Incoterms are trade terms dictated by the International Chamber of Commerce to help both suppliers and buyers understand each other in a better way. It is interesting how Incoterms have evolved over the years. From 2010 to 2020, there have definitely been some major changes in these terms because the world’s economy has certainly not been the same.
Trade is a common practice all around the globe and hence incoterms serve as guidelines for both the importers and exporters when they are making decisions.
It is always better to be aware of the incoterms when indulging in international trade because rules are definitely important for a fair and profitable exchange.
This article explores some major differences between the incoterms in 2010 and 2020. Although there are not many extensive changes, some are really important to note.
1. From DAT to DPU
DAT simply refers to delivered at the terminal, meaning that goods are to be unloaded at a specific terminal for the buyers to receive. In 2010, DAT was one of the incoterms and had to be followed by any person or company trading internationally. However, in 2020, the incoterms were revised and as a result, this one term was renamed as DPU, meaning delivered at Place Unloaded.
This new term meant that now there was no specific terminal or place for the goods to be unloaded. Any place chosen by the buyer would work and no violation of any incoterms would come as a result. This rule gave the buyer the liberty to choose any place for delivery according to their cost instead of a specific terminal.
2. FOB and FCA
FOB refers to free onboard and FCA refers to free carrier, both of which are rules of the incoterms. Under FOB, it is the seller’s responsibility to verify if the cargo or container has landed at the port of export. This is considered to be extremely risky and costly since it gets difficult for the seller to check the safe landing of the cargo.
To counter such difficulties from the supplier’s end, the incoterms of 2020 ensured that under FCA, the potential loss of the seller is reduced. FCA along with a letter of credit, which is issued by the carrier to the supplier, is used to do just that. With an onboard bill of lading, the cost of any mishap is decreased and thus the suppliers are well insured of any extra charges they may have to face.
3. Insurance of the Goods
CIP is another rule in the Incoterms which was slightly changed in 2020. In 2010, under CIP which refers to Carriage and Insurance Paid, the seller’s responsibility lies only until the delivery of the goods and that delivery place is only supposed to be on a ship, from where they are supposed to be transported to a port. These details are very important under the rule of CIP.
Since this rule dictates a necessity for sea trade, it is mostly used for manufactured goods. The only change which was made to this rule in Incoterms 2020 was the insurance charges paid by the seller in case anything goes sideways during the trade. Over the years, costs for everything increased and insurance for manufactured goods followed the same pattern.
4. Ensuring an Even More Secure Trade
With an increment in terrorist attacks and trade-related crimes, Incoterms were made stricter in terms of security regulations which both parties had to comply with in order to avoid any kind of extra charges or delays in deliveries.
Making sure that every trade is safe and abiding by all the rules, Incoterms 2020 was revised and transformed into facilitating a secure exchange of goods.
5. Modes of Container Shipments
FCL and LCL are modes of container shipments that can help you better understand the international logistical trade terms. FCL is an acronym for Full Container Load while LCL is an acronym for Less Container Load.
The former term refers to a shipment of goods that fill the whole container while LCL is the opposite of that. These are goods that do not take up the whole space in the container but instead only utilize a portion of it. The maximum weight for such a shipment is 12 tons and the shipping costs are solely dependent on the weight and volume of the goods but CBM (Cost per Cubic Meter) is also a measure used. Usually, the method which shows a higher cost is used by the service providers.
Since there are various goods of different suppliers in one container, the shipping process is not as simple as for FCL. For less than container load, the container is delivered at a consolidation warehouse after which different goods are transported to their respective locations.
FCL is considered less costly than LCL only if the goods are of large volume because the supplier pays money not according to the weight or volume of the goods but instead on the basis of the price of a full container. It is however recommended to opt for LCL if the volume of the goods is not very large since that is more cost-effective.
An LCL shipment can both be booked and tracked through a service provider which ensures that after the supplier has provided all the necessary details, the goods reach the required destination safe and sound.
Although there were not many changes made in the 2020 Incoterms, there were still some made in order to facilitate and make the process of international trade both easy and secure for importers and exporters.
If you are a seller looking to identify some major changes, this is an article that will definitely be of help because it not only explains what incoterms are but also clearly defines each rule which was altered or edited in the 2020 version.
There are still eleven rules in the incoterms but not all of them are the same as 2010 as mentioned in this article.