Incoterms 2020 rules in 2023

Introduction

In today's world of international trade, where borders are becoming increasingly blurred and business processes are increasingly complex, the need for clear and understandable rules has become critical. These rules provide stability and predictability, allowing companies from different countries to interact on equal terms, minimizing risks and misunderstandings. It is in this context that Incoterms rules play a key role.

Brief description of Incoterms and its role in international trade

Incoterms — This is an abbreviation for "International Commercial Terms" or "International Commercial Terms". This is a set of international standards developed by the International Chamber of Commerce that defines the responsibilities of the buyer and seller during the transport of goods. These rules govern issues such as when the goods are transferred, liability for transportation and insurance costs, and the risks associated with loss or damage to the goods.

The role of Incoterms in international trade can hardly be overestimated. First, they provide a unified language for buyers and sellers, which simplifies the transaction process and reduces the likelihood of legal disputes. Secondly, thanks to these rules, the parties can clearly define their responsibilities and risks at all stages of transportation of goods, from the moment of its shipment to the moment of its delivery.

Incoterms thus serve as a bridge between different legal systems and trade practices, ensuring consistency and understanding between parties to a transaction in different parts of the world.

The need for rules for global trade

International trade has existed for centuries, dating back to ancient civilizations that exchanged goods through complex trade routes. However, with the growth of globalization, the development of transportation and increasing trade volumes, it has become clear that standardized rules are required for effective interaction between countries.

Historical context and reasons for the creation of Incoterms

Before the creation of Incoterms, many countries relied on their national standards and practices, which often led to conflicts and misunderstandings between trading partners. Different interpretations of liability, terms of delivery and payment could cause disputes and even legal claims.

In 1936, the International Chamber of Commerce (ICC) first introduced Incoterms rules to unify and simplify international trade transactions. These rules were developed based on an analysis of actual practices and problems faced by exporters and importers in different countries.

The main reason for the creation of Incoterms was the desire to eliminate ambiguity and ambiguity in the interpretation of trade terms. In addition, the rules provided a clear division of responsibilities, risks and costs between the seller and the buyer.

Over time, Incoterms rules have been revised and adapted to the changing conditions of global trade. However, their main goal remained the same: to provide a standardized set of rules that ensure fairness and predictability in international commercial relations.

What is the basis of Incoterms

International trade is a complex process that involves various parties: sellers, buyers, carriers, customs services and many others. To ensure smooth and efficient interaction between all these participants, clearly defined rules are necessary. This is where the Incoterms rules come to the rescue.

What are Incoterms rules?

As we already mentioned, Incoterms — This is an abbreviation for “International Commercial Terms”, which means “International Commercial Terms”. It is a set of standardized rules developed by the International Chamber of Commerce (ICC) that define the responsibilities, risks and costs associated with moving goods from seller to buyer.

What is regulated by Incoterms rules?

1. Moment of transfer of goods: Determination of the point at which the goods are considered transferred from the seller to the buyer.
2. Cost sharing: Who pays shipping costs, insurance, customs duties and other fees.
3. Risk Allocation: At what point the risk of loss or damage to the goods passes from the seller to the buyer.
4. Customs clearance: Who is responsible for export and import customs clearance.

What is not regulated by Incoterms rules?

1. Terms of payment: Incoterms rules do not regulate issues related to payment for goods.
2. Transfer of Ownership: They do not define when ownership of the goods passes from the seller to the buyer.
3. Dispute Resolution: The Rules do not contain mechanisms for resolving disputes between the parties.

Who uses Incoterms rules?

Incoterms rules are of paramount importance for all participants in international trade:

1. Sellers and buyers: For them, this is a tool that helps avoid misunderstandings and conflicts related to the delivery of goods.
2. Carriers: They use these rules to determine their duties and responsibilities when transporting goods.
3. Customs: Incoterms help them understand who is responsible for customs clearance and payment of duties.
4. Banks and insurance companies: They rely on these rules when processing loan and insurance documents.

In general, Incoterms rules serve as a universal language of international trade, understood and recognized throughout the world.

What Incoterms rules are used in 2023?

The 2020 version of Incoterms is current as of 2023 and is expected to apply until 2030. The next Incoterms update is expected to occur in 2029.

Although international trade participants in 2023 may rely on previous versions such as Incoterms 2010 or Incoterms 2000, it is critical that the version used is clearly stated in the trade agreement. However, the International Chamber of Commerce (ICC) strongly recommends adherence to the latest update — Incoterms 2020.

With each new edition of the rules, Incoterms strives to reflect current trends and practices in international trade. The 2020 edition was no exception and brought a number of key changes aimed at simplifying and clarifying some aspects.

What changes were made in the latest edition?

