Storm Procurements Guide to Understanding Incoterms
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Storm Procurements Guide to Understanding Incoterms

We thought we would put together this quick handy guide to explain why Incoterms are a vital part of any Seller-Buyer relationship. Incoterms are widely used in International commercial transactions;  Incoterms are used to alleviate or reduce confusion over interpretation of shipping terms, they outline exactly who is obligated to take control of and/or insure goods at a particular point in the shipping process.


Why are Incoterms Important?

Each Incoterms rule provides exporters and importers clear, succinct rules that help them understand their responsibilities, clarify any grey areas in contracts, and can save a lot of headaches when used correctly. When a seller and a buyer agree to employ a particular Incoterm, each accepts the corresponding obligations and responsibilities as clearly set forth and defined under that particular Incoterm. Incoterms reduce the risk of legal complications by giving buyers and sellers a single home base from which to reference trade practices.


Incoterms 2020 Rules

The most current revision of the terms, Incoterms 2020, went into effect on January 1, 2020, and consists of 11 Incoterms.

The latest revision’s changes include the following:

■   The most obvious change is renaming the term Delivered at Terminal (DAT) to Delivered at Place Unloaded (DPU).

■   The most significant change relates to the term Free Carrier (FCA). Under this term, the buyer can now instruct its carrier to issue a bill of lading with an on-board notation to the seller so that they may satisfy the terms of a letter of credit.

■   Under the revised term CIP, the seller is now responsible for purchasing a higher level of insurance coverage—at least 110% of the value of the goods as detailed in Clause A of the Institute Cargo Clauses. The insurance requirement hasn't changed for CIF.

■   Incoterms 2020 rules recognises sellers who may use their own transport to deliver the goods. The terms now expressly state that sellers can make a contract for carriage or simply arrange for the necessary transportation.

■   Incoterms 2020 rules now specifically call out the import and export security requirements and identify whether the buyer or seller is responsible for meeting those requirements.


Chart of freight collect terms