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Incoterms are international terms agreed upon by international traders to clearly define the responsibility and risks between the buyer and the seller related to freight shipping. There are a total of 11 terms, each with a 3-letter abbreviation in English, referring to specific delivery terms. The terms were first published in 1936 and have since been periodically republished to reflect the developments in logistics processes and business practices. A new edition of Incoterms 2020 came into force on 1 January 2020, but it does not void the previous editions.
The following diagram is used for convenience and ease of perception:
|Delivery terms||Loading of cargo||Export customs declaration||Carriage to port of export||Loading on ship||Carriage by sea||Unloading from ship||Carriage to place of destination||Insurance||Import customs clearance|
INCOTERMS 2020 contains 11 delivery terms divided into 4 groups:
ex works: EXW;
cost of carriage covered by buyer: FCA, FAS, FOB;
delivery: DAP, DPU, DDP.
cost of carriage covered by seller: CPT, CIP, CFR, CIF;
List of Incoterms 2020 delivery terms
EXW – the buyer receives the goods from the seller, this is called ex works. The buyer is in charge of all procedures: export customs declaration, delivery and import customs clearance.
FCA – the seller is required to clear the goods for export and load them onto the means of transport provided by the buyer. The buyer is required to issue a shipping document for a VAT refund to the seller via the carrier.
FAS – the seller is required to deliver the goods to the port and place them alongside a named vessel. The buyer accepts and loads the goods.
FOB – the seller clears the goods for export; afterwards the responsibility passes on to the buyer.
CFR – the seller clears the goods for export, loads the goods on the ship and delivers such to the destination port. The risk is transferred to the buyer once the goods are placed on board. The goods are insured by the buyer.
CIF – the seller clears the goods for export, loads and transports the goods, as in the case of CFR. The difference from CFR is that the seller insures the goods.
CPT – the seller clears the goods for export, loads and transports the goods. After loading onto the carrier’s means of transport, the responsibility is transferred to the buyer, although the seller covers the delivery costs. The seller is not required to conclude an insurance agreement.
CIP – the seller clears the goods for export, loads, transports and unloads the goods; afterwards the responsibility is transferred to the buyer. The goods are insured by the seller.
DPU (previously DAT) – the seller clears the goods for export, transports and unloads the goods at a terminal; afterwards the responsibility for the goods is transferred to the buyer. The seller has no obligation to insure the goods.
DAP – the seller clears the goods for export, transports and delivers the goods to the buyer for unloading; afterwards the responsibility for the goods is transferred to the buyer. The seller has no obligation to insure the goods.
DDP – the seller clears the goods for export, delivers the goods to the buyer’s named place, unloads and processes import customs clearance. The seller has no obligation to insure the goods.
Key differences between Incoterms 2020 and Incoterms 2010
- DAT has been renamed DPU to avoid confusion with similarly named DAP – delivery without unloading, as well as the availability of delivery, not only at terminals.
- FCA allows the carrier to issue an "on board" bill of lading, which was poorly observed previously.
- CIF still has a provision for the minimum level of insurance, but with the option to increase the insurance cover.
- CIP has a provision for the mandatory minimum level of insurance, but with the option to reduce it.
- There is a provision for situations where the goods are not carried by a third-party carrier, but using transport belonging to either of the parties instead.
- The A9/B9 now contains a list of expenses.
- The customs clearance stages (export, transit, import) are explained in more detail.
- More focus has been placed on matters of security.
Experts hope that the new edition of Incoterms 2020 will be more convenient and simpler to use, as well as help businesses dealing in international trade to conduct their activities more efficiently.
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