The Incoterms 2020 rules, published by the International Chamber of Commerce (ICC), are a globally-accepted, authoritative, and voluntary official commercial terms that determine the responsibilities of sellers and buyers under international trade sales contracts. Over 140 nations accept Incoterms as the standard in commercial shipping, according to the Export-Import Bank of The United States. However, Incoterms do not cover the entire contract as they do not include aspects like the price, delivery schedule, the method, or timing of the payment.
The Need for Incoterms
Traders in different countries have different trading practices and interpretations of the law that make it difficult to adhere to a set of practices that can be understood and followed by all concerned and reduce the chances of misunderstanding, confusion, disputes, and needless litigation. Incoterms came into force in 1936 and since then have evolved into a contractual standard followed worldwide. The rules are updated periodically. Since the last time they were revised was in 2020, the current set is referred to as Incoterms 2020.
Some Incoterms Applicable For All Modes of Transport
EXW (Ex Works)
The seller meets his obligations by making the goods available to the buyer at a designated place, usually, the seller’s premises on a mutually agreed date or time frame. The buyer assumes all the costs and risks on the delivery of the goods by the seller. The seller has no other obligation save making the goods available to the buyer to take delivery.
DPU (Delivered at Place Unloaded)
Earlier named Delivered at Terminal (DAT), the Incoterms 2020 has renamed it to Delivered at Place Unloaded (DPU) to allow it to cover situations when the parties may settle for a place of delivery other than a terminal. Typically, dpu incoterms 2020 is used for consolidated containers that have goods for multiple consignees. As in the earlier DAP, the seller has the responsibility for export clearance, paying the costs; and undertaking the risks of delivery at the specified location. The buyer is responsible for import clearance and assumes all risks and costs of onward transit.
FCA (Free Carrier)
The seller is obligated to deliver the goods at a mutually agreed upon location and loading it onto the buyer’s transport; delivering them to the port, arranging the security, and arranging export clearance. The term eliminates the earlier problem of international carriers not giving the seller a bill of lading. Now, the sales contract can specify that the buyer will have to instruct the carrier to issue the bill of lading so that the seller can get paid.
CPT (Carriage Paid To)
The seller is responsible for export clearance, delivery to either the carrier or a person specified by the buyer; and paying the cost of international transportation. However, the risk transfers to the buyer immediately on delivery to the carrier; so that the buyer is responsible for the loading of the cargo and thereafter.
The principal advantage of using Incoterms 2020 is that both the seller and the buyer know exactly what the obligations; and responsibilities apply to each; there is no scope of misunderstanding or dispute on the specific terms of the contract.