Last month, Food Export-Midwest and Food Export-Northeast hosted a webinar discussing International Commercial Terms of Sale, commonly known as Incoterms, which are crucial to streamlining negotiations of contracts, communications, and payments in international trade. Since their inception, Incoterms have undergone revisions to adapt to the changing landscape of global commerce, with the latest update, Incoterms 2020, coming into force on January 1, 2020. Led by Export Education Coordinator Dennis Lynch, a seasoned veteran of international trade with more than 40 years of experience, this webinar covered key topics such as:  

• Overview of Incoterms  
• Challenges of Using Incoterms  
• Review of Notable Changes to Incoterms 2020  
• Changes to Cargo Insurance and Security Clauses  
• Product Specifics & HS/Schedule B Coding  
• Compliance Issues  
• Real-life Examples  
• Summary and Q&A  

Overview of International Trade Terms  

Trade Terms are defined by abbreviations or acronyms, such as “CIP” for “Carriage and Insurance Paid,” which, followed by a named location, infer the transfer of risk and costs and the terms of delivery of shipment. This includes:  

• Cost: Responsibility for various expenses involved, whether prepaid or collected.  
• Control: Possession of control (documentary “title”) of the goods at any point in the shipment.  
• Liability: Exposure with an insurable interest if the goods are lost or damaged.  
• Documentation: Responsibility for arranging specific documentation – both commercial and compliance.   

Components of Incoterms 2020  

Incoterms are divided into four main components and are built around the departure and arrival of the shipment. They are:  

• “Departure” E Terms: Indicates whether the shipment moved.   
  • Ex Works/EXW   
• “Main Carriage Unpaid” F Terms - Indicates whether the shipment moved within the U.S. but has not left the country.   
  • Free Carrier/FCA  
  • Free Along Side/FAS  
  • Free on Board/FOB  
• “Main Carriage Paid” C terms - Indicates whether the shipment left the U.S. and arrived at its destination.   
  • Carriage Paid To/CPT  
  • Carriage and Insurance Paid/CIP  
  • Cost and Freight/CFR  
  • Cost Insurance and Freight/CIF  
• “Arrival” D terms - Indicates whether the shipment was delivered at its destination.   
  • Delivered at Place/DAP   
  • Delivered at Place Unloaded/DPU (DPU is the only new incoterm added to the 2020 revision)  
  • Delivered Duty Paid/DDP  

Understanding Changes in Incoterms 2020  

Implemented in January 2020, Incoterms 2020 brought about significant changes aimed at enhancing clarity and adjusting to modern trade practices, including:  

• The new Incoterm “Delivered Place Unloaded” or (DPU), replacing “Delivered at Terminal” (DAT)   
• Clarification of insurance points in CIF and CIP incoterms rules  
• More focus on responsibilities of risk, cost, and delivery   
• Provisions to allow for own transport rather than assuming 3rd party transport (F and D terms)   
• More streamlined, user-friendly design  

What Incoterms 2020 Do and Don’t Do  

While Incoterms 2020 play a vital role in facilitating international trade, it’s essential to understand their limitations:  

Incoterms DO Divide the Roles of the Buyer and Seller:   

• Clarifying costs  
• Assigning control  
• Assigning liability  
• Customs & documents tasking  
• Mode of transport & delivery  

Incoterms DO NOT:   

• Transfer Title   
• Recognize revenue for accounting.  
• Address payment for goods.  
• Apply automatically.  
• Act as law & cover every step.  

Recommendations for Effective Use  

To maximize the benefits of Incoterms 2020, suppliers are encouraged to:  

• Purchase Incoterms® 2020 from the International Chamber of Commerce (ICC)  
• Develop a clear strategy based on product and market considerations.  
• Educate customers on the importance and implications of Incoterms.  
• Create even the simplest contracts and always get acknowledgment in writing.   

Through the Exporter Education Program, Food Export-Midwest and Food Export-Northeast aim to enhance the export expertise of U.S. companies with ongoing educational resources suitable for all experience levels. For more information on International Terms of Sale & Trade, review Export Essentials Module 6, which dives deeper into the topics discussed. Stay tuned for more valuable insights and educational opportunities from Food Export-Midwest and Food Export-Northeast, and be sure to look for more upcoming live webinars.