Incoterms 2020 – The relevant updates for your business!

The ICC, the International Chamber of Commerce, recently released the highly anticipated Incoterms 2020. A handful of updates are key.

 

A little background information before we get started:  The Incoterms are rules that have been published by the ICC, the International Chamber of Commerce, since 1936. Basically, they dictate standardized terms for the trade, sale and delivery of goods. Each type of purchase order or shipment is represented by a three-letter abbreviation, which precisely regulates the obligations of the contracting parties, as well as the transfer of risk and the assumption of costs in the course of a commercial transaction. Unlike national trade regulations, Incoterms rules are universal and do not include trade terms codified for national purposes. They are also not bound by sovereign regulations, and as such cannot be classified as “valid” or “invalid”. Rather, they are a private set of rules that provide specific guidance to those participating in the import and export of global trade. The Incoterms are revised every decade or so to keep them up-to-date, most recently in 2010.

So what key changes can you expect from the Incoterms 2020?  

Overall, there are few essential differences between the new Incoterms and the earlier 2010 version.

  • Perhaps the most important difference is the improvement in structuring! In addition to itemizing all the individual clauses, they are each further listed according to the individually regulated sector as well. For example, under the “Transport” section, you can read the contractual structure for each Incoterm thus making it easier to find the best possible clause that applies. 
  • Previously, cost distribution was only explained within the general body of the text; now, it is broken down separately for all the clauses under points A9 and B9 respectively.
  • Clauses CIF and CIP no longer contain the same coverage for insurance. For CIF, which is mainly used in maritime trade, the lower ICC C coverage will continue to apply, but for CIP, the ICC A or “all risk” coverage will now be applicable.
  • For the first time in its formulation, Incoterms 2020 addresses the possibility of organizing shipment with one’s own means of transport.
  • The DAT clause has been renamed DPU, but without any change in content.
  • Various safety-related requirements have been included. In particular, the responsibility for transport-related safety requirements from point A4, safety clearance for export and import, as well as the safety requirement and physical checks prior to loading are regulated in points A7 and B7, respectively.
  • Explanatory comments for users have been added for better understanding.

The new Incoterms can be used before 1.1.2020. As always with contractual formulations, it is advisable to be as specific as possible and to clearly state the desired clause . As an example, “CPT Moscow, Customs Department Himki, Incoterms 2020,” clearly states the terms of the contract.

The following eleven Incoterms are available:

EXW   Ex Works
FCA   Free Carrier
CPT   Carriage Paid To
CIP   Carriage and Insurance Paid To
DAP   Delivered at Place
DPU   Delivered at Place Unloaded
DDP   Delivered Duty Paid
FAS   Free Alongside Ship
FOB   Free on Board
CFR   Cost and Freight
CIF   Cost, Insurance and Freight

With detailed regulations in the following areas:

  • General obligation
  • Delivery/Taking delivery
  • Transfer of risk
  • Carriage
  • Insurance
  • Delivery/transport document
  • Export/import clearance
  • Checking/packaging/marking
  • Allocation of costs
  • Notices

 

“Incoterms” and the Incoterms®2010 logo are trademarks of the International Chamber of Commerce (ICC).