WHAT’S NEW IN INCOTERMS 2020?
The International Chamber of Commerce (ICC) is drafting a revised version of the International Trade Conditions 2020, referred to as Incoterms 2020. In addition to a number of major changes related to international trade conditions , The Incoterms 2020 drafting committee intends to simplify the rules, eliminating confusing words and phrases so that people with the primary language other than English can easily understand Incoterms conditions.
1. Eliminate EXW, DDP and FAS
EXW, DDP and FAS conditions will no longer exist in Incoterms 2020 because: EXW (Ex works) is often used by companies with little experience in the export of goods; DDP (Delivered Duty Paid) is often used with samples or parts, small parts and express courier service for buyers. According to statistics, EXW and DDP are usually used in domestic trading.
FAS (Free Alongside Ship), statistically, is rarely used because FAS is somewhat similar to FCA (Free Carrier – Carrier) where goods are delivered at a certain location. That includes the port in the exporting country. With FCA, the seller can deliver goods at the port like FAS because the wharf is part of the seaport.
2. Expand FCA conditions
FCA is quite popular in international goods trading due to the flexibility of the location of delivery: seaports, train stations, airports, warehouses, distribution centers … and can be used with all modes of transport, suitable for multimodal transport.
The FCA under the Incoterms 2020 is expanded into two conditions: (i) for road transport, and (ii) for sea transport.
The expansion of FCA use makes a big change because FCA helps sellers control and understand their obligations and responsibilities for goods clearance.
3. DDP is split into two new conditions
DDP is no longer in Incoterms 2020, but is split into two new conditions: DTP (Delivered at Terminal Paid) and DPP (Delivered at Place Paid).
DDP of Incoterms 2010 stipulates that the seller must pay customs duties at any destination, such as warehouse, station … of the buyer. By separating into two conditions, the seller still has to pay import taxes but clearly distinguish the place of final delivery.
With DTP, the seller bears all transportation costs, taxes until the goods are delivered to the station (airport, seaport …) at the destination.
With DPP, the seller bears all freight charges and taxes until the goods are delivered to a non-station location, for example, the buyer’s office.
4. Modification of terms FOB and CIF
FOB (Free On Board) and CIF (Cost, Insurance and Freight) are two conditions, that are very common used for a long time in international and domestic trade (from Incoterms 2010). In a recent review of Incoterms, ICC said that because of the poor propaganda, many companies still use FOB and CIF for goods transported by container ships, which should have used two conditions FCA and CIP, respectively.
Due to the increasing volume of cargo transported by containers, the Incoterms 2020 amended the conditions of FOB and CIF that can be used for goods transported by container ships.
5. Addition of CNI provision
CNI (Cost and Insurance) is a new provision of Incoterms 2020. This provision is to create more options for sellers when they want to buy insurance for goods but are not responsible for costs and transport arrangements like CFR or CIF terms. Unlike FCA, CNI includes seller-covered insurance premiums. According to CNI, the risk of moving from seller to buyer is the same as for FCA (at the place of delivery in the place of departure / exporting country).
Incoterm 2020 version is simplified, more suitable to reality, with illustrative examples with simple terms to create more favorable conditions for trade and logistics service activities. (According to ICC, FIATA).
Quang Anh / VLR
