Incoterms 2020 training

Incoterms 2020 training in a simple language

Incoterms 2020 training

Incoterms 2020 training in simple language

Incoterms training 2020 – What is Incoterms? – The first question that comes to our mind after reading the title of this article is whether Incoterms 2020 exists in a specialized language? Our answer is: In the Incoterms 2020 article, we explain the main and key points of Incoterms 2020 in simple terms, or in other words, we have provided the summaries of Incoterms 2020. In order to learn Incoterms, be sure to read the translation of the full text of Incoterms 2020 in Persian language to get a better understanding of its generalities. Because Incoterms is a basic requirement for all traders, in other words, Incoterms is one of the alphabets of business in the international arena.

What is Incoterms ?

In the introduction of Incoterms 2020 training, we need to explain Incoterms in simple terms, since each country has its own laws, of course, trade and commerce in different countries have different national laws. International trade is actually a process that occurs at least between two countries, the common language and unanimity between countries has been one of the preoccupations of private sector and even government business managers and activists since the past decades. The International Chamber of Commerce, by forming various specialized committees, has taken long and profitable steps in the direction of trade and has compiled uniform and standard rules that have been accepted by traders, businessmen and even governments around the world. Undoubtedly, the most famous standard rule developed by the International Chamber of Commerce is Incoterms. Incoterms, in simple terms, are: international standard rules developed by the International Chamber of Commerce, which specify how to divide and share the costs, contractual obligations and risks of the transaction and business between the seller and the buyer.

You must know that an international trade exchange consists of several steps. The goods subject to the transaction, after production and packaging, are transported from the seller’s place in the country of origin and arrive at the border and customs of the country of origin, then they are loaded on the main means of transport and international transportation is carried out. And the customs office of the destination country is reached, where the import clearance procedures are carried out and it is transported to the buyer’s warehouse inside the destination country. In other words, the goods pass through three geographical territories, which are from the seller’s place to the exit border of his country (seller’s country), the seller’s country’s exit border to the buyer’s country’s entry border (international transport) and the buyer’s country’s entry border to his place (buyer’s country). Various other steps such as bank transfers and payment, inspection, insurance and contract of transportation are added in the above process. To put it simply, Incoterms aims to standardize how obligations, costs, and risks of the transaction process are divided between the seller and the buyer. In fact, Incoterms rules are a series of pre-thought-out solutions to organize and standardize the relationship between the seller and the buyer. In the table below, the list of costs and responsibilities of an international transaction (based on Incoterms 2020) is mentioned in order.

What are the things that Intercoms does not include ?

In this section of the Incoterms 2020 review, we will simply describe a set of things that are not in the scope of Incoterms 2020 commitments. We must be careful that despite the efforts made in Incoterms. The duties and responsibilities and obligations of the seller and the buyer should be specified in each transaction or sale. This rule is only specified in one of the articles of the contract or a proforma house and does not determine all the obligations of both parties. It is also worth noting that in an international transaction several contracts including:

Sales contract (between buyer and seller)
Shipping contract (between buyer or seller and shipping company)
Insurance contract (between buyer or seller and insurance company)
Payment participation agreement (between the buyer and the bank or financial institution)
Clearance agreement (between the buyer, seller and clearance company)

And… there is.

A very important point in this part of the definition of Incoterms 2020, simply put, is that Incoterms is special for sales contracts. In other words, the relationship and obligations between the buyer and seller will be examined in Incoterms. However, it is clear that the use of an Incoterms 2020 rule affects other contracts (especially shipping). Therefore, Incoterms specifies a part of the obligations of the buyer and seller also does not relate to various other matters, including the following:

Effects of sanctions
Creation and application of tariffs
Import and export prohibitions
Intellectual property of goods and its transfer from the seller to the buyer
Right of ownership of goods and time of transfer of ownership from seller to buyer
Interpretation of the delivery rules
Obligations of the parties in letters of credit, protection and maintenance of goods
The method and place of dispute settlement
The impact of unforeseen events in the implementation of responsibilities
Force majeure and hard ship

Finally, the fact is that Incoterms only defines part of the obligations of the parties (buyer and seller). And it will not discuss or review the consequences of not fulfilling the obligations. Also such cases are better to be written in the terms of the contract, such as the determination of damages and compensation, penalty for late delivery or late payment, total responsibility, time and termination of the contract and signed by the parties.

