Professionals and businesses associated with the international shipping industry are not oblivious of the significance of Incoterms. The ICC (International Chamber of Commerce) has reaffirmed the need for these globally used shipping terms in contracts. To cope up with the required changes in the industry, the organisation keeps modifying the set of these 11 terms. Incoterms 2020 was the latest edition of these rules. This version has been in effect since January 1st, 2020. Traders must be abreast of the changes made to this edition and their implication too.
ICC has made some key updates and changes to Incoterms 2020. The idea is to meet traders’ needs and issues they faced with the last rules. The use of Incoterms defines all the crucial steps involved in the shipping process. Therefore, it is vital to understand its significance and oblige with the same. If any trader has missed out on these important terms of the international shipping industry, here is a brief revision to reinstate every piece of information.
Putting together the meaning and usage of all the shipping terms is a compulsion!
Incoterms 2020: A Brief Summary of All The Terms
The ICC made some necessary changes to the new Incoterms 2020. Most of the traders and shipping experts have given positive reviews on the adjustments. Learn the facts and rules associated with all these terms to make their optimum utilisation. Consult with some shipping industry experts if there is any doubt or query regarding their usage.
EXW (Ex-Works)
EXW specifies that the seller has to ensure the availability of the goods at the confirmed location, usually a factory or a yard. The importer claims the cargo and takes on the responsibility of further transportation.
FOB (Free On Board)
FOB means Free On Board in its literal translation! Yes, in this case, the exporter is liable only for loading the goods on the ship predetermined by his importer. Once the cargo is “on board”, the exporter is “free” from his liability of the deal! It is the importer’s duty to look after the shipping from thereon.
CIF (Cost, Insurance and Freight)
As the name proposes, CIF means complete payment of cost, insurance and freight of the cargo. So, if CIF is a part of a shipping contract, it is the exporter who has to bear all these expenses before loading the cargo on the vessel. Incoterms 2020 covers different levels or categories of insurance cover under this term. Verify the changes before agreeing to this rule.
DAP (Delivered At Place)
This means the exporter will have to export the cargo on the doorsteps of any location picked by his buyer. So, if an importer wants his cargo delivered to a designated location, he has to specify the same using DAP.
FAS (Free Alongside Ship)
This implies the exporter is free of the burden once he delivers the cargo alongside any ship instructed by the buyer. The place can be a barge, dockyard or a quay. The agreement has to be clear between both parties to avoid the last-minute hassle. Also, importers can state their terms beforehand for the possibilities of late deliveries.
DDP (Delivery Duty Paid)
This acronym means the exporter has to take full responsibility for paying import clearance, excise duty and all the entailed expenses of the shipment. He has to bear carriage costs and deliver the goods safely to the determined place.
FCA (Free Carrier)
FCA implies that the exporter has to deliver the cargo to the carrier or agent nominated by his importer. He will be free of his liability only when the goods are in possession of the said carrier.
CPT (Carriage Paid To)
CPT will have the exporter arrange and pay the carriage to deliver the cargo at the defined location. This term is one of the commonly used rules in door-to-door shipping scenarios.
DPU (Delivered at Place Unloaded)
DPU has made its entry in the set of Incoterms 2020 as a replacement of DAT (Delivery At Terminal). It implies the exporter has to bear the costs and risks of unloading the cargo at the place of delivery. This Incoterm is the only one that requires the exporter to unload the cargo.
CFR (Cost and Freight)
The exporter has to deliver the cargo to the delivery port selected by his buyer. He must pay for the carriage and freight of the shipment on his side.
CIP (Carriage and Insurance Paid To)
Just like CPT, CIP also means the exporter has to deliver the cargo to the seller’s place and pay for both carriage and insurance. Use Incoterms 2020 in business contracts effectively to make the right implications. These abbreviated terms not only extend precise information to the bearer but also clarifies the terms of shipping contracts. One must always use Incoterms 2020 wherever and whenever applicable to avoid misunderstandings. With these terms in action, it also becomes safer to prove justified claims if things fall off the track!