Incoterms® 2020: The hidden champions of efficiency
Your guide to improving business performance across the entire value and supply chain
Incoterms®, short for International Commercial Terms, have had a major impact on world trade for more than 80 years. Yet their hidden power is often underestimated and their potential for leveraging efficiency remains untapped. At first glance, Incoterms® rules merely define three responsibilities between sellers and buyers of goods (costs, liability and insurance), but a closer look at the 2020 updates shows: there is much more to it.
Incoterms® rules influence nearly all business aspects from sourcing to sales, from legal to finance, from business operations to corporate strategy and software algorithms. Despite the fact that many enterprises already interact closely with Incoterms® rules in their day-to-day business, their power often is underestimated.
For instance, you can drive your cash flow of what to pay and when to get paid, or steer correct tax determination, especially when it comes to Drop-Shipments. You can gain further synergy effects on the purchasing side and save unnecessary costs. You can make the most out of Named Places information when using RPA, IoT or traditional enhancement coding logic. You also can specify contract details with an impact on the correct treatment of the transaction from an accounting perspective.
Incoterms®: A holistic view
Incoterms® rules therefore deserve a holistic approach across a variety of functional perspectives. This is why multiple Deloitte experts provided their insights for this Incoterms® 2020 whitepaper, with the below key aspects:
a) Homage to Incoterms®:
- Why they are the hidden champions of efficiency, across the value chain within a company, and across multiple companies along the supply chain.
- Challenges in leveraging their potential – within logistics, sales & procurement, finance, accounting, tax, global trade, IT and legal.
b) A brief analysis of threats and opportunities arising from the 2020 version
e.g. will the abuse of “sea-only” Incoterms® rules CFR, CIF, FOB, FAS for intermodal sea freight really end?
c) Recommendations to get IT support into the 2030 drafting group
e.g. might “sea only” Incoterms® rules for intermodal shipments help to automatize processes and make better use of their hidden potential?
d) A graphical representation of the current Incoterms® rules that aims to incorporate more relevant information than depicted in most available graphics
(even though such a graphic representation remains a simplification, however, we aimed to serve the community with an updated improvement).
The Incoterms® 2020 update was released on September 10, 2019, and once again, after a decade, it is up to the stakeholders to analyze and adapt to those changes.
This time, the changes were mainly in regards to layout, reducing legalese and helping users to understand the existing Incoterms® ruleset more easily, e.g. with the help of a graphical representation. Yet some changes did take place that require action in the systems and processes. For instance in regards to DPU, focus on Named Places Incoterms® rules, insurance cover, etc.
Make use of the momentum to incorporate Incoterms® 2020 rules and have a proper check-up
When incorporating these rather small to medium sized changes, we highly recommend conducting an overall Incoterms® check-up for the sake of leveraging their hidden power of efficiency.
That means to check whether:
- their usage is in line with their intention (e.g. only sea-only terms)
- their usage is in line with the actual handling of the transaction (e.g. seller files the export customs declaration despite EXW)
- their usage is in line with one’s own intended role in the export (e.g. EXW for exports) from a customs and export controls perspective
- your software abilities help you to gain the most benefits out of them? (e.g. Named Places for automatic freight calculation and tax. Track and trace Place of Incoterms® -Delivery Date in order to leverage invoicing and accounting. Especially having particular focus on data integrity and harmonized master data records.
- you make the most out of your procurement and sales strategy by harmonizing Incoterms® rules (e.g. improving cash flow with collect Incoterms® rules as seller, using synergy effects to reduce costs, etc.)
To learn more, please download the Deloitte whitepaper “Incoterms® (2020) – The hidden champions of efficiency”.
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