Incoterms® 2020 went into effect on January 1, 2020. Here are answers to many common questions, including what changes have been made in the newest version of Incoterms®.
Incoterms® are 11 predefined rules, or terms, published by the International Chamber of Commerce (ICC) to reduce uncertainties and ambiguities in contracts for international trade. Use of an Incoterm® three-digit code in a contract removes the need to write out the full text of that rule.
As described on the ICC website, “The Incoterms® rules are the world’s essential terms of trade for the sale of goods. Whether you are filing a purchase order, packaging and labelling a shipment for freight transport, or preparing a certificate of origin at a port, the Incoterms® rules are there to guide you. The Incoterms® rules provide specific guidance to individuals participating in the import and export of global trade on a daily basis.”
In a sales contract, Incoterms® delineate the primary obligations and responsibilities of the buyer and the seller, including:
A complete contract cannot be written with the use of Incoterms® alone. Important elements of a contract that Incoterms® do not cover include:
Incoterms® have been a project of the ICC since 1936. For each revision the ICC assembles an international panel to work out the specific terms. Incoterms® 2020 is the fourth revision in the last 30 years. Each of those revisions have been published in the first year of a new decade: 1990, 2000, 2010 and 2020. Incoterms® 2020 marks the first time that authors from China and Australia were included on the panel. Other Incoterms® 2020 authors are from the United States and the European Union.
No, Incoterms® rules are not laws. Parties to a contract may agree to use Incoterms® as a convenient way to make sure they understand the specific details of a contract without having to write out those details. However, the parties may decide to not use Incoterms® and fully customize their contract instead.
Here’s a general overview of the 11 rules of Incoterms® 2020. Each rule includes sections and subsections. For detailed versions of the rules, see the answer to “How Do We Get a Complete Copy of Incoterms® 2020?” below.
These seven terms are for any mode of transport:
These four terms are for ocean and inland waterway transport only:
Several significant changes from Incoterms® 2010 have been made in Incoterms® 2020, including:
No, Incoterms® 2020 is not the only version of the rules that can be used. In fact, any previous edition can be cited in a contract simply by stating the year of that version. For example, the rule for Cost, Insurance & Freight (CIF) has changed for 2020. If the parties to the agreement wanted to use the rules from 2010, that rule would be cited in the contract as CIF 2010. If the contract were to state CIF with no year following it, then CIF 2020 would apply, as it is now the default rule. To avoid confusion, it is best to always state the version year for each Incoterms® rule in the contract.
Any business that engages in international trade on a regular basis would be well-advised to become familiar with the details of the Incoterms® 2020 rules and to keep a copy of the complete rules on hand for reference. Here are two ways to get the complete rules. Please note that Jaguar Freight does NOT receive a commission for sales of Incoterms® 2020.
If you’re paying in euros, you can purchase a copy of Incoterms® 2020 as a book or eBook directly from the International Chamber of Commerce.
If you’re paying in US dollars, Incoterms® 2020 is available in paperback on Amazon.com.
Jaguar Freight is always here to help. If there are Incoterms® 2020 rules or rule changes that you find confusing. don’t hesitate to contact your Jaguar Freight agent at (516) 600-0170 or send us a message.
At the hectic ending of one year and the beginning of another, it’s easy to miss items you would have paid attention to at any other time of year. Jaguar Freight has put together this overview of 10 items that may have escaped your attention. It’s a good read that will help get you caught up in a hurry.
The United States-Mexico-Canada Agreement, the replacement for NAFTA, was passed by the Senate Finance Committee on January 7 and awaits passage in the full Senate. After being ratified by Canada and Mexico, the original version of the trade pact was held up in the House of Representatives as Democrats negotiated to secure higher labor and environmental standards. The House passed the bill with negotiated changes last month and sent it on to the Senate.
