The main explanations of Incoterms® 2020 have remained the same, with a few key updates and changes. The main change includes a new DPU term replacing DAT, along with other changes to Incoterms® as below. It’s imperative that all parties involved in global trade understand these updates and how they may affect your supply chain.
New Incoterm® DPU Replaces DAT
The previous Incoterm® DAT (Delivered at Terminal) is now called DPU (Delivered at Place Unloaded. It was decided to change the term to DPU to remove confusion that arose in the past. In the past, DAT required ‘Delivery at Terminal (unloaded)’, however the word “terminal” caused confusion. The new term DPU (Delivery at Place Unloaded) covers ‘any place, whether covered or not’.
Different level of insurance cover between CIF and CIP
CIF and CIP are the only two Incoterms® that require the seller to purchase insurance in the buyer’s name. Under Incoterms® 2010 the insurance cover for both CIF and CIP was required under Institute Cargo Clause C. Under the new Incoterms® 2020, CIP requires insurance cover complying with Institute Cargo Clause A. Clause A covers a more comprehensive level of insurance which is usually suitable for manufactured goods, where Clause C would likely apply to commodities.
- CIF remains the same, it requires ‘Institute Cargo Clause C’ insurance cover – Number of listed risks, subject to itemized exclusions.
- CIP now requires an upgraded ‘Institute Cargo Clause A’ insurance cover – All risk, subject to itemized exclusions.
In summary
Updated Costs and Listings
Costs became quite a problem with Incoterms® 2010 with some parties. In some cases carriers were changing their pricing so sellers were often faced with new back charged terminal handling charges. Incoterms® 2020 now provides much more detail around costs and now appear under the A9/B9 sections of the rule. This clearly states which costs are allocated to each party.
Increased Security Requirements, Allocations and Costs
In a world with increasing security requirements, the Incoterms® 2020 rules now provide more detail around security allocations and necessary costs. For each Incoterm® rule, the security allocations have been added to A4/A7 and the associated costs have been added to A9/B9.
Buyer’s and Seller’s Own Transport
Under Incoterms® 2010 it was assumed that all transport would be undertaken by a third party transport provider. Updates to Incoterms® 2020 allows for the provision for the buyer or seller’s own means of transport. This recognizes that some buyers and sellers are using their own methods of transport, including trucks or planes to get goods delivered.
This allows for the buyer’s own means of transport under the FCA rule
This allows for the seller’s own means of transport under DAP, DPU and DDP.
FCA, FOB and the Bill of Lading Process
Updates were made to the previous Incoterms® 2010 to encourage exporters of containerized goods to use the FCA Incoterm®. In reality most parties were still using FOB when they should have been using FCA. This is because even experienced sellers still wanted to use FOB because they wanted the contract to be under a Letter of Credit.
Therefore provisions have been made to the Incoterms® 2020 to state that the buyer must instruct the carrier to issue a transport document stating that the goods have been loaded – i.e a Bill of Lading with an ‘on board’ notation. In the past carriers have frequently refused to issue a Bill of Lading with a notation to the seller if they have received the goods from an intermediary transport (such as a truck), instead of directly from the seller.
