Incoterms 2020: What has changed?
The International Chamber of Commerce (ICC) has launched Incoterms 2020 the latest edition of the international terms of trade for the sale of goods. These are more accessible and easy to use than the previous version published in 2010.
What are Incoterms?
Incoterms are a set of international commercial terms which facilitate trillions of dollars in global trade each year by providing a set of rules governing key aspects of the import and export of global trade which helps avoid costly misunderstandings regarding the apportionment of cost and risk between seller and buyer.
What has changed in Incoterms 2020?
1. “Free Carrier” FCA
Under Incoterms 2010 where goods are sold FCA for carriage by sea, delivery is completed when the goods are delivered by the seller to the carrier and are made available for loading on-board the vessel. Frequently the seller cannot obtain an on board bill of lading from the carrier as these can only be issued by the carrier once the goods have been loaded onto the ship. The FCA has been amended in Incoterms 2020 so that if the parties agree, the buyer can, at its cost and risk, instruct the carrier to issue to the seller a transport document (eg a bill of lading with an on board notation) stating that the goods have been loaded, which the seller must then provide to the buyer.
2. Changes in Cargo Insurance for CIP and CIF
The Incoterm CIP (Carriage and Insurance Paid To) means that the seller delivers to the carrier, but then pays for the carriage and insurance to the named destination. CIF (Carriage Insurance and Freight) is the same except that it can only be used for maritime transport (delivery is onto a ship and the destination must be a port).
Incoterms 2020 extends the level of cargo insurance cover which a seller must obtain when trading under CIP. Under Incoterms 2010 sellers were required to obtain a basic level of cargo insurance cover which was at least equal to the cover provided under Clauses C of the Institute of Cargo Clauses which provide cover for certain risks. This might be suitable for bulk commodity cargoes but is probably not suitable for manufactured goods. Under Incoterms 2020, sellers will need to obtain greater cargo insurance cover which complies with Clauses A of the Institute Cargo Clauses which cover “all risks” and is better suited to the transport of manufactured goods. The insurance requirements for CIF have not changed as this term is generally used for bulk commodity trading.
3. DAT is changed to DPU
The concept of DPU (Delivery at Place Unloaded) has changed in that the “terminal” is no longer the place of delivery. This has been replaced with “a named place of destination”. This means that the place of delivery could be any place not just a terminal. This change has been made in response to the market requiring more flexibility as to where goods could be delivered. For example, a capital equipment manufacturer might agree to delivery at a factory site.
4. Costs between Seller and Buyer
The allocation of the costs between seller and buyer has been clarified in response to market feedback regarding the increasing number of disputes about the allocation of costs particularly those in or around the port or place of delivery. The general principle is that the seller is responsible for costs incurred up to the point of delivery, and the buyer is responsible for costs beyond that.
5. Security Requirements
Transport security and in particular the mandatory screening of containers have become more prevalent in Incoterms 2020.
This is a summary of some of the key changes within Incoterms 2020, however please contact the ICC for your full copy of Incoterms 2020 which are available in both print and digital formats.
Posted on 6 November, 2019 by Ortolan