INCOTERMS 2020, ALL YOU NEED TO KNOW

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The International Chamber of Commerce (ICC) introduced Incoterms 2020 to ensure security and clarity when identifying goods.These Incoterms 2020 began to be in force since January 1st and have the advantage of including more detailed graphics with the responsibilities associated to importers and exporters. As with each update, the ICC sought to make these rules more accessible and easier to use for all industries.
Before choosing which Incoterm 2020 your company will use, it is always crucial to keep in mind:

  • The location of the goods
  • The nature of the goods and their final destination
  • The adherence or not to an insurance of the goods (because not all Incoterms 2020 require this coverage)
  • The formalities, documentation, and specifications of the customs offices of departure and arrival
  • Your business partner’s previous experience

    • At Credit Report we want to offer you a summary of everything you need to know about Incoterms 2020, with the most important changes that were introduced in this update.

    1. Agreeing on delivery anywhere

    Now in Incoterms 2020 the acronym DPU (Delivered at Place Unloaded) appears and DAT (Delivered at Terminal) disappears.

    Term DPU is one of the newest and gives more flexibility, in terms of the type of delivery point of the goods at destination. It no longer refers only to a maritime terminal, but delivery can be agreed upon at any other place.

    It is also the only Incoterm 2020 that requires the exporter to unload the goods at the previously agreed location. This means that the transfer of risk from the exporter to the importer only takes place at that agreed point of delivery.

    Credit Report recommendations:

  • It is recommended for exporters who, due to the nature of their product, want to control the entire logistics chain from origin to destination.
  • It is not a recommended Incoterm to be used in countries with underdeveloped transportation infrastructure, because it can increase setbacks. Nor in countries such as the United

    • States, if the exporter does not have the means and personnel to guarantee the unloading because it may involve extra charges.

    2. Extension of insurance coverage

    By using CIP (Carriage and Insurance Paid To) or CIF (Cost Insurance and Freight), exporters undertake to insure the goods in favor of the importers. In both cases this is a minimum coverage.
    If the importer needs additional coverage, then he must take it out on his own according to the new rules of the ICC Cargo Clauses.
    It is important to note that most of the Incoterms 2020 do not oblige any of the parties to contract insurance for the goods and this causes the products to travel, in many cases, without any kind of coverage.

    Credit Report Recommendations:

  • These CIP and CIF Incoterms 2020 give exporters control over costs, destination and the goods themselves
  • Both parties ensure that the goods travel insured
  • They give a good margin for negotiation with customers

    • 3. Free on board

    Now the term FCA (Free Carrier) allows for a shipping document to be issued with “free on board”, a requirement that is essential when payment for goods is made through a letter of credit.

    Previously only the buyer could obtain such a shipping document, which must be presented to most financial institutions.

    The change now allows the importer and exporter to agree on the issuance of the shipping document for the goods at the port of origin. The ICC recognized that this adjustment was “an established market need” when it presented this update.

    Credit Report Recommendations:

  • This is an Incoterm where exporters have minimal control over the delivery of the goods.
  • It is best to use a CIP or CIF door-to-door delivery if it is only a sea delivery.

    • The rest of the changes of Incoterms 2020 are related to the inclusion of an option for those companies that do not need to hire a transport for the goods because they have their own fleet of trucks, the presentation of the information, and the relation of expenses.

    Incoterms 2020 are a very useful tool for determining costs, risks, and customs responsibilities. However, it is always important to add other data such as when the delivery will take place and who should load and unload the goods.

    At Credit Report we have over 55 years of experience in risk mitigation in the world of imports and exports. We are here to support your international and domestic trade operations on credit through information from companies all over the world.

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