International Chamber of Commerce (ICC) has launched Incoterms® 2020 set that contains the rules for use of the 11 Incoterms® trade terms. It takes into account the latest developments in commercial practice, and updates the rules to make them more accessible and easier to use.
The new rules will enter into force on 1 January 2020. As of this date, all sales contracts should make reference to the Incoterms® 2020 rules as the latest version of the Incoterms rules.
The main changes in Incoterms 2020 with respect to Incoterms 2010 are:
1. The Incoterm DAT (Delivered at Terminal) is replaced by DPU (Delivered at Place Unloaded). Although this may appear to be merely a name change as the obligations and responsibilities remain the same, in fact, the new DPU covers delivery to any agreed place including, but not limited to, delivery at terminal. This Incoterm is new and replaces DAT. In effect, it increases delivery options since DAT stated that delivery must take place at the terminal, whereas with the new DPU delivery can take place at an agreed place other than the terminal.
2. CIF (Cost Insurance and Freight) As with CFR the seller bears all the costs up to arrival at the destination port, including export clearance, costs at origin, freight and usually unloading. However, unlike CFR, the seller must also arrange insurance even though the risks transfer to the buyer once the goods are loaded on board.
The buyer bears the import and transport to destination costs.
New in the 2020 version of this Incoterm is that the seller must arrange insurance cover in line with what is stipulated in Institute Cargo Clauses (C). In other words, the goods must be covered until their arrival at the destination port. This Incoterm is only used in shipping. It is widely used as it determines the customs value.
3. CIP (Carriage and Insurance Paid To) The seller bears the costs up to delivery at an agreed place at destination, i.e., the costs at origin, export clearance, freight and also insurance which is mandatory.
The importer is responsible for import clearance and delivery at destination and takes on the risk when the goods are loaded onto the first means of transport.What is new in this Incoterm with respect to Incoterms 2010 again relates to insurance cover. In this instance, apart from being mandatory, insurance must contain the same coverage as what is stipulated in Institute Cargo Clauses (A), the goods must be insured until their delivery to the carrier at destination.
4. Also FCA, DAP, DPU in DDP The seller bears the costs and risks arising at origin, packing, loading, export clearance, freight, unloading at destination and delivery at the agreed point..The buyer is responsible for import clearance procedures.This Incoterm is valid for all means of transport. Insurance is not mandatory but if taken out the seller bears the cost.
5. FCA (Free Carrier) The seller delivers the goods to an agreed place and bears the costs and risks up to the point of delivery of those goods at the agreed place, including the cost of export clearance. The seller is responsible for inland transport and export customs clearance unless the designated place is the seller’s premises (FCA warehouse), in which case the goods are delivered there and loaded onto the means of transport arranged by the buyer at the buyer’s expense.The buyer bears the costs from loading on board to unloading, including insurance if taken out because they bear the risk when the goods are loaded onto the first means of transport.New for FCA, with respect to Incoterms 2010, is that in shipping the buyer can ask their carrier to issue a Bill of Lading to the seller specifying “on board” as proof of delivery of the goods, thus facilitating the use of documentary credits. The credit is afforded to the seller by bank guarantee although they are not party to the contract of carriage.
6. The main changes in Incoterms 2020 with respect to Incoterms 2010 are:
The Incoterm DAT (Delivered at Terminal) is replaced by DPU (Delivered at Place Unloaded). Although this may appear to be merely a name change as the obligations and responsibilities remain the same, in fact, the new DPU covers delivery to any agreed place including, but not limited to, delivery at terminal.
There are new insurance requirements under Incoterms CIF and CIP.
In shipping, under the Incoterm FCA the buyer can ask the shipping company or their agent to issue a Bill of Lading to the seller with the notation “on board”.
For a House Bill of Lading to be valid it must specify that it is governed by UCP 600 rules regulating documentary credits.
If it does not specify in the contract of sale that Incoterms 2020 will apply, Incoterms from 2010 or 2000 may be applied.
The following are the Incoterms applicable from 1 January 2020. This infographic states each Incoterm® and explains obligations and charges that are accepted by the buyer and seller: