validity, both parties of a
salescontract have to agree upon in advance through a specific mention on suche contract.

The field of action and the function of Incoterms is identified through the acknowledgement of
four “moments”:
 Who pays for the main transport?
 Where does the delivery take place?
 Where and when the risk is transferred from the Seller to the Buyer?
 Who bears all the fees arising from transporti.e. issue of documents, unloading of goods at destination,
customs clearance when neccessary, insurance of goods etc.

Inco Terms 2020

EXW – Ex Works
Delivery of goods at which the seller takes on the least risk

FCA – Free Carrier

Buyers organise shipping of goods and export documentation

CPT – Carriage Paid To

Like FCA, but where goods are delivered to a defined destination

CIP – Carriage and Insurance Paid To

Seller required to purchase minimum insurance required, and transport

DAP – Delivered At Place

Seller needs to deliver goods (and insure them) to a defined terminal

DPU – Delivered At Place Unloaded

Multimodal incoterm for seller to deliver goods to a defined destination

DDP – Delivered Duty Paid

Multimodal incoterm extending on DAT, to deliver goods at named destination

FAS – Free Alongside Ship

Non-containerised incoterm where it’s acceptable to ship with other goods

FOB – Free on Board

Common incoterm where the seller delivers to port but buyer responsible for insurance

CFR – Cost and Freight

Seller delivers goods to destination and is responsible for all transport insurance

CIF – Cost, Insurance & Freight

Seller pays for transport insurance and delivery of goods up until end port
 Seller versus Buyer – Risk Transfer
The subject of Incoterms is restricted to the aspects relating to the rights and obligations of the
parties, Seller and Buyer, of a commercial contract with reference to the delivery of the goods.

It is essential for the Seller / Exporter not to misunderstand the actual application of Incoterms
2020 that refer to the sales contract and NOT to the transport contract, even though, in order to
make a sale of goods, there are correlations with aspects and contracts that will be finalized later,
such as transport, insurance, financing etc.
It is furthermore important to keep in mind that Incoterms shall not be considered “laws” as their
legal effect lies in the will of both parties to opt for them in their commercial transactions by
making explicit written mention on.

In short, Incoterms 2020:

 are optional rules, not laws;
 do not affect the transport contract, as they relate with the sales contract;
 do not concern the property transfer or any other sales right;
 do not govern all of the obligations undertaken by the parties of a sales contract, as they are confined to
the delivery of the goods;
 do not concern the breach of the contract, with the relevant consequences for the party in breach.
ICC, i.e. the International Chamber of Commerce, grouped the obligations of the Seller and the
Buyer in 10 points, marked by the “A”, for the Seller, and by the letter “B”, for the Buyer, so that
each point (title) related with the Seller, under the letter “A”, matches with the position of the
Buyer, under the letter “B”.

Obligations of the parties under Incoterms 2020

Seller’s obligations Buyer’s obligations
A 1. General obligations B 1. General obligations
A 2. Delivery B 2. Taking Delivery
A 3. Transfer of risks B 3. Transfer of risks
A 4. Carriage B 4. Carriage
A 5. Insurance B 5. Insurance
A 6. Delivery / transport document B 6. Proof of Delivery
A 7. Export / import clearance B 7. Export / import clearance
A 8. Checking / packaging / marking B 8. Checking / packaging / marking
A 9. Allocation of costs B 9. Allocation of costs
A 10. Notices B 10. Notices

Therefore, the obligations governed by the Incoterms 2020 are the following:

 the Seller shall make the goods available for the Buyer, or his carrier, for transportation and delivery to the
agreed destination.
 the breakdown of the risks between Seller and Buyer, as for the transportation of goods from the place of
origin to the final destination.
 the obligation to clear customs in export and import.
 the obligation by the Buyer to take over the goods
Although Incoterms deal with a large number of specific obligations, they do not govern the
following aspects:

 transfer of property or any other sales right;

 breach of the contract, with the relevant consequences for the party in the breach;
 liabilities, financial conditions in connection with the execution of the main legal transaction;

Incoterms 2020 do not belong to “international contracts”. Instead, they only refer to the sales
contract signed the Seller and the Buyer.
Listen to our PODCAST: Incoterms® 2020 – Rules and Updates from the ICC
United Kingdom (S1E16)

Full ICC Incoterms 2020 Podcast

Rules for all modes of transport

Figure 1: Incoterms Infographic. SOURCE: O.Berk 101 Shipping Terms, Visual.ly

1. EXW Ex Works
Ex Works (EXW) is the term used to describe the delivery of goods to an available designation
at their place of business, normally in their factory, offices or warehouse.

The seller does not need to then load items onto a truck or ship, and the remainder of the
shipment is the responsibility of the buyer (e.g. overseas shipment and customs duty). EXW is
therefore more favorable to the seller as they do not need to worry about the freight once it has
left their premises.

2. FCA Free Carrier

Unlike EXW, Free Carrier pushes the responsibility of delivering the goods to the buyers
nominated premises onto the seller, so they have to organise shipping and various export
documents.

3. CPT Carriage Paid To

“Carriage Paid To”, or CPT, goes into a little more detail than FCA, specifying that the seller
bears the costs for transporting the goods to the nominated place that the buyer requests.

Carriage Paid To can be used in any transport mode, and the risk transfers from the seller to the
buyer as soon as the goods reach the nominated destination and the carrier takes charge of these.

4. CIP Carriage and Insurance Paid To

“Carriage and Insurance Paid to”, or CPI, specifies that the seller needs to pay the costs of
transport as well as the insurance cover for the goods in transit (by any transport mode) to the
destination named by the buyer.

In terms of level of insurance, the cover level can be minimum, defined by the ICC’s INCO
Terms, and should they request a higher level of insurance, this would need to be agreed on the
contract.

The risk is then transferred from the seller onto the buyer once the goods reach the nominated
point.

5. DAT Delivered At Terminal

“Delivered at Terminal”, or DAT, means that all of the costs up until the point of delivery to a
nominated terminal (e.g. a port or a quay) need to be covered. As in the table above, the buyer
would need to arrange Duties and Taxes and clearing goods through customs. With DAT, the
seller is also responsible for unloading the goods at the terminal.

It’s advisable to ensure the terminal, hub or port is clearly specified, given the size of many
terminals.
6. DAP Delivered At Place
“Delivered at Place”, or DAP, can also be used for any mode of transport. An extension of DAT,
the seller delivers the goods at a named destination, specified by the buyer, although under the
ICC rules, the unloading of the goods are the responsibility of the buyer.

The buyer is also required to sort out duties and taxes, as well as clearing the goods through
customs.

7. DPU Delivered at Place Unloaded

“Delivered at Place Unloaded”, or DPU, can be used for any mode of transport. The seller
delivers the goods and transfers the risk to the buyer when goods once unloaded from the
arriving means of transport are placed at the disposal of the buyer at a named destination at the
agreed point within that place. The seller bears all risks involved in bringing the goods to and
unloading them at the named place of destination. Therefore the delivery and arrival at the
destination are the same.

8. DDP Delivered Duty Paid

“Delivered Duty Paid”, or DDP, can be used for any mode of transport. The seller delivers the
goods and transfers the risk to the buyer when the goods are placed at the disposal of the buyer,
cleared for import, on the arriving means of transport, ready for unloading at the named place of
destination. The seller bears all risks involved in bringing the goods to the named place of
destination or to the agreed point within that place.

Get in touch with our finance experts. Enquire now.

The ICC INCO Terms also have a section specifically for goods transported by sea or
inland waterway.
Figure 2: Incoterms Infographic. SOURCE: O.Berk 101 Shipping Terms, Visual.ly

9. FAS Free Alongside Ship

“Free Alongside Ship”, or FAS, is used in situations when the seller can place the goods
alongside other non-containerised goods (e.g. on a vessel or barge).

The seller might do this if they have access to sea or inland waterway routes and want to place
the goods en route to the buyer alongside other goods on the ship. It’s not recommended for
goods that can be placed in a container (more on this below, see FCA).

The risk of transporting the goods ‘alongside ship’ move from the seller to the buyer once the
goods are delivered to a terminal or port and unloaded.
10. FOB Free On Board
“Free On Board”, or FOB, occurs when the seller delivers the goods to the port of shipment, at
which then it becomes the responsibility of the buyer once unloaded onto a vessel. If the goods
are damaged when on board the vessel, it’s the responsibility of the buyer.

11. CFR Cost and Freight

“Cost and Freight”, or CFR, incurs more risk and responsibility onto the seller. The seller
delivers the goods up and takes all responsibility and cost right up until the ship has docked at
the end point and the goods have been unloaded. The seller will also cover the cost of insurance
at atleast the minimum level.

12. CIF Cost, Insurance and Freight

“Cost, Insurance and Freight”, also known as CIF, is also restricted to sea or inland waterway
modes of transport. In this case, the seller insures the goods transported up until they arrive at the
port, but it becomes the responsibility of the buyer (in terms of risk and insurance).
Figure 3: Incoterms Infographic. SOURCE: O.Berk 101 Shipping Terms, Visual.ly

What is the History of Incoterms?

