DAF, DES and DDU were replaced with DAP. DEQ was replaced with DAT. Then DAT was replaced with DPU. Got that?
Incoterms — International Commercial Terms — have been published by the International Chamber of Commerce (ICC) and used in sales contracts globally for imports and exports since 1936. Although Incoterms have been in use for more than 80 years, they long have been misused and misunderstood. Revisions made every decade or so further complicate matters.
It took two articles for American Shipper to detail the contractual terms of trade among countries for global supply chain professionals in 2016. FreightWaves earlier this year used an infographic to outline 2020 changes.
Maria De Gannes, the training and development manager for Miami-based A Customs Brokerage, laid out 2020 revisions Wednesday in a seminar hosted by the Jacksonville Port Authority (JAXPORT) in Jacksonville, Florida, in conjunction with the Florida Custom Brokers & Forwarders Association, Enterprise Florida, U.S. Commercial Service, Small Business Development Center at the University of North Florida, JAXUSA and the JaxChamber.
“I’m not going for shock and awe. What I’m going for is for you guys to understand the terms and better help your clients, better help yourselves so when you see this coming across your desk, you’re like, ‘I know about this,’” De Gannes said.
She went through 2020 Incoterms changes.
“This is the big one, guys. We replaced DAT with DPU. That’s ‘unloaded at the buyer’s facility.’ The unloading part is not new. The terminology is,” De Gannes said. “ICC decided to make it easier for everyone to understand because when you read the book, some of this is kind of legalese.”
Incoterms 2020 also states that the FCA (free carrier) buyer will instruct its carrier to issue an onboard bill of lading to the seller after the loading of goods. In turn, the seller will provide the buyer, typically through a bank, a letter of credit.
De Gannes said the text was added to the 2020 rules so “you know with an FCA transaction you have to instruct the carrier to give that bill of lading to the seller so that way they can present it with their documentation to the bank so that way they can get paid. That’s the whole point behind that, but this is where it falls flat. This is not enforceable. It’s stated in there, but make sure before you take on a transaction that involves a letter of credit that you can do everything that’s stipulated in there.”
She said another change in 2020 is that the CIP (carriage and insurance paid) insurance level has changed to an all-risks policy and that a Clause A policy is now required. “It’s a more ramped-up insurance policy,” De Gannes explained.
“Security concerns have been addressed in each Incoterm. There is more regarding embargoed countries and denied party screening,” she continued. “What they’re saying is if you’re touching the transaction, you should be doing screenings.”
De Gannes said it isn’t shocking that Incoterms 2020 states that previous versions are still acceptable if both parties agree to that.
“FOB 2000, FOB 2010, FOB 2020, which one are you talking about? And remember the DDU? Did that go away? No. So when we do these types of presentations, the first thing you want to say is, ‘Oh, that’s not one of the Incoterms.’ Is it though? Can we use it? Of course we can, if both parties agree,” she said.
Some export and import professionals in the audience gave De Gannes confused looks.
“Who trained you? Did they train you correctly? What if they had years of experience of doing it wrong? Now you have all of their knowledge doing it wrong, so education is very important and that’s why we do these kinds of things. So please don’t think I’m trying to belittle, demean whatever experience you have, but I know from experience I learned it incorrectly in some areas,” she said.
De Gannes granted Incoterms don’t cover everything importers and exporters need to know.
“Who’s supposed to load the container? Does Incoterms cover that? Did you find it in the book? Did you see it? I didn’t. You know why? It’s not covered in there,” she said. “You see how Incoterms are really helpful as guidance, but some things are just left out.”
The E group of Incoterms specifies:
- The seller/shipper will make the goods available at its facility. The buyer is responsible for all transportation costs, duties and scheduling both at origin and destination up to the buyer’s door.
- The seller/shipper will render additional assistance with information and documents the buyer requests at the buyer’s expense.
- The buyer carries all risk but has control.
- The buyer must handle export clearance.
- An E term should not be used if the buyer is unable to clear goods for export.
“We’ve got to really make sure that we know what we’re talking about and make sure that the people we’re working with understand what they’re signing up for and what we’ve signed up for,” De Gannes said.
Before moving on to the D group, she asked, “Now that you’ve dived into one Incoterm [group of terms], how many of you are thinking, ‘Oh my goodness, I’ve got to go back and tell some people’? You’re thinking we all need this training.”
DAT was changed to DPU — delivered at place unloaded.
“So the seller pays all charges until the goods are unloaded at the named quay, port, warehouse, yard or terminal,” De Gannes said. “That named place makes a huge difference. For the D terms, named place is critical, absolutely critical, because that’s where the risk transfers.”
The Incoterms letter groups spell out rules and codes for specific types of transactions and modes of transportation.
“Are you going to ask someone on your freight team to do customs clearance? You have specific people to do specific things. These terms are set up exactly the same way. It’s simple when you say it like that, right? Try to explain it to everybody else. That’s when you get in a real pickle,” De Gannes said.
C terms give the seller more control and the buyer still holds most of the risk, she explained.
“It actually states in there that insurance, unless it’s CIP [cost, insurance paid to] or CIF [cost, insurance and freight], is not required by the buyer or seller. Now I’m not suggesting we don’t insure our cargo. What I’m suggesting is make sure it is covered and make sure we know who’s paying for it — who’s actually covering it — because that makes all the difference when we come to claims,” De Gannes said.
Every step in the movement of goods from origin to destination needs to be documented.
“Make sure it’s in your sales contract. If not, get it in writing somewhere. You can get it in an email. That’s fine, but make sure you get an agreement before doing it,” De Gannes said. “We want to make sure we’re doing everything we need to, and sometimes that means you’re going a little extra and making sure you’re covering it in your POAs, your terms and conditions, your bill of lading or an email, making sure you have it clearly documented.”
She noted that Incoterms are not laws.
“Incoterms were created by a private organization. ICC was really good about trying to make sure everybody was on the same page. That’s all they did. They were clearing up some misunderstanding,” De Gannes said. “If I’m speaking one language and you’re speaking another language, we need a translator. What ended up happening is we had all these terms and all these different variations by country. It got a little complicated because everybody’s country was right and every country’s rules stood. So what happens when your terms don’t mean the same as my terms? Now we have a problem. So that’s what they did — a private organization just trying to help and that’s what this is. Can they become the law? Yes, by putting them on a POA.”
Incoterms do not address the transfer or sale of title or ownership; revenue recognition; payment terms; more than one contract; consequences of breach of contract; or insurance, except for CIF and CIP, in which the seller is responsible.
“To ensure Incoterms 2020 terms are being applied, buyers and sellers should specify ‘Incoterms 2020’ on all contracts, purchase orders and invoices,” De Gannes said. “We need to clearly identify the source of reference or version and make sure both sides are referring to the same version. If you’re using 2000 rules, ship rails weren’t listed. If no year is listed, we have no clue.”
She repeated, “Any variations should be clearly stated in writing and agreed to by all parties to the transaction.”