The heady high-export days of 2018 gave way to three consecutive declining quarters of export activity for all regions, including Asia, Americas, Europe, and Middle East & Africa (MEA), statistically putting the world in an export recession. The downturn was led by Europe, which had enjoyed the greatest export growth in Q1 and Q2 of 2018. The global decline in exports accelerated throughout 2019, reaching a low point in Q4. Looking ahead, the US trade deficit with the EU could trigger a new trade war in 2020.
IHS Markits forecasts that world trade volume will grow by 2.7 percent in 2020. This follows increases of only 0.6 percent in 2018 and 0.3 percent in 2019. IHS Markits acknowledges that their forecast is vulnerable to several key factors, including:
Source: IHS Markits
Bilateral trade between the US and China fell 15.2 percent over the 12-month period ending November 30, 2019. Comparing that period with the previous 12 months, US exports to China dropped 21.6 percent, while China exports to the US fell only 2.2 percent. Some analysts believe the new trade agreement announced between the two countries will strongly favor the US, but the deals of Phase 1 purchase commitments have not been completed.
Foreign Affairs asked a large pool of trade experts whether they agreed or disagreed with the following statement: “The trade war has hurt the United States more than it has hurt China.”
Here’s how they responses broke down:
Obviously, there is no clear consensus on the question of who the trade war’s biggest loser is. Click the link below to see who responded and read their thoughts on the matter.
Source: Foreign Affairs
Boris Johnson’s recent landslide victory is a clear sign that a final Brexit agreement may be near. British industrial firms aren’t waiting to update their supply chains. Over the 12 months prior to October 31, 2019, the proportion of intermediate industrial supplies and equipment sourced from Europe declined from 51.6 percent in 2015 to 48.5 percent in 2016 to 45.9 in 2019. This number is almost certain to decline substantially over the next 12 months.
Due to a slower recovery in trade and investment, the World Bank lowered its global growth forecasts for 2019 and 2020. Calling out 2019 as the weakest economic expansion since the global great recession of a decade ago and citing continued vulnerability to trade volatility and geopolitical tensions, the World Bank reduced forecasted growth for both years by 0.2 percent in its Global Economic Prospects report. The growth forecast is now 2.4 percent for 2019 and 2.5 percent for 2020.
Source: World Bank
Trade deficits are the Trump administration’s favorite way of measuring the fairness of trade relationships. So, it’s notable that the trade war with China reduced that year-to-year trade deficit by 10.2 percent. Also notable is that the current deficit is still 6.4 percent higher than it was in 2016. The second-largest contributor to the trade deficit is the EU, where the deficit has grown by 22.4 percent since 2016, including a 6.4 percent rise in the past 12 months. According to the Financial Times, the US Trade Representative is focusing on the deficit with the EU.
The International Monetary Fund is predicting a strong rebound in 2020, with global growth expected to reach 3.4 percent. Though less aggressive, the World Bank is also forecasting healthy growth figures. These predictions could be in trouble if any of three potentially problematic factors come into play:
Follow the link below for an in-depth look from Foreign Policy.
Source: Foreign Policy
While trade volatility is never preferred to certainty, businesses seem to be getting used to the uncertainty of today’s trade policies. At least that’s what the conference call monitoring data shows. Since October 31, the proportion of calls that included mention of tariffs or Brexit dropped to 20.9 percent, the lowest since Q2 2018.
Whether you were already aware of all 10 of these items (if so, go to the head of the class) or every one of them was new to you, Jaguar Freight wants to assure you that we stay on top of everything in the world of global shipping. Whenever you need our insight or help with a specific shipment, reach out to your Jaguar Freight contact at (516) 600-0170, or send us a message.
A 2016 report by Finland estimated that failure to reduce sulfur oxide emissions from ships would contribute to more than 570,000 additional premature deaths worldwide between 2020-2025. The International Maritime Organization (IMO) decided to take action. The result was IMO 2020, which sharply reduces acceptable sulfur content from a maximum of 3.5 percent to 0.5 percent.
