New Incoterms® 2020: The Changes You Need to Know
The Incoterms® are an important element of supply contracts as they inform the parties about the obligations, risks and expenses. Every ten years, the International Chamber of Commerce updates the Incoterms®, so that they comply with modern market conditions. The new Incoterms® 2020 take effect as of January 1, 2020.
The parties may use Incoterms 2010 (as well as the earlier versions). However, the new Incoterms® 2020 corresponds to modern market conditions in a more precise way. Besides, the new Incoterms® 2020 bring legal accuracy and clarity. Below are the most important changes.
1. FCA (Free Carrier) and on-board bill of lading.[1] This rule now has an extra option: the parties may agree that after the loading of the goods, the buyer instructs its carrier to issue an on-board bill of lading to the seller. Meanwhile, the seller must tender the document to the buyer, usually through a bank.
2. Different levels of insurance coverage in CIF (Cost Insurance and Freight) and CIP (Carriage and Insurance Paid To): under the Incoterms® 2010, the CIF and CIP both had a default minimal level of coverage if the parties had not agreed otherwise. Under the Incoterms® 2020, there are different insurance coverages for the CIF and CIP rules. E.g., CIF paid by the seller will remain with the minimal default level of coverage. However, if the parties agree to CIP, the seller is now obliged to cover all the risks. Both CIF and CIP allow the parties to agree upon different insurance coverage.
3. DAT (Delivered at Terminal) changed to DPU (Delivered at Place Unloaded): DAT has been renamed as DPU to indicate that the place of destination can be any place and not just a terminal.
4. Arrangements for carriage with own means of transportation of the buyer or the seller under the rules for FCA (Free Carrier), DAP (Delivered at Place), DPU (Delivered at Place Unloaded), and DDP (Delivered Duty Paid).
5. More detailed security-related obligations included in each item of the articles A4 and A7 of the Incoterms® 2020. There is also a more detailed description of the costs related to these requirements which the parties bear. The parties need to ensure that the selected Incoterms® rule corresponds with their agreements.
6. A convenient list of expenses: all costs related to fulfilling the conditions of Incoterms® 2020 are listed in the A9/B9 “Allocation Cost” article to ensure that both the seller and the buyer are informed of the costs each of them is responsible for under the Incoterms® 2020.
When applying Incoterms®, we recommend that the parties first analyze the following questions:
- Which Incoterms® version applies to your contractual relationship? When making a deal, the parties must decide which Incoterms® version (which year) they are going to use. To avoid misunderstandings with the place of delivery, we recommend that the parties make a very precise indication (in compliance with the relevant Incoterms® rule) of the port, place or point depending on delivery conditions.
- Does the selected Incoterms® rule comply with your agreements, particularly in terms of risks and expenses?
- Does the selected Incoterms® rule comply with the rules and terms set in the contracts with logistics service providers (freight forwarders, carriers, customs agents, etc.)?
If you need professional advice on how to use Incoterms®, we will be happy to help. Contact us!
[1] the document proving that the goods have been loaded on-board
