INCOTERMS 2020 UPDATE
The International Chamber of Commerce recently published the Incoterms 2020, international trade terms for the sale of goods.
These will come into effect on January 1st, 2020.
Commonly used in international commercial transactions, Incoterms are intended to clearly communicate the responsibilities between a seller and a buyer in regards to tasks, costs and risks associated with the global transportation and delivery of goods.
Incoterms 2020 - What’s changed?
A new enhanced layout and more detailed explanatory notes make the terms easier to understand and use with less room for error.
FCA, FOB and Bills of Lading
FCA (Free Carrier – named place of delivery) has been amended slightly to allow the seller to require the buyer to procure an on-board bill of lading.
Historically, a seller of a containerised shipment under FOB (Freight on Board) terms lost control of the goods on their arrival at the export container port but still remained liable until the container was loaded onto the ship. This exposed the seller to potential cost and risk.
Incoterm FCA now answers this problem and allows the parties to agree for the buyer to direct the carrier to issue the onboard bill of lading to the seller.
Change of Insurance in CIP/CIF
Both CIF (Cost Insurance Freight) and CIP (Carriage and Insurance Paid to) require the seller to provide a basic level of insurance for the buyer equivalent to Clause C (Institute of Cargo Clauses).
However, these two terms usually apply to different classes of goods which call for different levels of insurance coverage.
In Incoterms 2020, the ICC has sought to clarify this distinction.
Accordingly, CIF now keeps the same insurance requirements (i.e. Clause C) but CIP has increased the level of insurance required to Clause A (Institute of Cargo Clauses).
DAT Replaced by DPU
DAT (Delivered At Terminal) will be replaced by DPU (Delivered at Place Unloaded). The ICC says this change was made primarily to eliminate confusion between DAT and DAP (Delivered at Place) in terms of where and how delivery takes place.
DPU is now the only Incoterm where the seller has the responsibilities and costs of unloading at final destination. Import Customs clearance and related costs, however, remain the buyer’s responsibility.
The ICC has expanded security-related requirements in Incoterms 2020 with provisions to allocate responsibility for these between seller and buyer.
How does this affect me?
The Incoterms 2020 come into force on January 1st, 2020.
If a contract is entered into on or after that date, Incoterms 2020 will apply unless the contract specifies otherwise.
However, the new Incoterms could be used immediately as long as this is clearly indicated in the contract.
Parties to a contract are not legally bound to switch over to the new Incoterms as long as this is stipulated in any contract (so they could continue using Incoterms 2010 for example).
You can now download the official ICC Incoterms® 2020 Mobile App to:
- Understand which trade term to include in your sales contracts, depending on the mode of transport.
- Connect with ICC’s global network of experts to get advice on the most pressing Incoterms® 2020 rules questions facing your enterprise.
- Discover events and specialised trainings taking place worldwide.
- Read comprehensive up-to-date news coverage.