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Monday, October 28, 2019

Incoterms 2020 to hit the market soon ! ~ what would be its effect on us ??


Life is not always simple ! ~ when you buy vegetables in market – there is Sales – transaction between Seller and buyer ! – transferring goods in exchange of money. The obligation of the Seller is to keep the vegetables ready, buyer pays and takes the vegetables .. .. ‘good condition or concealed’ – once bought, deal is over ! – Q could be how good you are in bargaining .. !!  Commercial sales transactions are not as simple – there is much more – division of costs, obligations, responsibilities, passing of title of goods and more !

How good are you in Insurance ? – are you well acquainted with nuances of Marine Insurance ! .. .. ..   the attraction of Marine is its International character and that it is ever changing with the times.   Come January 2020,  there is going tobe another revision to Incoterms.  ICC Incoterms are global rules that clarify the costs, risks, and responsibilities of both buyers and sellers. Developed by ICC and used by companies to move goods around the world, ICC Incoterms® have become the standard in international business rules setting. “Incoterms®” is an acronym standing for international commercial terms.

Marine Cargo Insurance is insurance of goods in transit – mostly from seller to buyer, often across boundaries of Nations.  In the interests of international trade, it desirable that merchants of different countries agree on a common interpretation of various terms and abbreviations they use in their foreign trade contracts.  If there is mismatch of the agreement, one of the parties would suffer beyond his perception and would end up in litigation.  There could be difficulties arising out of lack of adequate information and lack of uniformity of interpretation.  These days, all International contracts of sale contain standard shipping and delivery terms.  However, even the most common terms such as FOB or CIF do not necessarily have the same meaning in different Ports or centres of Trade or to those people between whom the contract was concluded cordially.  One could well imagine those olden days, when International trade had evolved but lacked these clear codified interpretations.  

Key : do not search for ‘incoterms’ on a Bill of Lading – you can find it on Commercial Invoice !

Incoterms or international commerce terms are a series of international sales terms, published by International Chamber of Commerce (ICC) and widely used in international commercial transactions. Though Incoterms is not LAW, they  are widely accepted by governments, legal authorities and practitioners worldwide for the interpretation of most commonly used terms in  international trade. This reduces or remove altogether uncertainties arising from different interpretation of such terms in different countries. They closely correspond to the U.N. Convention on Contracts for the International Sale of Goods.  The purpose of the Incoterms is to:   provide a set of international rules for the interpretation of the most commonly used trade terms in foreign trade”

The first version was introduced in 1936 – amendments and additions were later made in 1953, 1967, 1976, 1980, 1990, 2000 and 2010 ~ and now comes the latest revision in 2019 – called ‘Inco 2020’.   Way back in 1936 when they were first adopted, there were 10 codified terms.  They were “1) Ex works 2) FOR 3) FAS 4) FOB 5) C & F 6) CIF 7) Freight or Carriage paid to 8) Free or Free delivered 9) Ex-ship and 10) Ex-Quay”.   Clearly these Incoterms referred to the relationship between the Seller and buyer and none of the provisions affect, either directly or indirectly the relationship between the consignor and carrier as defined in the contract of carriage.

Going by the well agreed upon,  codification between the Seller and Buyer the following are to be complied with : “Provision of goods in conformity with the contract, payment of the price,  obtaining licenses, authorizations and formalities, arranging contract of carriage and contract of insurance, taking delivery, transfer of risks, division of costs, providing notice to buyer on movement of goods, providing proof of delivery, inspection of goods and any other obligation”. All these aspects of international trade are taken care of by Incoterms (International Commercial Terms). 

The 1990 version had 13 terms broadly classified as :  E – Departure (ExW); F – Main carriage unpaid :  FCA, FAS, FOB; C –  Main carriage Paid : CFR, CIF, CPT, CIP and D – Arrival : DAF, DES, DEQ DDU and DDP. These were further reviewed in 2000 and no. of changes in the terms of previous versions were made.  For example the customs clearance and payment of duty were codified in FAS & DEQ – so also in FCA – loading and unloading obligations were specified.   In contrast to the previous four classes, E,F,C and D, Incoterms were separated into 2 groups  :  I  Any mode of Transport   & II  Maritime and Inland waterway transport Only :

In 2010, as against the existing 13 sets of terms, became only 11.   The new ones were DAT (Delivered at Terminal)  and DAP (Delivered at Place).  They 11 were :  (applicable   for all modes of transport) : EXW : ex works; FCA : free carrier; CPT : carriage paid to; CIP : carriage and insurance paid to; DAT : delivered at terminal; DAP : delivered at place; DDP : delivered duty paid..   [applicable for sea and inland waterway transport]: FAS : free alongside ship; FOB : free on board; CFR : cost and freight  &*  CIF : cost, insurance and freight.