1. Introduction of the term DPU (Delivered at Place Unloaded): In the 2020 edition, the term DAT (Delivered at Terminal) was replaced by DPU. This was done to provide greater flexibility, since the DPU allows the parties to the contract to define any unloading location, not just the terminal.
2. Clarification of responsibilities for transportation by own means: The 2020 edition clarified that if the parties to the contract intend to use their own means of transport (for example, the seller's or buyer's truck), this must be explicitly stated in the contract.
3. Strengthening insurance requirements under CIF and CIP: The CIP term now requires a higher level of insurance, while the standard requirements for CIF remain unchanged.
4. Clarification of issues related to safety: The new edition has added requirements for the parties to the contract to ensure safety during the transportation of goods and the implementation of related procedures.
5. Simplification and improvement of structure: The 2020 edition is a more clearly structured and understandable document that simplifies the process of choosing the appropriate term for a specific transaction.

These changes were made to make the Incoterms rules more relevant and consistent with the current realities of international trade. They reflect the desire to simplify and unify processes, as well as take into account new trends and challenges in the field of logistics and transportation of goods.

Features of international trade

International trade — This is a complex process that includes many aspects, from the choice of means of transportation to cargo insurance. Let's look at the main ones.

Types of transport for transporting goods

1. Sea transport: One of the most popular methods of delivering goods over long distances. Particularly relevant for heavy and bulky cargo.
2. Air transport: Ideal for urgent shipments and light cargo. Although this is a more expensive method, it provides fast delivery.
3. Rail transport: Often used to transport goods within continents, especially in Eurasia.
4. Road transport: Suitable for short to medium distances and door-to-door applications. delivery.

Costs and risks during transportation

1. Costs: Includes transportation costs, customs duties, insurance and other fees. These may vary depending on the Incoterm chosen.
2. Risks: Refers to the possibility of loss or damage to goods during transportation, as well as the risk of delays due to weather conditions, political instability or other factors.

Contracts of transportation

These are legal documents that confirm the agreements between the sender and the carrier regarding the transportation of goods. They indicate the conditions, cost, route and other important details of transportation.

Customs clearance for export and import

1. Export clearance: The process of obtaining permission to export goods from a country. Includes preparation of all necessary documents and payment of export duties, if any.
2. Import clearance: The process of bringing goods into a country. Requires preparation of documents, payment of customs duties and fees, as well as passing various checks.

Insurance

Cargo insurance — This is an important aspect of international trade and provides protection against financial loss if goods are lost or damaged during transport. The insurance policy determines the terms of insurance, the cost of insurance and the amount of compensation in the event of an insured event.

Incoterms 2020 rules explained

Obligations regarding the supply of goods

The main purpose of the Incoterms rules — determine who is responsible for the goods and at what point, as well as who pays the various costs of transporting them. Let's consider the key obligations associated with the delivery of goods:

• Moment of transfer of goods: The rules clearly define at what point the goods are considered transferred from the seller to the buyer. This may be the moment the goods leave the seller's warehouse, when they arrive on board the ship, or when they are delivered to the place specified by the buyer.
• Cost Allocation: Incoterms determine who pays transportation costs, insurance, customs duties and other charges. For example, under FOB terms, all expenses until the goods are loaded onto the ship are paid by the seller, and after this moment — buyer
• Risks: The rules also state at what point the risk of loss or damage to the goods passes from the seller to the buyer. This may happen, for example, when the goods cross the side of the ship or when they are handed over to the carrier.
• Customs Clearance: Depending on the term selected, either the seller or the buyer is responsible for export and/or import customs clearance.
• Insurance: Some terms (eg CIF) require the seller to take out an insurance policy on the item. In this case, the seller also pays the insurance premium.

It is important to understand that the choice of a specific Incoterm should be based on a detailed analysis of the specifics of the transaction, logistics routes and preferences of the parties. This will help ensure maximum efficiency and minimize risks.

Detailed discussion of each rule with examples and best practices.

Delivery terms EXW (Ex Works / Ex factory)

EXW means that the seller has fulfilled his delivery obligations when the goods are made available at his plant or other designated location (factory, plant, warehouse, etc.). From this moment, all costs and risks associated with the transportation and import of goods pass to the buyer.

Delivery terms FCA (Free Carrier)

FCA means that the seller delivers the goods to the carrier or other person designated by the buyer at a specified place. If the place of delivery is on the seller's premises, he is responsible for loading the goods. If the delivery location is elsewhere, the seller is not responsible for loading.

Delivery terms FAS (Free Alongside Ship)

FAS means that the seller fulfilled his obligations when the goods were placed next to the ship at the named port of loading. From this moment, all costs and risks associated with the transportation and export of goods pass to the buyer.

Delivery terms FOB (Free on Board)

FOB means that the seller fulfilled his obligations when the goods were loaded on board the vessel at the named port of loading. From this moment, all costs and risks associated with the transportation and export of goods pass to the buyer.

Delivery terms CFR (Cost and Freight)

CFR means that the seller is obliged to pay the costs of transporting the goods to the specified port of destination. However, the risk of loss or damage to the goods, as well as any additional costs incurred after the goods have been loaded onto the vessel, pass to the buyer.

