Incoterms® rules are a key part of international trade, providing standardized guidelines for contractual obligations between buyers and sellers. The new version of Incoterms® 2020 brings updates that reflect changes in global trade and make the rules easier to understand for all participants.
In this guide, we explore what Incoterms rules are, how they are used, and what changes the 2020 edition brings.
What are Incoterms rules?
Incoterms® (International Commercial Terms) rules are a standardized set of trade terms that clearly define the obligations of the buyer and seller in international transactions. Their application reduces legal risks and facilitates global trade.
Main functions of Incoterms rules:
- Regulating costs and responsibilities for transportation.
- Defining the point of transfer of risk from seller to buyer.
- Facilitating the negotiation of international treaties.
Key changes in Incoterms® 2020
1. New rule: DPU (Delivered at Place Unloaded)
DPU (Delivered Place Unloaded) replaces the old DAT (Delivered at Terminal) rule. The seller is now responsible for unloading the goods at the agreed location, which offers greater flexibility in choosing the delivery location.
2. Improvements in FCA (Free Carrier)
The FCA rule now allows for a Bill of Lading to be issued after the goods have been loaded onto the ship, thus providing additional documentation important for financial transactions.
3. Changes in insurance for CIF and CIP
The seller under the CIF (Cost Insurance and Freight) and CIP (Carriage and Insurance Paid To) rules must now provide a higher level of insurance, which increases the buyer’s protection.
4. Flexibility in transportation
The DAP, DPU, and DDP rules now allow the use of the seller’s or buyer’s own means of transport, eliminating the need to engage a third party.
5. More precise definition of costs
In Incoterms® 2020, all costs are clearly stated to reduce ambiguity.
Classification of Incoterms rules
Incoterms® 2020 rules are divided into two categories:
- Rules for all types of transport:
- EXW (Ex Works)
- FCA (Free Carrier)
- CPT (Carriage Paid To)
- CIP (Carriage and Insurance Paid To)
- DAP (Delivered at Place)
- DPU (Delivered at Place Unloaded)
- DDP (Delivered Duty Paid)
- Rules for sea and river transport:
- FAS (Free Alongside Ship)
- FOB (Free on Board)
- CFR (Cost and Freight)
- CIF (Cost Insurance and Freight)
The best Incoterms for buyers and sellers
For customers:
- FOB (Free on Board): Allows buyers greater control over costs and freight forwarders.
- EXW (Ex Works): The buyer assumes most of the responsibility, which is useful for experienced importers.
For sellers:
- DDP (Delivered Duty Paid): The seller assumes all costs and risks up to the point of delivery, making things easier for the buyer.
- CIF (Cost Insurance and Freight): The seller arranges transportation and insurance, but the buyer assumes the risk after loading.
Tips for successfully applying Incoterms® 2020
- Choose the rule that suits your business needs.
- Clearly state the Incoterms in the contract, including the chosen place of delivery.
- Understand the obligations of both parties to avoid disputes.
- Check regularly for policy updates.
Conclusion
The Incoterms® 2020 rules provide clear guidelines for regulating international trade, reducing risks and increasing efficiency. Updates such as DPU rules and new insurance standards make trade transactions even easier.
Whether you are a buyer or a seller, knowing and correctly applying Incoterms® rules is essential for success in the global marketplace. Learn, plan and use Incoterms® 2020 to optimize your international business.
