Understanding the Variations between Incoterms 2010 and Incoterms 2020
The International Chamber of Commerce published a set of trade terms called Incoterms, which are used in international trade to establish the responsibilities and liabilities between the buyer and seller. The Incoterms rules are regularly updated to align with current practices in international trade, with Incoterms 2010 and Incoterms 2020 being the most widely used versions. While both versions aim to facilitate smooth and clear international transactions, there are several key differences between them.
Incoterms 2010 consists of 11 trade terms that define the obligations and risks of the buyer and seller. Some commonly used Incoterms in Incoterms 2010 include EXW (Ex Works), FOB (Free On Board), and CIF (Cost, Insurance, and Freight). In contrast, Incoterms 2020 introduced changes, such as the replacement of Incoterm DAT with DPU and Incoterm DAP with DPU. This updated Incoterm reflects the increased use of containerized transport and can be more broadly applied to various modes of transport.
One of the significant changes in Incoterms 2020 is the introduction of security-related requirements for each Incoterm to address security concerns in global trade. Additionally, Incoterms 2020 provides clearer guidance on the allocation of costs between the buyer and seller, emphasizes the importance of determining the allocation of costs and responsibilities for insurance-related requirements, and includes detailed explanatory notes for each Incoterm.
For instance, under Incoterms 2010, a German company may opt for the FCA (Free Carrier) Incoterm when purchasing goods from a manufacturer in China. On the other hand, under Incoterms 2020, the German company may choose the new Incoterm, DPU (Delivered at Place Unloaded), which provides more clarity on the responsibilities and requirements, making the transaction smoother and more transparent for both parties.
In summary, while Incoterms 2010 and Incoterms 2020 share similar objectives of facilitating international trade, the latter version offers updated rules that are more reflective of current trade practices and provide clearer guidance on the allocation of costs, responsibilities, and security-related requirements. Businesses involved in international trade should familiarize themselves with the updated Incoterms 2020 to ensure smooth and transparent transactions.