The news is - ICC has launched Incoterms® 2020, the newest edition of the renowned trade terms for the delivery of goods, providing certainty and clarity to business and traders everywhere.   Incoterms 2020, the 9th version of the Incoterms® rules has been in the making for a while now. The International Chamber of Commerce (ICC) chose its centenary year 2019, to launch the 9th version of the Incoterms, the Incoterms 2020.. More accessible and easier to use, Incoterms® 2020 includes more detailed explanatory notes with enhanced graphics to illustrate the responsibilities of importers and exporters for each Incoterms® rule. The introduction to Incoterms® 2020 also includes a more detailed explanation on how to choose the most appropriate Incoterms® rule for a given transaction, or how a sales contract interacts with ancillary contracts.   Incoterms 2020  were drafted  by a Committee of Experts (Drafting Group) that for the first time included representatives from China and Australia, although most of the members are European.

The new Inco terms will  enter into force on January 1, 2020.  Some of the new issues and changes that would be evaluated to be included in the new edition of the Incoterms 2020 are:
Removal of Incoterm FAS  :  FAS (Free Alongside Ship) is an Incoterm very little used and, in fact, does not contribute almost anything to FCA (Free Carrier Alongside) that is used when the merchandise is delivered at the port of departure in the exporter’s country. With FCA, the exporter can also deliver the goods at the dock, as in FAS, since the dock is part of the maritime terminal.
Unfold FCA in two Incoterms :  The Committee is thinking about the possibility of creating two Incoterms FCA; one for terrestrial delivery and another for maritime delivery.
FOB and CIF (perhaps the oldest and most common terms in practice)  for container shipping :  The modification made in the edition of Incoterms 2010 that when the merchandise is transported in a container, Incoterms FOB and CIF should not be used but their counterparts FCA and CIP are not being applied by the vast majority of exporting and importing companies, nor by agents involved in international trade
Creation of a new Incoterm: CNI  :  The new Incoterm would be denominated as CNI (Cost and Insurance) and would cover a gap between FCA and CFR/CIF.
Two Incoterms based in DDP :   the revised terms would be            DTP (Delivered at Terminal Paid): when the goods are delivered to a terminal (port, airport, transport center, etc.) in the country of the buyer, and the seller assumes the payment of customs duties. •   DPP (Delivered at Place Paid): when the goods are delivered at any place other than a transport terminal (for example, at the buyer’s address), and the seller assumes the payment of the customs duties.
DAT is changed to DPU :  In Incoterms 2010 DAT (Delivered at Terminal) means the goods are delivered once unloaded at the named terminal. User feedback was that users wanted an Incoterm that allowed delivery at not just a terminal.  Therefore the reference to terminal has been removed to make it more general.

ICC states that over  the next few months, the Committee will meet periodically to address these and other issues that will eventually be incorporated into Incoterms 2020. Hopefully, the version of Incoterms 2020 that comes into force on January 1, 2020, will serve to facilitate international trade between exporters and importers, adapting to the changes that have occurred in the last decade.  It is stated that the 2020 edition is available in no fewer than 29 languages — from Estonian and German to Pashto and Spanish.

To add some spice, transformation from 2010 to 2020, none should be searching for Inco 2012, Inco 2016, Inco 2018 – as simply they do not exist !  Inco 1990 was a complete revision; 2000 addressed Customs clearance obligations and 2010 reflected the contemporary trade landscape.  To keep pace with the ever-evolving global trade landscape, the latest update to the trade terms is currently in progress and we would be knowing more in detail about Inco 2020.

With regards – S. Sampathkumar
27th Oct 2019.

3 comments:

  1. Very useful, please continue your useful write ups for the benefit of all

    ReplyDelete
  2. Very good information.certain countries like Indonesia are putting condition that for import/export,FOB or CIF insurance should be taken in their country only.Is this correct

    ReplyDelete
  3. From kannappan
    Very good information.Thsnk you.
    Some countries like Indonesia are insisting that all import/export, FOB or CIF, insurance should be taken in their country only.
    Is it correct.

    ReplyDelete