Delivery terms CIF (Cost, Insurance and Freight)

CIF means that the seller must pay the costs of transporting the goods to the named port of destination, as well as insuring the goods against the risk of loss or damage during transport. However, the risk passes to the buyer from the moment the goods are loaded onto the ship.

Delivery conditions CIP (Carriage and Insurance Paid to)

CIP is similar to CIF, but applies to any type of transport, not just sea transport. The seller pays for carriage and insurance of the goods to the named destination, but the risk passes to the buyer as soon as the goods are handed over to the first carrier.

Delivery terms CPT (Carriage Paid To)

CPT means that the seller pays to transport the goods to the specified destination. However, the risk of loss or damage to the goods passes to the buyer once the goods are handed over to the first carrier.

Delivery terms DAP (Delivered At Place)

DAP means that the seller fulfills his duties when the goods have arrived at the specified destination and are ready for unloading. All costs and risks up to this point are borne by the seller.

Delivery terms DPU (Delivered at Place Unloaded)

DPU — a new term introduced in the 2020 edition to replace DAT. The seller bears responsibility and expenses until the goods are unloaded at the specified place.

Delivery terms DDP (Delivered Duty Paid)

DDP means that the seller bears all costs and risks associated with delivering the goods to the specified destination, including import duties and taxes. This is the most onerous condition for the seller.

Conclusion

Incoterms rules play a key role in international trade, ensuring standardization of terms and conditions for the delivery of goods between countries. They serve as a common language for buyers and sellers, allowing each party's responsibilities, costs, and risks to be clearly defined.

In this article, we examined the main aspects of international trade, the historical context and reasons for the creation of Incoterms, and also analyzed in detail each of the terms of delivery. Particular attention was paid to changes made in the 2020 editions, which reflect current trends and practices in the field of global logistics.

Correct understanding and application of Incoterms not only provides legal clarity and protection of the interests of the parties, but also promotes more efficient and secure trade. In an ever-changing global market, knowledge and understanding of these rules becomes an integral tool for any participant in international trade.

In conclusion, I would like to emphasize that regardless of the size of your business or the specifics of the goods, Incoterms rules provide a reliable basis for international transactions, helping to minimize risks and establish a clear framework for cooperation between parties.

F.A.Q.

1. What is the difference between Incoterms 2020 and previous versions?
   Incoterms 2020 includes a number of changes aimed at taking into account modern international trade practices. One of the key changes is the replacement of the term DAT (Delivered at Terminal) with DPU (Delivered at Unloading Place).
2. Should I use Incoterms 2020 if my contract was concluded before it was issued?
   No, you must follow the version of Incoterms specified in your contract. However, it is recommended to update the terms for future transactions in accordance with Incoterms 2020.
3. Which Incoterm is best for my transaction?
   The term you choose depends on the details of your transaction, including the mode of transport, cost structure and preferences of the parties. It is important to consult with a logistics expert or lawyer to determine the most appropriate term.
4. Who pays customs duties and taxes when using the term DDP?
   Under DDP, all customs duties, taxes and other charges are paid by the seller.
5. Can I insure my goods even if it is not required by the selected Incoterm?
   Yes, you can always insure your goods additionally, even if this is not provided for by the chosen term. This may be a smart solution to protect against unexpected risks.
6. What happens if my item is damaged in transit, and who is responsible?
   Liability for the goods depends on the Incoterm chosen. For example, under FOB, risk passes to the buyer once the goods are loaded on board the vessel. If damage occurs after this point, the buyer is responsible.
7. Where can I find the official text of Incoterms 2020?
   The official text and explanations can be found on the website of the International Chamber of Commerce (ICC).

Recommendations

Tips for companies and individuals on using Incoterms rules in their transactions

1. Education and Training: Before using any Incoterm, make sure your team is well aware of its specifics. Regular trainings and seminars will help your employees stay up to date with the latest changes and understand the intricacies of each term.
2. Consult with Experts: When entering into large transactions or dealing with new markets, it is recommended to consult with a logistics expert or lawyer specializing in international trade.
3. Clear Responsibilities: Contracts clearly state who is responsible for each step of the shipment, including loading, transportation, insurance, customs clearance, and delivery.
4. Insurance: Even if the Incoterm you choose does not require insurance, consider additional insurance for the product. This can protect you from unexpected risks.
5. Regular review of terms and conditions: The world of international trade is constantly changing. Regularly review your standard contracts and terms of delivery to ensure they are in line with current requirements and practices.
6. Country considerations: Consider the specific legislation, infrastructure and trade practices in the countries with which you work. Some Incoterms may be preferred depending on the region.
7. Flexibility: Be prepared to revise the selected delivery terms depending on the specific situation. Flexibility can help you optimize costs and minimize risks.
8. Technological support: Use modern software solutions for accounting and analysis of logistics operations. This will help you better understand your costs, risks and optimization opportunities.
9. Communication: Make sure your partner (buyer or seller) also understands the chosen Incoterm and its implications. Open and honest communication can prevent many misunderstandings and conflicts.
10. Continuous update: Keep track of new editions of Incoterms and adapt your practices in accordance with them.

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