The new decade is now upon us, and we all know what that means. First, the Census Bureau will send out questionnaires seeking such important knowledge as the number of dust bunnies hiding under the sofa. Second, those ugly red-eyed ten-year cicadas will emerge in August, make a mess in the streets and plotz in a single weekend. Finally, and better by far than the first two, the newest Incoterms rules are now available for buyers and sellers of goods to use in their agreements.
What Are Incoterms?
Incoterms are a set of trade terms used in international and domestic sales contracts. Published by the International Chamber of Commerce and revised every decade, they are not mandated by law but instead are voluntarily adopted by parties to contracts. If included in a contract, however, they are binding and strictly applied.
The purpose of a trade term is three-fold: identify the place of the goods’ delivery under the contract, determine the party bearing the risk of loss at different stages of the goods’ journey, and establish the responsibility for logistics costs between the buyer and seller. There are four Incoterms groups containing eleven terms; among them, they permit the transfer of risks and costs at virtually any point between the seller’s and buyer’s facilities.
Compared with the 2010 version, the latest revisions are relatively less extensive. In 2010, a number of terms (or “rules”, as Incoterms calls them) were eliminated, and a couple of new ones added in their place. The 2020 Incoterms removes one and creates – or more correctly, in my view, expands – another.
Farewell DAT, We Hardly Knew Ye
The biggest change is removal of “Delivered at Terminal”. As a “D” term, DAT placed the costs and risks for international transportation on the seller, with the delivery point being the named freight terminal. DAT placed the responsibility for unloading the cargo on the seller, as well.
Pleased to Meet You, DPU
Another 2010 addition was Delivered At Place (DAP). It imposes on the buyer the responsibility for unloading the cargo at the named delivery place. That place may be anywhere agreed to by the parties, such as a terminal, third-party warehouse or the buyer’s facility.
The 2020 version replaces DAT with Delivered At Place Unloaded (DPU). This is a counterpart to DAP, but requires the seller to unload the merchandise at the place of destination. As with DAP, that place may be any location the parties choose. DPU thus provides more flexibility than did DAT, though the word “terminal” under that rule was broadly defined to include “any place, whether covered or not, such as a quay, warehouse, container yard or road, rail or air cargo terminal” (Incoterms® 2010).
The very idea of having a favorite Incoterm rule may sound questionable, but I have to admit that Free Carrier (FCA) has grown on me. As an “F” term, it places the obligation for international transportation on the buyer, and provides an array of options as to where delivery occurs before that point.
The catch is to be aware that the designated place may be the seller’s location, in which case risk and costs transfer to the buyer upon loading on the truck or other conveyance. Alternatively, another place may be designated, with risks and costs transferring when the truck arrives. In that scenario, the buyer is responsible for unloading.
Although FCA has always had these options, in my opinion the 2020 version explains them with greater clarity than before. The new rule also permits the parties to agree that the buyer will instruct its carrier to issue a bill of lading with an on-board notation to the seller. This option allows the seller to obtain a document that it may be required to present under a documentary payment arrangement.
So enjoy the new Incoterms, and be sure to fill out your Census questionnaires.
And by the way, you can find out more than you ever wanted to know about Incoterms in my new book, Incoterms® 2020 for Importers and Exporters.