1936 – First Incoterms were agreed and Published, these include FAS, FOB, C&F, CIF, Ex Ship
and Ex Quay
1953 – As the rise of rail during the war increased, DCP – Delivered Costs Paid, FOR – Free on
Rail and FOT – Free on Truck were added to bring clarity to new forms of transportation. To
further revision of incoterms were published in 1967 to cover off some common
misinterpretations in these terms
1974 – FOB Airport was introduced in the newer publication of ICC incoterms to account for
increased goods travelling by air
1980 – With the containerisation revolution at full swing, more details were added to incoterms
rules to define destination points (e.g. shipping shore ports and container yards)
1990 – Previous incoterms that were added to account for rail and air transport made the terms
very complex, particularly when goods were transported using more than one transport node. So
the ICC scrapped a few of the F incoterms (FOR; Free on Rail, FOT; Free on Truck, and FOB
Airport; Free on Board Airport) to simplify and completely renew the language of incoterms
2000 – The terms were amended to account for further changes in customs requirements and to
comply with global changes
2010 – The most radical of reforms of the ICC Incoterms, where D terms were consolidated
from: DAF, DES, DEQ to DDU, DAT and DAP
2020 – A new revision of incoterms is underway – see the latest updates here.

On the 1st January 2020, Incoterms® Rules will be changing. As Media Alliance
Partners of the ICC Incoterms® 2020 rules changes, TFG’s Deepesh Patel heard
from ICC United Kingdom’s Secretary General, Chris Southworth, as well as
Professor Charles Debattista and David Lowe from the ICC Incoterms® 2020
Steering Committee. We hear about the importance of Incoterms® in international
trade, why they are changing in 2020, and what businesses should be thinking
about in order to prepare for these changes.
Season 1, Episode 16
Host: Deepesh Patel, Editor, Trade Finance Global
Featuring:
Chris Southworth, Secretary General, ICC United Kingdom

Professor Charles Debattista, ICC Special Advisor to the Drafting Group on ICC Incoterms 2020 (Counsel and
Arbitrator at 36 Stone, The 36 Group)

David Lowe, Co-chair, ICC Incoterms 2020 Drafting Committee (Partner, Head of International Commerce –
Gowling WLG)

Deepesh Patel: I’m Deepesh Patel, Editor at Trade Finance Global.

At midnight on the 1st January 2020, many people will be celebrating the start of a new decade.
Many of whom, may be on a boat. Now for boat owners, more specifically, cargo ship operators,
and trade practitioners, the start of 2020 also marks a very special occasion. It’s the date that
Incoterms 2020 come into effect, globally.

Incoterms are changing, and in this episode of Trade Finance Talks, we will be hearing from the
ICC United Kingdom, shedding some light on the key changes. Incoterms stand for International
Commercial Terms, which are a set of rules, created by the International Chamber of Commerce,
facilitating some $12 trillion USD of international trade each year.
Why are Incoterms needed?
Simply put, Incoterms are hugely important for anyone selling or moving goods abroad. So
whether you’re an importer or exporter, freight forwarding company or trade financier, credit
insurer or law firm, it’s likely that you use Incoterms to govern trade.

Incoterms are the authoritative rules which clearly define the responsibilities between buyers and
sellers of goods, ensuring the delivery of sales contracts. They’re globally recognised, enable
clarity in contracts, and could avoid costly trade disputes, claims and litigation.

Incoterms 2020: Why have they changed?

Global trade and commerce is changing. Supply chains are more interlinked and complex, e-
commerce now plays a significant role in global trade, and digital trade is at the front of mind for
traders, financiers, freight forwarders and suppliers. The first Incoterms rules were published in
1936, but as consumer behaviour and businesses adapt to the new norms of the 21st century, so
should the rules.
Today I’m with Chris Southworth, Charles Debattista and David Lowe at the ICC United
Kingdom here in London. We’re hearing from the team on ICC Incoterms, why they’re used, and
what businesses should be thinking about for the release of Incoterms 2020 this year. Thank you
for joining us, Chris, over to you, if you can give an introduction to the group and what we’ll be
discussing today!

Chris Southworth, Secretary General, ICC United Kingdom

Chris Southworth: I am Chris Southworth Secretary General of the ICC United Kingdom
speaking to Charles Debattista, the ICC Special Advisor on Incoterms and David Lowe co-chair
of the Incoterms drafting group, and partner at Gowling WLG. We’re here to talk about ICC
Incoterms, which are a fundamental set of rules supporting global trade, used in over 100
countries and translated into 30 languages.
DP: Thanks Chris. Why don’t we start with you, Charles, what are Incoterms in simple words?
Charles Debattista: Incoterms stand for International Commercial Terms. Incoterms have been
around since the 1930s. They’ve been through several different versions (this is the 7th or the 8th
version). They are currently revised every 10 years, and they are a voluntary code of rules or
terms, which international traders around the world can, at any stage, incorporate into their sales
contracts.
The History of Incoterms – 1936 – 2010

