The new Incoterms® 2020 will enter into force on January 1, 2020. The International Chamber of Commerce (ICC) has now presented the eagerly awaited new version of the popular trade terms. We have examined the revised provisions for you – read on to find out which new features Incoterms® 2020 contain and the pitfalls to be aware of when using the terms.
What are Incoterms®?
Incoterms® are proven standards employed worldwide that are used in 90 % of all international sales contracts. They succinctly govern the rights and duties pertaining to the supply of goods, from the passage of risk to responsibility for organising and paying for transportation, insurance and customs, through to liability in the event of the loss of or damage to the goods. Other important aspects, such as payment terms, transfer of ownership and dispute resolution, must be agreed separately by the parties. Incoterms® are recognised in over 120 countries and are revised periodically to reflect changes in international trade. The last version was published in 2010.
What changes have been made to Incoterms® 2010?
Incoterms® 2020 now spans two hundred pages, but while they may have a new look, the changes are moderate. The declared main goal of the Expert Commission was to make the rules more accessible and user-friendly to help users to choose the most appropriate rule. The accompanying “Explanatory Notes for Users” provide comprehensive guidelines on interpretation, systematically presented alongside enhanced graphics to illustrate each rule. The order of the terms has also changed slightly – the clauses EXW, FCA, CPT, CIP, DAP, DPU, DDP (for all modes of transport) are now followed by the clauses FAS, FOB, CFR, CIF (for ship transportation). In addition to a new clause, several amendments have been made to the details:
- DAT (Delivered At Terminal) will change to DPU (Delivered at Place Unloaded). This means that, in future, any location can be agreed as the destination. With DPU, the seller must itself unload the goods. By contrast, in the unaltered term DAP (Delivered At Place) the goods merely need to be made available for unloading.
- The rules on FCA, DAP, DPU and DDP clarify that the parties may also agree arrangements for carriage with own means of transport. Involvement of a third-party carrier is not mandatory.
- For all terms, the rules (in each case A4, A7 and A9/B9), provide precise details of carriage obligations and costs of compliance with security-related requirements.
- CIF and CIP stipulate minimum standards for insurance cover.
- For shipping transport, the rules on FCA facilitate the use of bills of lading with an “on-board” notation.
How can I apply Incoterms® 2020 correctly?
Used correctly, the Incoterms® facilitate fast, clear and appropriate contractual solutions. In practice, however, mistakes are often made, for example, due to the selection of unsuitable terms, failure to define the place of destination sufficiently precisely, or because other contractual provisions are contradictory or inadequate. Modifications to the terms represent a particular pitfall. Appropriate use of Incoterms® is contingent upon the careful selection of terms, correct and complete reference to the term, as well as the formulation of appropriate flanking contractual provisions.
The new version of Incoterms® 2020 should be used from January 2020 and designated appropriately. The rules are already available for purchase. Precise knowledge of Incoterms® 2020 is important across all levels of sales and distribution. For instance, anyone who fails to recognise the difference between the terms in the context of procurement could end up comparing apples with pears when evaluating offers. In the case of liability also, overlooked details may have serious consequences. Therefore, anyone who uses Incoterms® should familiarise themselves with the changes as soon as possible.
While Incoterms® 2020 don’t reinvent the wheel, the Commission has successfully improved the user-friendliness of the terms through more detailed, more clearly structured and more precise explanations. The changes to the contents come in response to specific requirements in international trade. Thus, Incoterms® 2020 will continue to ensure efficient, up-to-date contract drafting in the future. To be able to apply the terms correctly, it’s important to take a look at what has changed.
Relevant areas of practice for