Incoterms 2020 is the ninth and the latest edition to International Commercial Terms, which came into effect from January 1, 2020. The first set of rules were introduced in 1936, and since then eight revisions have already been done in 1957, 1967, 1976, 1980, 1990, 2000, 2010 and 2020 along with the development and evolution of global trade. From 1936 till 2010, there were many changes made to simplify the terms and to make it easier to use, but one cannot see any major alter in 2020 incoterms.
The exchange of goods between distant lands has been there for centuries. But before that, the Political frontiers of the world were not fixed & profound enough due to Colonialism, Dominions, and different dependent territories, which kept on changing. For years, it practiced without a standard set of rules, which led to misunderstanding, litigation, and disputes. But as the need for trading goods increased, the need for a body to govern these came into the picture.
Within a particular area of activity, there should always be a set of rules to keep a check into the performed operations, which also applies to trade practices. Trading has witnessed numerous changes over the past few decades; some were significant, whereas some were relatively small. One of the major milestones was the foundation of the International Chamber of Commerce in 1919, which has changed the way of trading goods.
There are different constraints like transportation, delivery, documentation, insurance, customs clearance, shipping management, and many more in international trading. As it is a global thing, obligations, costs, and the risk involved have to be framed under certain parameters. So there have to be some defined rules for all these activities. We can be obliged to the idea of founding the ICC, which also brought favorable circumstances to create a trade standard known as Incoterms. These terms are just a way of distributing the obligations between the buyer and the seller. These are a series of 3 Letter Abbreviations that are related to commercial laws. They were coined in the year 1936, and since then, it has developed gradually into a standard.
As one has seen there were many changes made in ways of communicating information, methods of transport for goods and services, contacts and in much other stuff, there were changes made accordingly in Incoterms as well, which is the reason several new terms got added, few removed and some modified. As per the ICC trend, they come up with new Incoterm in every ten years.
However, the paradigm has not immensely shifted in the technical, economical & infrastructural grounds within a decade enough to create new modifications on Incoterm. Hence, there is not much difference in Incoterm 2010 and 2020 as well.
As per Incoterms 2020, below are the terms and their explanation:
EXW- Ex Works: As per this incoterm, the seller makes the goods available to the buyer in their warehouse, and the buyer bears all the costs from the time the goods cross the warehouse before loading.
FCA - Free Carrier: The seller bears the costs and risks till the point of delivery at the agreed place, including the cost and export clearance, whereas the buyer bears the cost from loading on-board to unloading.
CPT - Carriage Paid to: In this, the seller bears the cost till the time the goods are delivered, which includes costs at the origin, export clearance, the transport, and the cost at the destination. The buyer is only responsible for the import procedure.
CIP - Carriage and insurance paid: In this, the seller bears the cost till the time the goods are delivered, which includes costs at the origin, insurance, freight, and export clearance. The buyer is responsible only for import clearance and the delivery at the end destination.
DAP - Delivered at Place: In this, the seller does not bear the costs and risks of costs at the origin, freight and inland transport. The buyer is responsible only for the import clearance and unloading of goods.
DPU - Delivered at Place Unloaded: DAT (Delivered at Terminal) in Incoterm 2010, has been replaced by DPU. The reason being that it is always not possible to unload the goods at the port or the airport; instead, they are dumped in any third-party warehouse.
DDP - Delivered Duty Paid: In this, the seller bears all the costs and risks from their warehouses till the goods reach the end destination. It includes freight and insurance if taken, any export and import clearance.
FAS - Free Alongside Ship: Here, the seller is responsible for the export custom procedures and for delivering the goods to the port of origin and bears the costs till the delivery. The buyer is responsible for the costs up to the delivery at the destination, import clearance, storage, loading on-board, freight, and insurance if taken.
FOB - Free On Board: FOB is used only for shipping and not for the goods in containers. Here the buyer is responsible for the unloading, import clearance, freight, and delivery at destination. The seller bears only the costs till the goods are loaded into ships, export clearance, and the costs at the origin.
CFR- Cost and Freight: CFR is used only in shipping. Here the seller is responsible for export clearance, freight, costs at the origin, unloading costs, and all the other costs till the goods reach the destination port. The buyer takes charge of import procedures and transport to the destination.
CIF- Cost Insurance and Freight: Here, the seller is responsible for export clearance, freight, costs at the origin, unloading costs, and all the other costs till the goods reach the destination port along with the insurance. The buyer takes charge of import procedures and transport to the destination.
Now the question arises about the future of Incoterms? Is there any significant technology change going on? Will one see any substantial change in it in the next ten years?
Indeed. With Artificial Intelligence, Data Analytics, Machine Learning, and Advanced digitalization evolving with time. Undoubtedly, we might expect to see significant changes in the upcoming Incoterm 2030 with the shift.