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Home > International Business > Importing and Exporting > An importers and exporters guide to Incoterms 2020

An importers and exporters guide to Incoterms

2020 email us Get the
Provided by ImportExport License specialists in customs registration.
latest
Resourceful South Africans are (and should be) focused on carving out
avenues of income in an economy void of employment surety by looking for
from SME Toolkit
opportunities in global trade. SA Trade Statistics published by SARS in
October 2019 shows a 5.1% grown in revenue from exports compared to
South Africa
2018, including trade with Botswana, Eswatini, Lesotho and Namibia (BELN), Email
as well as a R5.3 billion positive trade balance in comparison to the previous
year’s R3.7 billion shortfall.
Although the bulk of these figures are made up by giants in agricultural, mining
First Name
and tech, small businesses play an important part in maintaining South
Africa’s economic health. To ensure continued growth in international trade,
large and small importers and exporters alike need to focus on closing sales
and maintaining smooth dealings in international commerce. Incoterms, short Last Name
for International Commercial Terms, are designed for this exact purpose by
acting as a global shorthand stipulating where international sellers hand over
risk, responsibility and cost of fulfilling a shipment to their buyers.
Province
To stay abreast of trends in commerce, Incoterms are revised every ten years
and the ICC recently published the 2020 version. Regardless of periodical Select...
modification to ensure that Incoterms continuously grease the wheels of
international trade, importers and exporters often incur massive loss by failing
to understand their underlying content, or how to site a term correctly in a I agree to be emailed
sales contract.
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Most common mistakes in using Incoterms are completely avoidable. Here are
some examples:

Using a maritime term when transport is multimodal.

Rules such as FOB or CIF are traditionally intended for freight via sea and
inland waterway only. Using these terms instead of the all-transport versions
thereof, being FCA or CIP, exposes sellers to unnecessary risk. This is
because legal terms included in maritime Incoterms such as ‘alongside the
ship’, ‘on board the vessel’, ‘port of shipment/destination’, etc. make land-
based deliveries easy to dispute.

Insufficient description of the port/place of delivery.

Using a city name, or even an airport name as place of delivery refers to a lot
of locations within one area. E.g. Hong Kong International Airport Terminal 3
would be specific enough to avoid misinterpretation, whereas simply saying
Hong Kong Airport is too broad.

Failing to accommodate both parties.

E.g. Using EXW requires the buyer to complete all export procedures and
documentation. If they are unfamiliar with these processes, or limited in terms
of language, this can become an intolerable task. Using DDP can also pose a
major challenge if the seller is unable to undertake all the necessary
procedures, like paying GST or VAT, in the buyer’s country.

Including inadequate insurance cover with CIP or CIF.

Incoterms 2020 CIP specifies insurance in line with Clause A of the Institute of
Cargo Clauses, which is much more comprehensive than Clause C specified
by Incoterms 2010 CIP. Failing to understand which version of this term is in
effect or missing the opportunity to specify additional insurance required for
speciality goods can leave buyers vulnerable to loss.

Incorrectly citing Incoterms in a sales contract.

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The correct way to write an Incoterm is in the following format: Rule – Exact
point of transfer - Incoterms of relevance
E.g. EXW at 20 Example Street, Cape Town, South Africa as per Incoterms
2020
Failing to specify the year edition of the Incoterm in use can lead to
misunderstandings resulting in legal dispute and the loss of profitable trade
relationships.

Failing to specify when title passed from seller to buyer.

Updates with Incoterms 2020 include clarification to avoid disputes regarding
ownership. It is however still necessary to define transfer of title of goods
separately in sales contracts.
Besides this, the new version of Incoterms includes a few noteworthy changes
buyers and sellers should take note of.

The most important updates with Incoterms 2020

DAT is renamed to DPU
Incoterms 2010 specifies DAT (Delivered at Terminal) to mean the goods are
delivered once it is unloaded at the named terminal. This does not allow for
goods to be delivered at a private or business address. DPU (Delivered at
Place Unloaded) is more general and applies to any point of delivery specified.
DPU is the only Incoterm which places the risk of unloading goods from the
vessel of delivery onto the seller, which is by nature a great benefit to the
buyer.

CIP requires better insurance

As mentioned, Incoterms 2010 CIP (Carriage and Insurance Paid) requires the
seller to provide insurance in the name of the buyer that adheres to Clause C
of the Institute of Cargo Clauses. This is a basic level of insurance generally
suitable for bulk commodity cargoes that would more likely travel under CIF,
which is CIP’s maritime equivalent. In the case of specialty or manufactured
goods Clause C insurance often falls short and requires that additional policy
conditions have to be written into the sales contract.

Incoterms 2020 defines CIP as inclusive of an insurance policy in line with

Clause A of the Institute of Cargo Clauses, which is much more
comprehensive. Insurance specified by both Incoterms 2010 and Incoterms
2020 CIF must comply with Clause C of the Institute of Cargo Clauses.
Click here to download a summary of insurance required by Incoterms 2020.

Transportation no longer has to be third party

Incoterms 2020 makes provision for transport being provided by the seller or
buyer instead of a third party (e.g. the seller's own vehicle). E.g. According to
Incoterms 2020 FCA stipulates the buyer must "contract or arrange at its own
cost for the carriage of the goods from the named place of delivery".
Click here for helpful summary of all the 2020 Incoterms or download a
printable Incoterms chart.

Do importers and exporters have to use Incoterms?

Incoterm become legally binding when they are written into a sales contract,
but using them in the first place is not required. International sellers and
buyers may choose to forego using Incoterms and still draw up a
comprehensive agreement. Alternatively, an Incoterm can be used with any
variation from its standard definition preferred by the buyer or seller noted in
the terms of the contract. However, with an economy in dire need of growth,
South African importers and exporters can’t afford to be out of the loop with
any valuable resources of international trade.

Whether your company is already thriving or just getting started, Import Export
License is here to help with the admin so you can focus where it matters – on
taking your business offering to the next level.

ImportExportLicense are specialists in customs registration - permits, business

services and international freight and courier services.

For more information, contact:

Website:https://importexportlicense.co.za/

Tel: 0861 0 TRADE (87233)

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