On January 1, 2020, a new version of the Incoterms 2020 rules came into force, adjusted to adapt the rules to actively changing logistics processes and commercial practice requirements.
What adjustments distinguish Incoterms 2020 from Incoterms 2010?
Often, parties to international agreements are not familiar with different trading practices in other countries, which can lead to disputes and legal proceedings.
To resolve these problems, since 1936, the International Chamber of Commerce (ICC) has published and periodically updated the international rules of Incoterms (International commercial terms).
Incoterms are international rules applied by business entities when agreeing on the terms of international agreements for the purchase and sale of goods, which distinguish the duties and liability of the seller and the buyer under the purchase and sale agreement (transfer of goods, transport costs, liability for loss and damage to goods, insurance costs), depending on the chosen delivery basis.
Incoterms 2020 contain 11 terms (delivery bases): starting with EXW (EX Works) and ending with DDP (Delivered Duty Paid).
The most important changes are the following.
1. Renaming the term DAT to DPU.
Incoterms 2020. DPU (Delivered Named Place Unloaded). The seller's obligations are considered fulfilled when the goods are unloaded from the vehicle and delivered to the buyer at the specified place. The content of the DPU is generally the same as the DAT in the 2010 edition of Incoterms, but allows the buyer and seller to agree on any place of delivery of the goods, not tied to a specific terminal. DPU is the only term that instructs the seller to unload the goods.
Incoterms 2010. DAT (Delivered at Terminal). The seller's obligations are considered fulfilled when the goods are unloaded from the vehicle and presented to the buyer at the specified terminal.
A terminal is understood as any closed or open place such as a quay, warehouse, container yard, or an automobile, railway or air cargo terminal.
2. New condition for issuing a bill of lading when agreeing on the FCA.
Incoterms 2020. Articles A6/B6 of the FCA (Free Carrier) now provide for the buyer's obligation to instruct the carrier by sea (i.e., a third party performing the transport) to issue a bill of lading marked "on Board".
Incoterms 2010. In Incoterms 2010, the term FCA does not provide for this possibility — the carrier can refuse to issue the bill of lading. However, the absence of a bill of lading as confirmation of shipment by the seller makes it difficult to receive payment from the buyer, if the presence of this document is a necessary condition for payment (for example, with a letter of credit).
3. Insurance coverage for CIP.
Incoterms 2020. Incoterms 2020 provide maximum insurance coverage upon agreement of the CIP term (Carriage and Insurance Paid to).
The rules do not limit the amount of insurance coverage and make it possible to provide insurance for the goods at their full value.
As a rule, CIP is used for the transportation of high-value goods compared to a similar CIF basis, which means that if a valuable product is damaged or destroyed, the contracting party will incur minimal losses.
Incoterms 2010. CIP (Carriage and Insurance Paid to) and CIF (Cost Insurance and Freight) oblige the seller to purchase only minimal insurance for the goods being transported.
4. Allocation of costs.
Incoterms 2020. In Incoterms 2020, all conditions regarding the costs of the parties are collected in one Art. A9 / B9 (Costs). This improvement will give the parties a clearer understanding of the potential costs of both the seller and the buyer when choosing a delivery basis. For example, Art. A9 of the term FCA (Free Carrier) refers to the costs of the seller the costs associated with:
In accordance with Art. A9 basis CIP (Carriage and insurance paid to) the seller bears the costs associated with:
Incoterms 2010. Expenses related to various obligations are distributed under several items, for example, Art. A3 / B3 - agreements of carriage and insurance; Art. A10 / B10 - assistance in obtaining information and related costs.
5. Safety requirements.
Incoterms 2020. Particular attention is paid to the requirements for transport safety when transporting goods. The seller should comply with transport safety requirements and, if necessary, provide the relevant documents to the buyer. However, the term "security" in Incoterms 2020 is general in nature and does not refer to any specific rules.
The new rules apply to all delivery bases.
Incoterms 2010. Safety requirements in Incoterms 2010 are less stringent. For example, Art. The A10 term DAT (Delivered at Terminal) contains the obligation of the seller, if necessary, to provide the buyer (or assist in obtaining) information and safety documents that the buyer may need to import the goods. It should be remembered that safety in the understanding of Incoterms refers only to safety related to transport and transportation. If desired, the parties can agree on other types of safety (for example, information safety) in the purchase and sale agreement.
Incoterms in the agreement: recommendations
When specifying Incoterms in the agreement, it is important to remember the following:
1. The rules of Incoterms do not regulate the transfer of ownership of the goods, the cost and quality of the goods, the liability of the parties, the applicable law, dispute resolution, etc.
2. The Incoterms rules incorporated into the purchase and sale agreement do not give rise to the rights and obligations of third parties. When agreeing on a term implying the conclusion of agreements of carriage or insurance with a third-party organization, such agreements should comply with the terms of the delivery basis chosen in the purchase and sale agreement. Only the buyer and / or the seller is liable for ensuring this compliance.
For example, in the light of the emerging requirement to ensure the safety of transport, the relevant conditions should be included in the agreement with the carrier (if a third party is involved in the transportation of goods).
The choice of the delivery basis does not ensure the fulfillment of the vehicle safety conditions by the carrier. Such conditions should be agreed in the agreement of carriage, and only this agreement will be the basis for presenting claims against the carrier.
3. Incoterms® is a trademark of ICC. When referring to Incoterms in the agreement, it is not necessary to use the designation of the protected trademark ®. However, it is extremely important to indicate the edition of the applicable Incoterms rules, for example Incoterms 2020.
4. When specifying Incoterms in the agreement, it is necessary to detail the place / point of delivery, taking into account the chosen transport (the delivery point should take into account the possibility of delivery by the appropriate transport). For example, DPU Belarus, Minsk, Nezavisimosti av., 1 Incoterms 2020.
It is extremely important to indicate in the contract the edition of the Incoterms rules and detail the place of delivery and the chosen transport, for example DPU Belarus, Minsk, Nezavisimosti av., 1 Incoterms 2020.
Incoterms 2020: changes in terms of delivery