Even though the IMO 2020 rule takes effect on January 1, 2020, ship owners have not been quick to switch over. Here’s why.
With HSFO ceasing to be a fuel option for most ships (those without scrubbers, see below) on January 1, 2020, suppliers are doing everything they can to sell it. Even with supplies falling fast, prices remain very low. In some areas the price of HSFO has dropped by as much as 30 percent, making it a much cheaper alternative to compliant fuels.
It looks like many ship owners will continue to use HSFO until supply dries up completely or the year ends, whichever comes first. As Stephen Jew, director of global refining and marketing at IHS Markit said in an interview with JOC, “There’s no incentive for carriers to burn it yet. They’re waiting for the very last minute.”
The easiest and most conservative course of action for ship owners will be to switch to MGO, the equivalent of heating oil. Low-sulfur MGO is already in use in designated emission control areas, where the sulfur content standard is currently 0.10 percent. That requirement will not change under IMO 2020, though new areas may be designated as emission control areas.
The quandary for ship owners is that the low-sulfur fuels now in production are priced significantly less than MGO. But they have no experience with these fuels. They have to decide whether to go with the lower-priced fuel or the one they know they can depend on.
There has been very little demand for VLSFO to date. With the exception of some parts of Taiwan and in small emission control area zones in China, there is virtually no market for VLSFO. As explained above, there is no demand VLSFO today because of the extremely low cost of HSFO. But ship owners also have questions about VLSO.
No one doubts that ships will run on VLSFO, that has already been proved. But what will be the short- and long-term effects on the ships themselves? Will there be an impact on maintenance requirements? Will it cause parts to break down that are not affected by long-relied-on fuels like MGO and HFSO?
As the head of one freight shipping executive put it, “It would not be acceptable to have even one ship drifting powerless at the mercy of the ocean.”
The one way that ships will be able to continue to use HSFO will be if they are equipped with exhaust gas cleaning systems (EGCS) known as scrubbers. By removing sulfur oxide from the ship’s engine and boiler gases to a point equivalent to the reduced sulfur limit, scrubbers comply with IMO 2020.
However, scrubbers use a lot of water, which needs to be discharged as wastewater after use. IMO guidelines for wastewater discharge, last updated in 2015, are currently under review. A change in the guidelines could result in unanticipated costs for ship owners using scrubbers. Also, some ports have already banned wastewater discharge.
IHS Markit estimates the number of ships fitted for scrubbers will reach 2,600-2,700 in 2020.
It’s important to note that ships powered by liquid natural gas or biofuels will not be affected by IMO 2020. An increase in the use of LNG to power ships is anticipated.
Whether ship owners choose to install scrubbers or change fuels, the additional costs to the container shipping industry are expected to be in the $10 billion to $15 billion range. Naturally, a portion these cost increases (if not all) will be passed on to shippers.
At this point it looks like we are in for an adjustment period until a new “normal” is established. As things change, Jaguar Freight will keep you informed.
Note 1: This list of products subject to additional duties is provided for information purposes only. The definitive product coverage will be determined by amendments to the HTSUS that USTR will publish in an upcoming Federal Register notice. The effective date of the additional duties is October 18, 2019.
Note 2: As specified below, in certain cases, the product description defines and limits the scope of the additional duties. Otherwise, and unless explicitly stated to the contrary, the product descriptions are provided for informational purposes only, and do not limit the scope of the additional duties. In the product descriptions, the abbreviation “nesoi” means “not elsewhere specified or included”. Any questions regarding the scope of a particular HTS statistical reporting number should be referred to U.S. Customs and Border Protection.
If you’re interested in learning how Jaguar Freight can help you navigate the scope of additional import duties, contact us today.
According to the Office of the United States Trade Representative, at $611 billion, Mexico was the third-largest trade partner of the U.S. in 2018. Only China ($737.1 billion) and Canada ($714 billion) ranked higher.
