The Incoterm Rules or International Commercial Terms are a series of pre-defined commercial terms published by the International Chamber of Commerce (ICC) (@iccwbo) widely used in international commercial transactions. With the Intension to institutionalize best Practice of using Uniform Set of Rules in the International Transactions, International Chamber of Commerce, First published in 1936 a set of Three (3) Letter Acronyms to describe Delivery Terms. From 1980 onwards INCOTERMs are Revised once in every 10 Years.

History of Incoterms

The Incoterms® 2020 Rules, the 9th revision comes into effective from 1st January, 2020.

Incoterms®  are Adopted by over 120 countries.

A series of Three-letter Trade Terms of Incoterms Rules are intended primarily as a uniform set of rules to clearly clarify & communicate the Obligations : Responsibilities, Costs and Risks associated with the Transportation and Delivery of Goods.  .

Responsibilitys

Because they address issues relating to import and export by buyers and sellers in international commercial transactions, Incoterms® rules are most appropriate for use in Sales Contracts & International Shipping.

What Do INCOTERMs ® Do?

Three (3) Letter Acronyms Representing Trade Terms Commonly used for International Sales Transactions are to Standardize, Define Responsibility, Outline Costs, Determine Delivery Point & Transfer Risks & Reveal Gaps

Outline Costs

Right use of INCOTERMs® ensure smooth Sales Transaction Across Boarders and avoid Potentially Costly mistakes. Incoterms define the Responsibilities, Costs and Risks to be borne by buyers and sellers for the sale of goods in International Transactions.  The terms are structured to increase incrementally the obligations (control, risk and cost) on one party while decreasing the obligations of the other, depending on the specific term chosen.

INCOTERMs® Used:

To Estimate Costs, Quote the Prices, Negotiate & Finalize Contracts, To Select & Finalize Forwarders & Sipping Lines, For Preparing Documents like Invoice, B/L etc., Working out Cash Out-Flows, Finalize Payment Terms, Export Shipping Credits & Bank Transactions, Understand the Risks etc

International Sales Transaction

Each INCOTERM clarifies which party (either Buyer or Seller) is Responsible for:

> Each term clarifies which party is Responsible for:

> Packaging, Marking, Labelling

> Loading & Unloading

> Inland freight (transportation within the origination country)

> Forwarder Selection

> Export Clearance

> Carrier Selection and Scheduling

> International Freight

> Insurance

> Import Clearance

> Import Duties & Taxes

> Delivery at Specified Place etc

Incoterms Define

Responsibilities, Transfer of Risks and allocation of Costs in connection to delivery of a consignment from seller to buyer.

> Up to which place the risks are borne by seller.

> Up to which place the costs are borne by seller.

> Which responsibilities are borne by the seller.

> Which responsibilities are borne by the buyer.

What are the main changes in Incoterms 2020?

There are seven (7) keys changes to the 2010 Incoterms, specifically:

> DAT Incoterm changed to DPU

> Change of insurance in CIP/CIF

> Costs are clarified

> Security in relation to transport is now clearly detailed

> Provisions to allow for own transport rather than assuming 3rd party transport

> FCA, FOB and Bills of Lading

Presentation and design is much more user friendly

11 Incoterms® 2020 Rules: Grouping

Incoterms® are Grouped into Four : “E” Terms; “F” Terms, “C” Terms, “D” Terms

Clasification Based on starting letter

Incoterms® are also Grouped based on Mode of Shipment : Multi-Modal & Marine only

 

Modes of Transport

Incoterms® Chart Showing Responsibilities, Cost & Risk Transfer

Chart Showing Responsibilities

What INCOTERMs ® – 2020 Do Not Define?

Incoterms-2020

How to use INCOTERMs ® – 2020

4 Tips on How to use Incoterms Correctly:

  • Choose the Right Rule
  • Mansion Place of Delivery Immediately After the Term
  • Refer to the Appropriate Version of the Incoterms e.g. FOB Navasheva, India, Incoterms 2020.
  • Incorporate them into the Contract as well as the LC, Invoice, B/L, Customs Documents

Appropriate Version

It is possible to add clauses or change the wording of Incoterms.

Examples:

CFR Charleston port USA incl. THC, CUC, ISPS in Charleston
FCA Vienna Airport loaded on aircraft
DDP Hanoi Vietnam VAT unpaid

INCOTERMs ® – 2020

Multi Model Incoterms

Multi Model Incoterms images 1

Multi Model Incoterms images 2

Marine only Incoterms

Marine only Incoterms images 1

Can I still use Incoterms® 2010 after 1st January, 2020? 

Yes, all contracts using any incoterms are valid if they are agreed upon by all parties to the transaction, and correctly identified on the export-related documents.

Although the ICC recommends using Incoterms® 2020 beginning January 1, 2020, parties to a sales contract can agree to use any version of Incoterms after 2020.

They need to clearly specify the chosen version of Incoterms being used (i.e., Incoterms® 2010, Incoterms® 2020, or any earlier version).

Disclaimer : The views and opinions; thoughts and assumptions; analysis and conclusions expressed in this article are those of the authors and do not necessarily reflect any legal standing.

Author : SN Panigrahi, GST & Foreign Trade Consultant, Practitioner, International Corporate Trainer & Author.

Available for Corporate Trainings & Consultancy

Can be reached @ snpanigrahi1963@gmail.com

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