Air, sea, rail and road incoterms in force in China
The entry into force on January 1, 2020 of the latest version of the Incoterms does not exclude the continued use of the previous generation of Incoterms, provided that the agreed reference system is clear. The clarity of a common frame of reference should be useful for discussions in case of differences in interpretation and possible commercial disputes.
2 key updates in the 2020 incoterms compared to the 2010 edition are
- The FCA (Free Carrier Alongside) newly allows an original bill of lading to be issued after the loading.
- The term DAP (Delivered at Place) has been renamed DPU (Delivered at Place Unloaded).
Some other updates also include the following
- Both CIF and CIP terms establish new standard insurance contracts (that are still negotiable).
- FCA, DAP, DPU and DDP take into account one can arrange their own trucking instead of using a third party.
- When mentioned, the cost responsibility between a buyer and a seller is displayed more precisely.
When drafting your sales contracts or before validating purchase contracts with your Chinese partners, we recommend that you check which edition is specified. For example, such incoterm according to the nomenclature incoterms ICC : 2010 or ICC : 2020.
Attention : To illustrate another kind of different understanding : Chinese importers and exporters with suppliers in the United States are accustomed to the fact that "FOB port of Los Angeles" according to american incoterms means the costs at the port of departure are not included in the selling price. Under ICC International Incoterms, however, these port charges are well included in the supplier's export price.
Reminder : The reference of taxable import value is the same in China as in the European Union. It is the value of the goods + the main transport to the port of destination + the cost of insurance that are used by the Chinese Customs as a basis for determining the customs value and calculating the duties and taxes to be paid.
Which incoterms should be used when trading with China ? So as to make an export price more attractive, Chinese factories usually present an export price based on FOB Chinese port of departure. It is a good option if you want to keep the control of the choices of the freight forwarder or the shipping company. However, in the context of Covid-19, some international buyers prefer to ask for an export price on a CIF or CIP basis at the destination port.
Chinese buyers and importers experienced in international trade often negotiate on an EXW or FOB basis with their foreign suppliers. For fragile, sensitive or dangerous products, they may also ask you to bear the costs and risks of transportation.
The latest edition of 2020 defines a total of 11 official incoterms listed in the table below :
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