Incoterms® Guide to use in 2022
Incoterms® were first published in 1936 and are continually updated over time to reflect the changing global business environment to be continually used in 2022 and beyond.
The International Chamber of Commerce ICC published the latest version of Incoterms® 2020. These changes came into effect on the 1st of January 2020 and are being being used in 2022 and beyond, until the next changes are published sometime in future. The ICC originally published Incoterms® in 1936 and have continually made updates to reflect the changes to the global trade environment. It’s important that all parties involved in trade clearly understand the changes and how they apply to global supply chains.
Incoterms® play such a vital role in the world of global trade. In 2022, it’s imperative that buyers and sellers clearly understand Incoterms® 2010 or Incoterms® 2020 and clearly understand each party’s obligations along the supply chain.
Note: The content of this article and chart is only for general information purposes and shall not in any circumstances be considered bespoke legal advice or professional advice.
What are Incoterms®?
Put simply, Incoterms® are the selling terms that the buyer and seller of goods both agree to during international transactions. These rules are accepted by governments and legal authorities around the world. Understanding Incoterms® is a vital part of International Trade because they clearly state which tasks, costs and risks are associated with the buyer and the seller.
The Incoterm® states when the seller’s costs and risks are transferred onto the buyer. It’s also important to understand that not all rules apply in all cases. Some encompass any mode or modes of transport. Transport by all modes of transport (road, rail, air and sea) covers FCA, CPT, CIP, DAP, DPU (replaces DAT) and DDP. Sea/Inland waterway transport (Sea) covers FAS, FOB, CFR and CIF.
Why are Incoterms® vital in International Trade?
Incoterms® are referred to as International Commercial Terms. They are a set of rules published by the International Chamber of Commerce (ICC), which relate to International Commercial Law. According to the ICC, Incoterms® rules provide internationally accepted definitions and rules of interpretation for most common commercial terms used in contracts for the sale of goods’.
All International purchases will be processed on an agreed Incoterm to define which party legally incurs costs and risks. Incoterms® will be clearly stated on relevant shipping documents.
An overview of the 11 terms used in Incoterms® 2020
Below is a list of the Incoterms® 2020 that came into effect on the 1st of January 2020. Click each to go to a detailed description of each Incoterm®.
- EXW | Ex-Works or Ex-Warehouse
- FCA | Free to Carrier
- FAS | Free Alongside Ship
- FOB | Free On Board
- CFR | Cost and Freight
- CIF | Cost, Insurance and Freight
- CPT | Carriage Paid To
- CIP | Carriage And Insurance Paid To
- DAP | Delivered At Place
- DPU | Delivered At Place Unloaded (replaces Incoterm® 2010 DAT)
- DDP | Delivered Duty Paid
How to utilize Incoterms® 2020 on Sales and Purchasing Contracts
The new Incoterms® 2020 came into effect on the ‘effective’ date of the 1st January 2020. What does that actually mean for your business? Trading partners can still carry on using Incoterms® 2010 if they prefer to, which may occur when it is being used to confirm complex commercial agreements.
All parties must make it clear in Sales and Purchasing contracts which Incoterms® version is being referred to in order to avoid any misunderstanding. Different trading partners will incorporate Incoterms® into contracts at different times. The Sales and Purchasing Contracts, or Proforma Invoices and Purchase Orders should both be counter signed by each party. Read more about counter-signing trade contracts here.
It is imperative that you check existing contracts to ensure that the Incoterms® edition year is included. If there is no year stated then the following will apply:
- Up to 31st December 2019 – Incoterms® 2010
- From 1st January 2020 – Incoterms® 2020
- If a different year is stated, for example Incoterms® 1990, then the respective terms will apply
The below is the structure that should be used on Sales Contracts:
[Incoterm® rule] [Named port/place/point] Incoterms® 2020
Examples:
CIF Longbeach Incoterms® 2020
DPU 4300 Longbeach Blvd, Longbeach, United States Incoterms® 2020
Get a copy of the official ICC Incoterms® 2020 book
You can purchase the official Incoterms® 2020 book from the International Chamber of Commerce here.
