Navigating Incoterms 2020: Key Changes and Impacts for Global Trade

Introduction: A New Era for International Commercial Terms

As we enter a new decade, the global trade landscape continues to evolve rapidly. To keep pace with these changes, the International Chamber of Commerce (ICC) has released Incoterms 2020 - the latest update to the international commercial terms that define responsibilities in global shipping agreements. At FreightAmigo, we understand the critical importance of staying current with these updates to ensure smooth international trade operations for our clients.

Incoterms 2020, which took effect on January 1, 2020, introduces several key modifications to the previous 2010 edition. While the number of terms remains at 11, there are 5 significant changes that international shippers and freight forwarders need to be aware of. In this article, we'll explore these updates and their potential impact on global supply chains.

The Evolution of Incoterms: A Brief History

Before diving into the changes, it's worth understanding the history and purpose of Incoterms. First introduced in 1936, Incoterms were created by the ICC to standardize and simplify international trade agreements. The terms define which party is responsible for various aspects of a shipment, including:

• Arranging transport
• Paying for transport
• Handling goods during shipping
• Insuring the shipment
• Managing customs clearance

Since their inception, Incoterms have become the global standard for interpreting shipping agreements, recognized by the United Nations Commission on International Trade Law (UNCITRAL). The 2020 edition marks the fourth update in 30 years, reflecting the rapid pace of change in global trade.

Incoterms 2020: The 11 Terms at a Glance

Before we explore the changes, let's quickly review the 11 Incoterms. These are divided into two categories:

7 Terms for Any Mode of Transport:

• EXW (Ex Works)
• FCA (Free Carrier)
• CPT (Carriage Paid To)
• CIP (Carriage and Insurance Paid To)
• DPU (Delivered at Place Unloaded) - New in 2020
• DAP (Delivered at Place)
• DDP (Delivered Duty Paid)

4 Terms for Sea and Inland Waterway Transport:

• FAS (Free Alongside Ship)
• FOB (Free on Board)
• CFR (Cost and Freight)
• CIF (Cost, Insurance and Freight)

The 5 Key Changes in Incoterms 2020

Now, let's examine the five major updates in Incoterms 2020 and how they might impact international shipping operations:

1. DAT becomes DPU

The term "Delivered at Terminal" (DAT) has been replaced by "Delivered at Place Unloaded" (DPU). This change reflects the need for greater flexibility in designating unloading locations. Under DPU, goods can be unloaded at any place, not just a terminal. This update allows for more versatile delivery options, which can be particularly beneficial for businesses dealing with diverse shipping destinations.

2. FCA and On-Board Bills of Lading

A significant update has been made to the Free Carrier (FCA) term. Now, buyers can instruct their carrier to issue an on-board bill of lading to the seller. This change addresses a common issue where sellers, required to present an on-board bill of lading to receive payment from a buyer's bank, were often unable to obtain one from carriers who received goods from an intermediary transport rather than directly from the seller. This update facilitates smoother payment processes in FCA transactions.

3. Different Insurance Coverage Levels for CIP and CIF

Incoterms 2020 introduces different levels of insurance coverage for Carriage and Insurance Paid To (CIP) and Cost, Insurance and Freight (CIF). Under CIP, sellers are now required to obtain insurance coverage provided by Clauses (A) of the Institute Cargo Clauses, which offers more comprehensive protection. CIF remains unchanged, requiring only minimum coverage. This distinction allows for more appropriate insurance levels based on the type of goods being shipped.

4. Inclusion of Security-Related Requirements

Reflecting the increased focus on security in international trade, Incoterms 2020 now explicitly includes security-related obligations. Each Incoterm now specifies which party is responsible for security-related requirements and the associated costs. This change helps clarify responsibilities in an era of heightened security measures and regulations.

5. Provision for Own Transportation Arrangements

Incoterms 2020 now recognizes that sellers or buyers may use their own transportation means rather than third-party carriers. This update reflects the growing trend of companies managing their own logistics operations. It allows for more flexibility in transportation arrangements and can potentially lead to cost savings for businesses with their own transport capabilities.

Implications for Global Trade and FreightAmigo's Digital Platform

These changes in Incoterms 2020 have several implications for global trade participants:

• Greater flexibility in delivery locations and transport arrangements
• Improved clarity on security responsibilities and insurance requirements
• Potential for smoother payment processes in certain transactions
• Need for businesses to review and possibly update their existing contracts and procedures

At FreightAmigo, we understand that adapting to these changes can be challenging. Our Digital Logistics Platform is designed to help businesses navigate these updates seamlessly. Here's how we can support you:

• Our platform automatically incorporates the latest Incoterms, ensuring your shipments are always compliant with current standards.
• We provide detailed guidance on selecting the most appropriate Incoterm for each shipment, taking into account the new changes and your specific needs.
• Our Digital Logistics Solution offers flexible options for transportation arrangements, aligning with the new provisions for own transport capabilities.
• We assist in managing security-related requirements and insurance coverage, ensuring you meet the new obligations under Incoterms 2020.
• Our eCommerce integration capabilities allow for seamless adaptation to the new FCA provisions regarding bills of lading, facilitating smoother payment processes.

Preparing Your Business for Incoterms 2020

To ensure a smooth transition to Incoterms 2020, we recommend the following steps:

1. Review existing contracts that extend into or renew in 2020 and beyond.
2. Update your documentation and processes to align with Incoterms 2020.
3. Train your staff on the new changes and their implications.
4. Assess your insurance coverage to ensure it meets the new requirements, especially for CIP shipments.
5. Consider how the new flexibility in transport arrangements might benefit your operations.
6. Evaluate your security measures to ensure compliance with the new security-related obligations.

By taking these steps and leveraging FreightAmigo's Digital Logistics Platform, you can ensure that your business is well-prepared to navigate the global trade landscape under Incoterms 2020.

Conclusion: Embracing the Future of Global Trade

Incoterms 2020 represents an important evolution in international commercial terms, reflecting the changing dynamics of global trade. While the updates may seem subtle, they have significant implications for businesses engaged in international shipping.

At FreightAmigo, we are committed to helping our clients stay ahead of these changes. Our Digital Platform is continually updated to reflect the latest standards and best practices in global logistics. By partnering with FreightAmigo, you can ensure that your international shipping operations are not only compliant with Incoterms 2020 but also optimized for efficiency and cost-effectiveness.

As we navigate this new era of global trade together, remember that knowledge and adaptability are key. Stay informed, be proactive in updating your processes, and don't hesitate to leverage digital solutions like FreightAmigo to streamline your international shipping operations.

Are you ready to optimize your global logistics for the new decade? Contact FreightAmigo today to learn how our Digital Logistics Platform can help you navigate Incoterms 2020 and beyond.