Incoterms 2020: The Next Iteration of International Trading Terms
Feb 19, 2019
PREVIEW: INCOTERMS 2020
Changes In Store For The Next Iteration of International Trading Terms
It is increasingly likely that on or about January 1st, 2020, participants in international trade will bid farewell to Incoterms 2010 and will begin using the next version, Incoterms 2020.
As of this writing (February 2019), numerous trade sources on the matter are reporting anticipated changes. We reviewed a number of these sources to discover the most commonly held potential changes coming in Incoterms 2020. Spoiler alert: This data is very time-sensitive, speculative, and likely incomplete. All that said, let’s take a look!
It appears that two of the main objectives in this new version is the simplification of Incoterms and further elimination of misunderstandings.
“I can say that a general focus will be on making the rules easier to understand and use, to try to reduce misuse of the Incoterms rules, which can lead to costly consequences.”
– Emily O’Connor, Senior Policy Manager, ICC
We know that the e-commerce explosion in the last decade has introduced many new players into the international transaction market, with many of those being unsophisticated and inexperienced. This certainly is a factor in the further simplification of the terms.
Here are the specific changes expected:
1. Incoterms Eliminated
FAS, DDP, and EXW are not likely to be included in Incoterms 2020.
FAS is in the ‘ocean-only’ group of 2010 terms and is entirely similar to FCA, rendering it unnecessary. DDP is likely to be divided (more on that next). EXW is heavily used in domestic (US) trade and subsequently misused in international transactions. The justification to eliminate EXW and DDP is that they are really domestic operations; in the case of EXW by the seller-exporter and in DDP by the buyer-importer. In addition, these two Incoterms appear to contradict the new Customs Code of the European Union since the responsibility of the exporters and importers takes place once the clearance of export and import have already been carried out.
With EXW going away, it is likely that FCA will be expanded in detail. More than a few experts see EXW as misunderstood, which does not reflect the goal of Incoterms to increase understanding, and now the opportunity has arrived to eliminate it from international trade.
2. Incoterms Divided
DDP is likely to be retired and replaced by two new terms: DTP and DPP.
DDP requires that all customs duties at destination are the responsibility of the seller, regardless of where the goods are being delivered to (buyer’s address, warehouse, terminal, etc). The two new terms, DTP and DPP, will still make the seller responsible for customs duties and will also make a clearer distinction about the final delivery location.
DTP (Delivered at Terminal Paid): Seller is responsible for all transport-related costs, including customs duties, when goods are delivered to a terminal (port, airport, transport center, etc) at destination.
DPP (Delivered at Place Paid): Seller is responsible for all transport-related costs, including customs duties, when goods are delivered to any other place that is not a transport terminal (i.e. buyer’s address).
FCA may be split two ways with one new term for surface transportation and one for ocean freight.
One of the main advantages FCA offers is its flexibility with delivery location. This may be the seller’s address, a warehouse, a seaport, an airport, etc. Plus, it can be applied to all modes of transportation, which makes it perfect for multimodal transport.
Splitting this term would address the regular misuse of EXW, the elimination of FAS, and add clarity on exporter responsibilities.
3. Incoterms Added
CNI, or Cost and Insurance, is meant to fill the risk gap separating the FCA and CFR/CIF.
As with the other C-terms, CNI will be a ‘prepaid’ term, with the risks and responsibilities transferred from seller to buyer at the departure port. But, this new Incoterm will allow the exporter to arrange for cargo insurance, while the buyer takes charge of the risk of the ‘main carriage’ transportation. This should help to resolve controversies and disputes surrounding payment of duty as well as bridge the gap between FCA and CFR.
4. Clarification to Terms
FOB and CIF/CIP have been around for a long time and are well understood, but need some ‘modernization.’ The following changes are believed to take place for the FOB and CIP/CIF terms:
- The ownership of insurance liability between buyer and seller
- The addition of Destination Handling Charges in the CIF shipment quotations
- Recommended penalties for the manipulation of the supplier under CIF terms (interesting!)
- A critical investigation of hidden supplier profit (VERY interesting!)
These have been extraordinarily interesting times in global trade and this pattern will undoubtedly continue with a revised set of Incoterms. As we at Bestway say so often, knowledge and command of Incoterms is an incredible strategic advantage. We hope that these notes have been helpful. We are privileged to be your ongoing source for tactical trade data.