Key Facts and Opportunities for Incoterms® 2020
On September 10th, 2019 the International Chamber of Commerce released their 9th version of Incoterms®, which will take effect on January 1st, 2020. The revision poses a valuable opportunity for companies to review their sales- and buying terms as well as risk profile.
Many wrongly consider Incoterms® a purely freight related issue. Incoterms® is a set of standard trading terms defined to support Sellers and Buyers in international trade to specify their respective rights and obligations, it is not terms to establish a contract of carriage. It can therefore have critical impact on an organization if no or wrong trading terms are included in a sales contract.
Incoterms® 2020 contain multiple changes compared to Incoterms® 2010, including DAT has been re-named to DPU and new requirements for insurance coverage for CIP term. It is therefore worth for every company involved in international trade to review their applied trade terms and ask themselves the questions listed to the right.
® Incoterms ® is a Registered Trademark of the International Chamber of Commerce (ICC)
Crucial Questions to Identify Opportunities within your Business
- For how much of the transport are we willing to carry the risk of loss and/or damage to the cargo?
- When do we need to / want to take out insurance? And should that be at A, C or another level of coverage?
- Are we applying the correct Incoterms® relative to our risk profile?
- Are we applying the correct Incoterms® relative to the used mode of transport? E.g. FOB/ CFR/CIF should rarely be used for container transport.
- Are we clearly specifying the place AND point of delivery AND place AND point of destination? Especially important for the C rule Incoterms® where place/point of delivery is different from place/point of destination.
- Does our contract of carriage terms match our agreed Incoterms®? Are we paying for charges we are not obligated to pay for, e.g. at unloading?
- When and how can our sales contracts be changed to used Incoterms® 2020 rather than Incoterms® 2010?
It can seem trivial to go through relevant company policies and all sales contracts as most transports, fortunately, are executed without disputes; however, ensuring correct use of Incoterms® can mitigate serious financial risks and remove headaches caused by disputes. If you want assistance to review your risk profile and applied Incoterms® your local ERA Group partner is ready to assist or visit eragroup.com