Assistance

Incoterms 2020 - 7 key changes

At RCM, d.o.o. we have put together some information about 7 key changes related to the new Incoterms 2020, which everyone working in international trade should be aware of. 

 

As we already know, the rules of the International Chamber of Commerce (ICC) in the field of Incoterms international trade clauses are revised every 10 years. The new revised Incoterms 2020 rules came into force on 1st January 2020.Incoterms are authoritative rules for determining how costs and risks are shared between buyer and seller. 

 

The key changes relate to the DAT clause, which has been replaced by the DPU clause, the insurance points are clarified according to C-conditions, road safety is now well defined, own transport is considered, the changes also apply to FCA/FOB clauses regarding freight invoices, etc. 

The Incoterms rules mainly apply to the delivery of goods, which also reflects the key changes in Incoterms® 2020.There is very little case law on the interpretation of the Incoterms rules, and problems usually arise from the misapplication of the Incoterms rules. In order to achieve the purpose of applying the Incoterms international trade clauses, companies need to be aware of the importance of applying the Incoterms rules correctly. It is essential for companies to fully understand the risk and delivery rules associated with each Incoterms rule.

7 key changes related to the new Incoterms® 2020

  1. DAT clause changed to DPU.
  2. Insurance points are clarified in the CIF and CIP Incoterms clauses.
  3. Clarification of the cost structure.
  4. Security in relation to transport is now clearly detailed.
  5. Provisions to allow for own transport rather than assuming third party transport.
  6. FCA, FOB and Bills of Lading.
  7. Presentation and design is much more user friendly.

Incoterms® 2020

Need more information about Incoterms Incoterms® 2020?

Want to know more?

1. DAT clause changed to DPU

The Delivered at Terminal (DAT) clause has been replaced by the Delivered at Place Unloaded (DPU) clause. Name change in which the narrower meaning of “terminal” has been replaced by a broader meaning, i.e. “place”, so delivery by unloading the goods from the means of transport can happen anywhere, not just a terminal. This can be an airport terminal, a port terminal, etc.

 



2. Insurance cover differs between CIF and CIP

For the CIF (Cost Insurance and Freight) and CIP (Carriage and Insurance Paid To) clauses, the Incoterms 2020 rules set different minimum levels of cover and thus adapt to current business practices. The level of cover for the CIP clause has changed so that the seller must, unless otherwise agreed, obtain at its own expense cargo insurance complying at least with the "A" (All risks) coverage of the Institute Cargo Clauses. And under the CIF clause, the seller must insure the cargo at least in accordance with the "C" coverage of the Institute Cargo Clauses.

 



3. Novelties in the order of ten A/B articles and Cost sharing

Incoterms 2020 brings also a novelty in the order of ten A/B articles in each clause. In Incoterms 2010, payment and delivery and passing of risk commitments were classified under A1/B1 and have now been moved to A2/B2 and A3/B3. The layout of the ten A/B articles has been changed as follows:
  • A1/B1 – General provisions (obligations)
  • A2/B2 – Delivery/taking delivery
  • A3/B3 – Transfer of risks
  • A4/B4 – Carriage
  • A5/B5 – Insurance
  • A6/B6 – Delivery and transport documents
  • A7/B7 – Export and import clearance
  • A8/B8 – Checking/packaging/marking
  • A9/B9 – Allocation of costs
  • A10/B10 – Notices

All costs are now listed in the ‘Allocation of Costs’ sections for each rule, to avoid confusions. Because the ordering of articles within the Incoterms 2020 rules have also changed, these now appear in the A9/B9 section of each rule.

 



4. Security requirements

Cargo security is particularly important, Incoterms 2020 now addresses many of the security-related requirements, which are defined in A4 and A7 of each Incoterms 2020 rule, and the necessary associated costs have been added under Articles A9/B9.

 



5. Own transport, in addition to third party transport

Incoterms 2010 assumed that the transport of the goods between seller and buyer would be carried out by a third party carrier. They did not deal with where the transport is provided by the seller or buyer (e.g. the seller's or buyer’s own truck).

Incoterms 2020 also allow own transport by the buyer in the FCA clause, by the seller in the D rules. Incoterms 2020 include own transport agreements in the FCA, DAP (Delivered at Place), DPU (Delivered at Place Unloaded) and DDP (Delivered Duty Paid). The parties may, except in the case of Group C clauses, organize transport by their own means of transport, which was already possible under the Incoterms 2010 clauses, although there is no explicit rule to this effect.

 



6. FCA (Free carrier) and Bills of lading

In connection with the FCA clause, a new rule applies regarding the issuance of a Bill of Lading (B/L).It may indicate the loading of the goods on board a ship, even if the goods are delivered to the carrier at a land point. Without this protection, the seller may lose control of the container shipments and assume the risk of damage to the goods until they are loaded. With Incotems 2020, the seller can therefore obtain a Bill of Landing from the carrier if required, e.g. under the Letter of Credit.


7. Presentation and design

The new Incoterms® 2020 international transport clauses contain much more extensive explanatory notes, with better diagrams, a different structure for users. Maritime related rules still haven’t changed and remain at the back of the rule book as they still might be used for bulk commodities.

 



Incoterms® 2020 - Tips on the proper use of new international transport clauses

Despite an ‘effective’ date of the 1st January 2020, Incoterms 2020 could have been used before that date. That said, after this date, there is still no obligation to use Incoterms 2020. So what does ‘Effective 1st January 2020’ actually mean? If you haven’t made it clear in your contract which Incoterms version to refer to, or have a flexible contract which states that when the contract is effective, the latest Incoterms® rules apply, then the 2020 rules will apply in these circumstances. 

 

  1. Choose the right rule



  2. Specify the place/port precisely
  3. Incorporate Incoterms 2020 clauses in your sales contract and invoice. 


The aim of the correct application of the Incoterms 2020 clauses is to unify the rules for the interpretation of the most important trade terms used in international trade. Ignorance of the differences in international trade between individual countries and the different interpretations of trade names causes a lot of disputes and a waste of time and money. 

The content of Incoterms 2020 has not changed significantly, but small subtle changes are crucial for trade professionals.

 

Are you up to date with Incoterms clauses? Perfect.
Let’s do business. 

Your RCM Team.

info@rcm.si

By providing quality services with a high level of professionalism based on trust,
we are moving towards mutual satisfaction and long-term cooperation.

Trust us!

Spedicija.hr
Brexit - Key informations for importers and exporters