Incoterms 2020 vs 2010 // Changes Between The 2020 Incoterms and the 2010 Incoterms

Incoterms are created by the International Chamber of Commerce (ICC) to dictate when and how a shipment will be handed off between a buyer and a supplier. The ICC updated the terms into what is called Incoterm 2020. Incoterms also define who is expected to pay the insurance and when the risk transfer happens between the buyer and the seller. This is the first time that the Incoterms drafting group has included representatives from China.

Navigating the complex waters of international trade requires a keen understanding of global commerce's rules and terms. A critical aspect of this understanding lies in knowing the Incoterms, or International Commercial Terms, standardized trade terms used worldwide. These terms are periodically updated to reflect the changing dynamics of international trade, and significant updates were made in both 2010 and 2020. Understanding the differences between the Incoterms 2010 and 2020 is essential for anyone involved in global trade, as these changes can profoundly impact contracts, logistics, and overall trade strategies.

This blog post will delve into the nuances that distinguish the 2010 version of Incoterms from its 2020 successor. The introduction of new terms, the modification of existing ones, and the shifts in liability and cost implications are more than just minor adjustments; they represent the evolving landscape of international trade, influenced by technological advancements, changes in trade practices, and the need for clearer communication in transactions.

Whether you are a seasoned exporter, an importer, a logistics professional, or someone new to the field of international trade, this exploration will provide you with a clearer understanding of how these changes affect your business operations. We will break down the technical jargon into understandable concepts, highlight key changes, and explain the practical implications of these updates.

Join us as we journey through the intricacies of the 2010 and 2020 Incoterms, equipping you with the knowledge to navigate the legalities and logistics of international trade with confidence and expertise.

Click Here to get a sharable image of the 2020 Incoterms

This article will only cover what was updated and assumes you are already familiar with the incoterms.

On January 1, 2020, the new Incoterms 2020 went into effect. These new terms were released by the International Chamber of Commerce in Sept of 2019 and set guidelines for handling shipments between sellers and buyers in different countries. The ICC has released new incoterms every decade, with the last change in 2010. Incoterms also define who is expected to pay the insurance and when the risk transfer happens between the buyer and the seller. However, this is the first time that the Incoterms drafting group has included representatives from China. 

One big thing to remember is that the Incoterms are voluntary and must be included in the contract. Incoterms are defined and recognized globally, so you must reference them when making a contract. Regardless, you can choose not to use the incoterms when creating a shipping contract if you define which parties are responsible for delivering goods, insurance, shipment, risk, customs clearance, etc. 

What Differs From The 2010 And 2020 Incoterms? 

Overall, the difference between the 2010 and 2020 incoterms is fairly small compared to the changes of the previous decades. There is only one new term, and most changes are minor. 

DAT is now DPU

DPU (Delivery Place Unloaded) replaces DAT (delivery at Terminal) in the incoterms 2020. This is the only newly named term in the guide, which is the same but has more explicit language and rules. The obligations of the Buyer and Seller are the same in both DP and DAT.

The ICC viewed the change as necessary, as goods cannot be unloaded at the dock, port, or airport. Therefore, they needed to clarify that goods could only be unloaded after they had been cleared by customs and arrived at a final destination, such as a warehouse. 

FCA option for On-Board notation for Bill of Lading

In the Incoterms 2010 rules, who was responsible for the On Board Bill of Lading was not defined and had to clarify in the contract if one chose the FCA option. As this leads to confusion, the new 2020 rules clarify that the buyer should instruct the carrier or its agent to release the Bill of Lading(B/L) on the seller’s behalf. The B/L will have the annotation of the on-board or Aboard that states the goods have been loaded on the vessel. The Bill of Lading is one of the most common documents used to release payment if you pay by a letter of credit. 

New Insurance Rules For CIF and CIP

There are changes to Cost Insurance and Freight (CIF) and Carriage and Insurance Paid To (CIP), which are the only Incoterms that define who is to pay for insurance. For both CIF and CIP, the seller will pay the insurance. Previously, the seller was only responsible for the minimum insurance requirements; however, in the new rules, the seller has to purchase insurance for the shipment to at least 110% of the value of the goods. 

Greater clarity on who is responsible for what

The new 2020 clarified which party, the buyer or seller, is responsible for Customs Clearance, which party is responsible for the payments, and who will assume the risk and insurance cost. The new rules were rewritten to use less technical jargon and to be easier to understand. It tried to make the rules as clear as possible while still being legally enforceable in a multinational legal contract. 

DIY Transport Options

For the first time, the new incoterms recognize that buyers and sellers can transport the goods using their vehicles. In the previous version, the rules assumed that a third-party shipping service would exclusively handle the transportation. This means they recognize buyers can now pick up goods using their vehicle from a port or terminal destination. 

This update only affects Free Carrier (FCA), Delivered at Place (DAP), Delivered at Place Unloaded (DPU), and Delivered Duty Paid (DDP) 

New Security Requirements 

The new rules clarify which party is liable at two key points: Transport from the country of origin and customs clearance into the destination country. 

For the transport out of the country, the seller is to assume liability for CPT, CFR, CIP, CIF, DAP, DPU, and DDP, while the buyer is liable if it is EXW, FCA, FAS, and FOB. Customs clearance falls on the party defined in the terms.  

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