In 2019, the intersection of three circumstances points to the likelihood that trade with Mexico will increase significantly in the coming years. Those three circumstances are:
The U.S.-China trade war continues with no end in sight. The U.S. recently postponed new tariffs on many consumer goods from China (including cell phones, laptop computers and toys) until after the start of the Christmas shopping season. But that postponement followed quickly on the heels of the U.S. labeling China a currency manipulator, opening a new front on what had been exclusively a trade war.
Fred Bergsten, director emeritus of the Peterson Institute for International Economics said this of the action. “The trade war has now become a currency war, and the Chinese are undoubtedly going to take further action.”
Many manufacturers and suppliers have already relocated or considered moving their China operations to Vietnam, but that has prompted outcries from the Trump administration that Vietnam is an unfair trade partner. The U.S. has not ruled out tariffs on shipments sourced from Vietnam, which some observers seem as likely.
The only thing clear in the current situation is that China and Southeast Asia are becoming less stable and less inviting sources of goods and supplies as the short and long-term costs of doing business remain uncertain.
On November 30, 2018, the United States, Mexico and Canada signed the USMCA trade agreement. Negotiations had begun in 2017 to create a new trade deal that would replace the North American Free Trade Agreement (NAFTA), which had governed trade between the three North American countries for 24 years.
The agreement has been ratified in Mexico and Canada, but not in the United States. Democrats in the House of Representatives refuse to ratify the agreement until changes are made in the areas of labor, environment, pharmaceuticals and enforcement. Objections of this type are not unusual, and have been handled in the past in several ways.
NAFTA was not ratified until two side agreements were added: the North American Agreement on Labor Cooperation and the North American Agreement on Environmental Cooperation.
The United States-Korea Free Trade Agreement (KORUS FTA) was signed in 2007, but congressional objections to treatment governing bilateral trade of automobiles and U.S. Beef Exports delayed ratification. After several years (and a change in U.S. presidential administrations), the U.S. and Korea renegotiated the agreement to the mutual satisfaction of all stakeholders. When the agreement went into effect on March 15, 2012, it became the first free trade agreement between the United States and a major Asian economic power. It was also the largest trade deal since NAFTA.
These precedents indicate it is highly likely that the USMCA will be revised as necessary and ratified by all three nations. Given the way trade in all three countries has benefitted from NAFTA, it’s clear that the stakes are too high for there not to be an agreement.
One recent incident that points out just how desirous Mexico is of continuing free trade with the United States occurred when President Trump threatened to levy tariffs on Mexican shipments unless Mexico did more to stem the flow of illegal migration to the United States. Mexico responded immediately, meeting with U.S. representatives and outlining new steps they would take to help reduce the number of migrants entering the U.S. outside legal channels. As a result of Mexico’s cooperation, the U.S. rescinded its tariff threat.
Once the USMCA is in effect, it promises to bring another generation of stability and cost certainty to U.S.-Mexico trade relations, something that cannot be said of U.S. trade with Asian nations today.
The timing is perfect. As was published in the Journal of Commerce last year, “(Mexico’s) $1 trillion economy now has developed businesses and capital that can meet rising emerging market demand for its goods, both in the Americas and in other world regions.”
If you haven’t been sourcing goods and supplies from Mexico, getting started can be daunting, especially since shipping from Mexico has historically been associated with poor service and delays.
Fortunately, in Jaguar Freight you have a friend in the business that has successfully and seamlessly managed freight on the Mexico-USA trade lane for years.
In Mexico, as throughout the world, we’ve built our reputation on providing supply-chain leadership in the form of first-class logistic services. To that end, we’ve developed our own, proprietary, supply chain software solutions — such as the CyberChain™ software suite — and marry them with logistic experts in ocean, air, and truck freight to deliver excellence to our clients.
As our client, you have a personal point of contact assigned to you, so you always have one consistent voice to rely on no matter where you’re shipping.