David Lowe: Incoterms set out where the seller’s responsibilities lie and where
the buyer’s responsibilities lie. Who has the responsibility to clear the export, who has the
responsibility to pay for carriage, who bears the risk of when things going wrong?
DP: So David, who is the core audience of Incoterms?
DL: The most important audiences are the people who sell and buy goods because the Incoterms
set out the relationship between them – who is responsible for doing what and at what cost.
But it’s not just that, everyone who helps them along the whole supply chain play an important
role; freight forwarders, logistics providers, port authorities, customs brokers, trade finance
providers, and insurers. All of these parties need to have a good understanding of Incoterms to
help the seller and buyer make a successful trade.
CD: So sellers, buyers, banks, insurance carriers, logistics carriers use terms such
as CIF, FCA or CIP, to clarify the obligations, in terms of rights, critical moments to deliver, and
the transfer of risk. They would go to Incoterms 2020 to get the correct definitions.
CS: We are talking about goods exports here, we are not talking about services export, am I
right?
DL: That’s correct.
CS: So If I’m a classic goods exporter in Birmingham, where should I be using Incoterms and
why should I use them?
DL: In every one of your contracts, there should be your standard sales terms, and any other
bespoke contract set out. Because what could be more basic than to agree with the party, where
the delivery point is and what responsibilities are, it should be part of your pricing.
DP: And Charles, a question that we often get asked- what is the relationship between Incoterms
and trade finance and trade insurance?
CD: Couple things, first of all, there are 11 Incoterms in the 2020 version, let’s take CIF or CIP
(Carriage and Insurance Paid Тo).
CD: You’ve got 20 terms within the CIF Incoterm – 10 for the seller and 10 for the buyer, but
that is not the contract for the sale. If you are selling sugar, bananas, whatever you need a
contract. What Incoterms does is provide the underpinning, with the safety net of definitions
which underly that contract.
Now, Incoterms are not a sales contract, neither are they an insurance contract, trade finance
contract, or transport contract. They all have some effect, and are impacted by Incoterms to some
degree, and this is why these other players in international trade need also to be aware.
Incoterms Part 2: Responsibilities for the Cost of Buyers & Sellers for Services

DL: So some Incoterms will state that if a party has a particular responsibility to carry
insurance, CIF – carriage insurance rate, where the seller is responsible for getting certain
insurance; then the seller needs to provide insurance. Some Incoterms don’t mention insurance,
but if you are selling goods, then you need to make sure that you are insured at the point of
delivery. In the case, when and if something goes wrong, a risk management strategy should be
in place. And again, the insurer needs to understand that.
On the trade finance side, we need to understand what’s going to be required to affect the sale
that needs to be financed and how that’s going to fit in with trade finance. So, if you are using
a letter of credit (LC), the LC will demand certain documents that need to pay against. As a trade
financier, you need to understand whether this is a realistic set of documents, to secure your
position.
CS: So a banker or insurer are likely to ask you to make sure that you are having your Incoterms
in your contracts?
CD: Yes
CS: So if I am a classic goods trader back in Birmingham, so what, if I don’t use them, what’s
going to happen?
CD: If you use the wrong Incoterm, and if your insurance arrangements don’t tally with what
you are meant to be doing on your sales contract, if your Letters of Credit don’t match the
documents that you are entitled to under your terms of Incoterms, if there are gaps between the
contracts or misunderstandings for various terms. Then the likelihood is that if there was a
motive for the dispute, if the market moves against you, If your buyer loses interest in your
goods, then there’s likely to be a disconnect. And then, of course, everyone, reaches to their
lawyers starts to bear costs. All of this could be avoided by some care and attention at the start by
training yourselves in Incoterms.
DL: If you don’t use Incoterms, that’s not a problem in itself. It’s a really convenient way of
covering all the many points, with just one phrase. You can incorporate all negative, you have to
think about the details of the drafting. So it’s just convenient, if you don’t use Incoterms, you
will have to get to detail in each and every one of those points in your contract. And most people
just don’t have the time and patience to do that.
CD: And this is why the ICC advises them every 10 years; to reflect changes in trade practice, to
try and respond to problems which have been brought to the attention of the National
Committee’s and the ICC HQ you in the intervening 10 years. The process is very, very, the
process of change and revision is very, very user-friendly. You may think that it’s an exercise
indulged and only by lawyers, but we were only two of four-lawyer in a group of 11, the rest
were real people with real problems. And several revisions went out to national committees
around the world, where the drafts were looked at very, very carefully by real businessmen with
real problems. And they were fed back to the drafting group in order to respond to those
problems.
DP: A huge effort has gone into the Incoterms 2020 release, particularly from the excellent
Incoterms 2020 steering group.
More than just three-letter acronyms, Incoterms® 2020 will help shed light and clarity for buyers
and sellers, to help them understand their obligations, responsibilities, and risks.

Here at TFG, we’ll be keeping you updated on the key changes and new rules once Incoterms
2020 are launched, giving you the support and guidance, signposting, and advice on what you
need to know for the 1st January 2020.