Incoterms® 2020: Key Changes
Incoterms® are a set of international trade terms published by the International Chamber of Commerce, which provide a standardised set of rules that traders in different countries can incorporate into contracts for the sale of goods. They are intended to be jurisdiction-neutral so that no legal system is favoured over another.
The rules assign various responsibilities between the buyer and seller in a number of key areas, such as responsibility for carriage, transfer of risk and the loading/unloading of goods. The new Incoterms® 2020 rules were published in September 2019 and came into force on 1 January 2020.
Incoterms® 2020 contain 11 rules, 7 of these rules are applicable to any mode of carriage (EXW, FCA, CPT, CIP, DAP, DPU and DDP) and the remaining 4 rules are applicable to carriage by sea and inland waterway only (FAS, FOB, CFR and CIF).
If you are not familiar with the new Incoterms® 2020 rules, the key changes are summarised below:
- DAT (Delivered at Terminal) has been removed and DPU (Delivery at Place Unloaded) has been introduced – therefore the place of destination where the seller unloads the goods could be a place other than a terminal.
- EXW, FCA, DAP and DPU terms can be used for domestic trade – this has been clarified.
- FAS, FOB, CFR and CIF terms are recommended for conventional sea freight only, not containerised freight.
- Bills of lading under the FCA term – this provides that the parties may agree that the buyer’s carrier can issue an on-board bill of lading to the seller after loading, the seller will then be bound to tender that bill of lading to the buyer.
- Use of own transport in FCA, DAP, DPU and DDP terms – instead of entering into a contract for carriage, the buyer or seller may undertake the carriage itself.
- Change of insurance coverage in CIP – the seller must now obtain insurance cover complying with Clause A of the Institute Cargo Clauses, which is more comprehensive than the seller’s previous obligations under the 2010 version of Incoterms®.
- Security-related obligations – the parties should expressly deal with the allocation of costs and responsibility relating to verified gross mass.
You may want to consider what Incoterms® your business typically uses and whether you are using the right term. Once you know what Incoterms® you are using, check if they are still appropriate and consider whether the changes have any impact on you. You may also want to update your standard contracts to refer to Incoterms® 2020. If you would like any advice or assistance in relation to the above, please do not hesitate to contact Erica Westerman in our commercial team.
The information above does not provide complete coverage of the subjects referred to and it is not a substitute for professional legal advice and should not be relied upon as such.