Three Things You Should Do Now
Given the turbulence of today’s trade environment, all importers should feel reassured to see Mexico poised to become an even more prominent — and stable — source of goods and supplies.
If you’re interested in learning how Jaguar Freight can help you with shipments from Mexico, contact us today.
The first set of exclusions from the third tranche of $200 billion in Section 301 tariffs on goods from China have been announced by the U.S. Trade Representative and published in the Federal Register.
These exclusions are in effect retroactively from September 24, 2018 — the date the third tranche went into effect — and will remain in effect until August 7, 2020 (one year after their publication date).
Special product descriptions have been prepared for each of the excluded goods. To take advantage of these exclusions, goods must satisfy the full description below.
Be sure that your teams are made aware of these exclusions so you can take full advantage of them.
Exclusion requests may still be submitted through September 30, 2019. As stated in the June 24 announcement of the exclusion process, requests must address the following scenarios:
If more exclusions are granted, they will be announced on a periodic basis. Watch for news of those announcements here.
The USTR has posted the more than 5,000 products included in List 4 of the Section 301 China tariffs. These products will be subject to an additional tariff of 10%. Certain products that appeared on the proposed list on May 17, 2019 have been removed and will not face an additional tariff of 10%.
The complete list has been broken into two sub-lists. Click the links below to see each list.
There will be a process for requesting exclusions, but that process has not been announced at this time.
Jaguar Freight is committed to keeping you informed. Contact us here.
As companies impacted by U.S. tariffs on shipments from China scramble to find reliable and tariff-friendly countries of origin, shifting sourcing to Vietnam has emerged as the most popular solution.
In the first quarter of 2019, as trade was diverted to other countries, China suffered a 13.9 percent drop in exports to the United States. The biggest beneficiary of this trade diversion was Vietnam, which enjoyed a 40.2 percent increase in exports to the U.S.
But as more shipments that used to come from China now emanate from Vietnam, there are three reasons to pause before shifting your sourcing to Vietnam.
The U.S. has already started taking steps to reverse its substantial trade deficit with Vietnam, and more may be on the way. Consider these points:
In June, in response to a Fox Business News question on whether he wanted to impose tariffs on Vietnam, President Trump called Vietnam, “almost the single worst abuser of everybody”.
The next action could be the imposition of tariffs on a broad range of goods from Vietnam, an action that could wipe out the benefits of shifting sourcing to Vietnam. The executive director for Southeast Asia at the US Chamber of Commerce warns that, “There is a real possibility that this administration could slap tariffs on Vietnam.”
Vietnam is a rapidly-growing nation with an inexpensive labor supply, stable government and business-friendly environment, but its infrastructure is not mature or sophisticated. Already, Vietnam’s ports, airports and roads are straining to keep up with demand as companies fleeing China set up shop in Vietnam. And the rise in demand shows no signs of abating.
More than 1,720 projects were granted investment licenses in the first half of 2019, a 26 percent spike over the previous year.
Meanwhile, the World Bank ranks Vietnam’s logistics network 39th in the world (13 places behind China). A Ho Chi Minh City metro rail project has suffered major delays and cost overruns. As the need for infrastructure improvements grows, the government hopes that foreign direct investment will ease the crunch.
A healthy supply chain relies on a healthy infrastructure. Vietnam’s may be nearing the breaking point.
Four of the five top container ports in the world are located in China. Combined, they handled just under 118 million TEU in 2018.
The top two ports in Vietnam (the only ones to make the worldshipping.org Top 50 list) combined to handle less than 10 million TEU in 2018.
If the current boom continues, Vietnam will need to expand its ports or face a capacity crunch.
Shifting your sourcing might be a good idea, but it also might be too soon to make that move. With such rapid growth and a trade war in progress, circumstances are bound to change. At this point, taking a pause to see what’s next might be your best option.
This is a developing story. Stay tuned for updates. If you’d like to discuss your particular circumstances with us, contact Jaguar Freight today.