We spoke to DB Schenker’s Helge Jensen to discuss changes to the rules that define the responsibilities of buyers and sellers for the delivery of goods
January 1 2020 ushered in the latest set of Incoterms, the series of pre-defined commercial terms published by the International Chamber of Commerce (ICC) relating to international commercial law.
A Drafting Group has prepared the Incoterms® 2020 –the ninth set published by the ICC – and for the first time were joined by representatives from China and Australia, although most of the members are European.
This Committee has taken into consideration the issues and suggestions coming from the 150 members (mainly Chambers of Commerce) that are part of the International Chamber of Commerce. The changes and amendments made to the 2010 Incoterms are also representative of new and on-going challenges in the 2020 commercial landscape.
Naturally, the amendments are significant to the maritime industry and to the supply chain that support it. To gain a clear understanding of the latest updates apply to shipping, and what supply chain execs need to look out for, we spoke to Helge Jensen of DB Schenker
Helge, for those that don’t know – or those that need a refresh – why are the Incoterms so important?
When I sit in front of clients, ship owners ship management companies, I always talk about Incoterms®. Because, the clearer agreement there is between the supplier and the buyer, the smoother the whole supply chain runs. And that’s why I emphasize the importance of the Incoterms®. Hence, when you issue a purchase order, do not just say Incoterms®, you have to be more specific.
First of all, you have to be specific about which Incoterms® you want to use, because now we have the latest one, Incoterms® 2020. But the Incoterms® 2010 is still valid, and can be used, and therefore it’s for very important that the purchase order clearly stipulate Incoterms® 2010 or 2020.
Why are they so significant?
To keep is simple, it basically determines who pays for which part of the transport, and who insures the goods. That is the most important thing. Where does the risk go from seller to buyer? Where does the transport cost change from seller to buyer? And who is responsible for insuring? At what point does it take a change?
There’s been some significant changes to the Incoterms® in the latest update. What are the most important for the shipping industry?
In my opinion, the two most important changes are the DAT (Delivered at Terminal) being changed to DPU (delivered at place unloaded) and the changes to the level of insurance covering CIP and CIF.
“The clearer agreement there is between the supplier and the buyer, the smoother the whole supply chain runs. That is why I emphasize the importance of the Incoterms®”
In the first case, the obligations and functions of both terms still apply. This means that goods cannot only be unloaded at a transport terminal or infrastructure (port, airport, dock etc.) but likewise at any other point in the destination country which has facilities for the unloading of the goods from the means of transport, such as for example a factory or warehouse.
How significant are the changes to CIP and CIF?
In Incoterms® CIF (used in the marine trade) the seller is only under the obligation to take out under contract insurance with minimum coverage, which corresponds to Clause C of the Institute Cargo Clauses (IUA/LMA), so the level of insurance has remained the same.
In Incoterms® CIP (used for other trades than marine) the seller is under the obligation to take out under contract transport insurance in favour of the buyer with extensive coverage, which corresponds to Clause A of the Institute Cargo Clauses (IUA/LMA). There has been a request from user to have a higher level of insurance and therefore this was included in the latest version.
The transport security requirements have also seen a change. To what extent will they be affecting procurement department and the sort of wider sort of shipping companies and owners?
In a practical sense, the increase in the levels of security and security requirements, has led to longer transit time, and particularly when it comes to transportation of dangerous goods. When transporting dangerous goods, there is absolutely no room for any shortcuts. It is 120% by the rules.
We experience from time to time that we receive some dangerous goods, which we have not been informed about. That can be for several reasons: The client didn’t know that the device contained dangerous goods, or it was not clearly mentioned in the documentation. However, it is important to understand, that it is the supplier of the dangerous goods, who must secure that it is packed correctly, and the correct documentation is prepared. We can of course help the client to have it packed by an authorised company.
Incoterm 2020 at a glance
Ex Works (EXW)
The seller makes the goods available at the seller’s location, so the buyer can take over all the transportation costs and also bears the risks of bringing the goods to their final destination
Free Carrier (FCA)
The seller is responsible for delivery of goods to a named carrier. Responsibility for cost and risk then passes to the buyer.
Free Alongside Ship (FAS)
The seller must place the goods alongside the ship at the named UK port. The risk of loss or damage to the goods passes when the goods are alongside the ship, and the buyer bears all the costs from that moment on.
Free on Board (FOB)
The seller is responsible for all costs involved in the process up until the goods are loaded on to a vessel at the named UK port. Once goods have been loaded, the buyer is responsible for any costs and risks involved in the onward shipment.
Cost and Freight (CFR)
The seller must pay the costs and freight to bring the goods to the overseas port of destination. The buyer pays costs and takes risk from then on.
Cost, Insurance and Freight (CIF)
This is the same as CFR. However, the seller must also obtain and pay for the insurance. The default level of insurance cover under CIF is Institute Cargo Clauses (C). This applies to both 2010 and 2020 Incoterms.
Carrier and Insurance Paid to (CIP)
The seller pays for the carriage and insurance to the named overseas destination point, but risk passes when the goods are handed over to the first carrier. The default level of insurance cover under CIP is Institute Cargo Clauses (A). This is a higher level of cover for CIP than Incoterms 2010, which specified Institute Cargo Clauses (C).
Delivered at Place Unloaded (DPU)
The exporter arranges carriage and delivery of the goods, ready for unloading at the named place. The seller is required to unload the goods at this destination. sAfter the goods’ arrival, the customs clearance in the importing country needs to be completed by the buyer at his own cost and risk, including payment of all customs duties and taxes. This is a retitling of the Incoterms 2010 term Delivered at Terminal (DAT), making it clear that delivery can happen anywhere, not just at a terminal.
Delivered Duty Paid (DDP)
The seller is responsible for delivering the goods to the named place in the country of the buyer, and pays all costs in bringing the goods to the destination.