Incoterms 2020 is the recently updated list of international commercial terms released by the International Chamber of Commerce. These terms always aim to unify the trading platform of the world and better trade relations.

These usually are a set of eleven terms which may even contain three-word abbreviations. These abbreviations and terms clearly define the trade policies, in some cases the risks involved by the buyers and sellers. They also talk about security matters of the goods and insurance coverages etc.

With the new terms out, traders around the world are hurrying to know what changes have been made to the list. Seminars and classes are being conducted by the chamber of commerce and other institutions to make people aware of the Incoterms 2020.

Still, there is a lot of misinformation spreading about the new rules which might cheat the traders of their incomes. To avoid such scenarios, below are some of the ways in which Incoterms 2020 directly affects the supply chain professionals.

1. When to use CIF and CIP?

CIP is Carriage and insurance paid to and CIF is Carriage Insurance Freight. Both these terms are used while shipping goods from one place to another, though several differences exist between them.

CIP is applicable for sellers who want to ensure their products being shipped and pay for the carrier. The mode of the shipment can be anything they like.
CIF is specifically used for shipments via ships and freight vessels.

With the introduction of incoterms 2020, the insurance coverage of CIP has been increased. This is because the goods transferred in this method are usually highly valued finished products in low quantities. Therefore, the risks involved with transport are greater here.

In the case of CIF, mostly large quantities of raw materials are transported using freights over long distances. Therefore, this is relatively cheaper and the insurance involved with that amount can remain low.

2. FOB is avoided

The term Free on Board (FOB) poses a liability for the sellers. The moment the goods are on board a freight carrier, the seller loses control of the products. But the term FOB does not relinquish the seller’s responsibility for the product.

They still need to pay the terminal handling charges and risk costs or any damage caused to the products while transport. This is really inconvenient for the sellers.

Incoterms 2020 suggests the use of Free Carrier (FCA) instead. According to this term, the buyer after agreeing with the seller instructs the carrier to provide the seller with a complete onboard bill of lading. This takes some load responsibility off the seller and shares it with the shipper of the products.

3. DAT has been updated to DPU

DAT is delivered at the terminal and DPU is delivered at place unloaded. The incoterms 2020 clearly define the delivery scheme of products.

As the products transfer from one place to another it is not necessary that the place where a product is shipped to is the place of delivery for the product. The previous Incoterms did not take this fact into consideration and termed this place as a terminal.

The new term DPU takes a more generalized approach towards the delivery system and terms the place specifically as delivery place unloaded, therefore, separating it from a terminal.

4. Security Allocations Added

Incoterms 2020 add more importance to ensuring that the risks in trade can be minimized for better outcomes and increased trade. The cost of carriers though gets affected by these charges.

For example, CPT (Carriage Paid to) includes a specific amount that the seller must comply with for transporting goods to the destination. Failure to do so may incur several risks and costs.

5. Own Transportation

The older iterations of the Incoterms assumed that the goods are transported by the seller to the buyer only through third party carriers. These shippers are contracted by any of the parties involved with specific payments and given the products for shipping.

One downside to this was that the rules neglected the chance of the buyers and sellers using their own personal transportation for shipping the goods. With Incoterms 2020, the position on personal means of transport used for shipping is now clearly defined under the FCA rules by the seller.

6. Rearranging the costs

The new terms suggest that the different costs must be rearranged according to the different Incoterms as well as the different articles each cost is applicable to. The purpose of this change is to create a single list of all the costs for the buyers which can be easily referred to for transaction details.

The Incoterms 2020 make the process of trading smooth and streamlined. The alterations increase the efficiency of the supply chain and improve the position of both buyers and sellers in the process.