Posted on May 02, 2019
Since 1919 the International Chamber of Commerce (ICC), has been committed to the facilitation of international trade. With the different practices and legal interpretations between traders across the globe, it was vital to establish a set of guidelines; thus, the first set of incoterms came to be in 1936. Since the inception of these terms, the ICC has been committed to updating these incoterms every 10 years to ensure relevance and compliance.
With over a quarter of 2019 gone, the trade world is preparing for a decade of new incoterms. On January 1st, 2020, the trade terms we have grown accustomed to over the past 10 years may drastically change. The drafting group, charged with the responsibility of creating and updating incoterms, has one goal in mind: simplification. To simplify the 2010 incoterms, the committee has reportedly discussed several approaches including: Eliminating incoterms, splitting incoterms, and the introduction of new incoterms.
Eliminating Terms: EXW, DDP, and FAS
While EXW and DDP are both international trade terms, most find these incoterms to be better fitted to domestic trade. The argument that these terms should be removed from international trade is furthered by the fact that both terms seem to contradict the customs code set forth by the European Union.
FAS is also on the chopping block for the 2020 Incoterm updates. FAS is currently one of four “ocean only” incoterms. Critics of this term argue that it is too similar to FCA, a term that has all of the capabilities of the FAS term and is used far more often.
Splitting Terms: DDP and FCA
Rather than eliminating both EXW and DDP completely, there is discussion that the current DDP incoterm will instead be split into two new terms: DTP and DPP. Under both of these new terms, the seller is responsible for the payment of customs duties. The terms differ in when the shipment is considered delivered.
The intent of splitting this term is to clarify delivery location, thereby defining when the responsibility of transport charges shifts from seller to buyer.
Additionally, there has been discussion of splitting the FCA incoterm. Currently, FCA is one of the most frequently used incoterms. The term offers the buyer greater control of goods, increased visibility of costs, and flexibility of delivery location. Despite FCA being the leading incoterm used for multimodal shipments, there is discussion of creating separate terms for land and ocean shipments.
New Incoterms: CNI
2020 Incoterms will feature a new incoterm: CNI- Cost and Insurance. This new incoterm will fill the gaps that distinguish the FCA incoterm and other C terms such as CFR and CIF. This new term will be categorized as a “prepaid term” where the risk and responsibilities will be transferred from seller to buyer at the departure port. The difference in this term will allow the exporter to arrange for cargo insurances while the buyer take responsibility of the risk associated with the main carriage of transportation.
Other News to Note:
If everything before wasn’t exciting enough there are a few other changes that are notable for the 2020 Incoterms. More specifically the involvement of some big players, who before now, did not have a seat at the table when discussing potential changes.
China and Australia for the first time ever will be involved in the drafting process of the revised 2020 incoterms. France, the UK, Turkey, the US, China, and Australia will be responsible for revising the drafts of the proposed changes brought forth by the other 150 member countries.
After a decade to review and debate the current terms, and with new countries weighing in, big changes should come as no shock. Incoterm 2020 will shape international trade for the next decade. The revised terms will hopefully provide clarity and structure to the existing guidelines we encounter every day.
Contributors: Amanda Williams and Haley Smith
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