The main points in using Incoterms 2020 concepts in simple terms

- Determining which version of Incoterms to use
The first edition of Incoterms was compiled by the International Chamber of Commerce in 1936 and was subsequently revised and updated in 1953, 1967, 1976, 1980, 1990, 2000, 2010, and 2020. Incoterms revision and modification is done by the International Chamber of Commerce due to changes in the business environment and transactions and instruments of international trade. It should be noted that since 1980, these rules have been revised every ten years. But we must note that there is no legal requirement to comply with this time frame for review. But the International Chamber of Commerce tries to keep this period of time neither too short nor too long due to maintaining credibility and ease of use as well as updating it on time. There are significant differences between different versions even in the same rule, which makes it necessary to refer to the version intended by the parties. For example, the CIP rule has undergone important changes in the 2020 version compared to the 2010 version, which increases the importance of referring to the desired version and creates legal consequences. Also, in the CIP rule of the 2010 version, the seller’s obligations in terms of product insurance are up to Clause C, but in the 2020 version, in the same rule, the seller’s obligations for insurance coverage are up to Clause A. Therefore, by mentioning the phrase “The Incoterms® 2020 Rules” in front of the used rule, the desired version is specified.
- Determining the specified and agreed location
It should be kept in mind that the use of an Incoterms rule without specifying the location and point agreed by the parties is not correct at all. The seller is obliged to deliver the goods to the buyer or the person introduced by him (agent or shipping company) at the specific place and points agreed by the parties and at the appointed time. In all rules, if the desired point or place is not defined precisely and only the name of a country or region is written in general. The seller can deliver the goods to the best place that suits his purposes (for example, the place that the seller chooses within the country or region), the point is a specific and predetermined address.
For example, if FCA INCOTERMS2020 CHINA is written, the seller can deliver the goods to any location in China, in short, if the agreed location and point are not determined, the seller has the right to choose. And even the buyer has no right to object. The important point is that in C rules including CFR, CPT, CIF and CIP, where there are two critical points or two locations, both must be specified. In these rules, risks and risks are transferred from the city or port of origin to the buyer. If the payment of conventional costs to the destination city or port is the responsibility of the seller. Therefore, we must determine both points accurately.
- Adding precise and explicit conditions to the standard framework if necessary
In case the parties agree to add a special clause or condition to an Incoterms 2020 rule, they must first clearly specify the party that will bear the risk and cost of that action. For example, in the EXW rule, the buyer is responsible for export clearance. However, if the parties wish to add this item to the seller’s obligations, the following phrase may be used:
EXW (INCOTERMS2020)
(Named place and point of delivery) Cleared for export
In this case, the seller may claim that he only agreed to help in the implementation of the export clearance, and this assistance should be done at the buyer’s risk and expense. Therefore, it is better to complete the above statement as follows.

EXW (INCOTERMS2020)
(Named place and point of delivery) Cleared for export at the risk and expense of the seller.
The parties of an international transaction have the right to use the rules of Incoterms and are able to make changes in it for their own use. But these changes must be clearly mentioned and the party that bear the risk and cost of the desired change must be specified.

The main points in using the concepts of Incoterms 2020 in simple terms

As we mentioned earlier, Incoterms is revised every few years for several reasons, including changing business conditions. The latest changes to Incoterms were finalized in September 2020 and became known as the 2020 version and came into effect in January 2020. Compared to the 2010 version, the 2020 version has a number of important features that are summarized below.

No change in the category structure

In the 2010 version, all Incoterms rules were classified into two general categories, and in the 2020 Incoterms version, the exact same structure has been used.

The first category of Incoterms 2020 includes rules that apply to all transportation methods and has 7 rules (DDP, DPU, DAP, CIP, CPT, FCA, EXW).

The second category is rules that are specific to sea transportation (CFR, FOB, FAS & CIF). Due to the increasing importance of maritime transport, for the first time, in the 2010 edition, special rules for maritime transport were presented as a separate category or classification. And the same structure was used in the 2020 version, and finally, in the 2020 version, all the rules were specified in two categories.

Making a change in the name of a rule of Incoterms

In the 2020 version, the DAT rule, meaning delivery at the terminal, has been renamed to DPU while maintaining the original features. Delivered at Place Unloaded is actually a new or changed rule that the seller is responsible for unloading the goods and its cost at the agreed place at the destination.

Changes in some rules

Obligations have been changed in some rules including CIP. In the 2010 version of this rule, the seller is required to provide an insurance policy with minimum coverage of Clause C, while in the 2020 version, the seller is required to provide an insurance policy with Clause A coverage.

Transparency in the rules

In the 2010 version, there were many ambiguities in many rules, and this caused the International Chamber of Commerce to provide more details in the form of interpretation and explanation after the publication of the original text of Incoterms in the manuals. Many of these points are presented in Incoterms 2020 clearly and explicitly in the main text. For example, unloading in rules C, how to divide costs, freight insurance, cargo documents and various other things are clear and specified, which are mentioned in the review of the rules.

Removing, adding and changing the position of some ten obligations

Although in both Incoterms 2010 and 2020 editions, ten obligations have been considered for the buyer and seller, but in the 2020 edition, not only the title of some obligations have changed, but also their priority position has changed. In the table below, ten obligations of the seller are compared in two versions.

As can be seen in the above table, many changes have been made in the title and position of the obligations of the buyer and the seller, and the most important differences between Incoterms 2020 and 2010 can be named as follows:

The two obligations of delivery and transfer of risks have been placed in a more important position due to more emphasis and have been moved from the fourth and fifth obligations to the second and third obligations.
The obligation regarding permits, licenses, security clearance and other formalities (customs), which was in the second place in 2010, has been renamed to export-import clearance and is placed in the seventh place.
Transport and insurance contracts, which were in one commitment in the third place of obligations in Incoterms 2010, were separated into two commitments in the 2020 version and placed in fourth and fifth place.
The priority of the proof of delivery of the goods has been changed from the 8th to the 6th place, and in the column related to the buyer, the phrase “confirmed delivery document” is mentioned for this obligation.
The distribution of expenses has been changed from the sixth place to the ninth place.
The notification to the buyer from the seventh place in the 2010 version has been moved to the tenth place by changing the title.
Inspection, packaging and marking have also been moved from the 9th position to the 8th position, and the same title of obligation for the buyer has also been used, while in the 2010 version, the subject of inspection for the buyer was also mentioned in the title of this obligation.
The obligation of “assistance, providing information and relevant costs” has also been removed from the ten obligations of Incoterms, although this phrase is used in the text of most of the rules, and this obligation is somehow spread in other obligations.