Incoterms® 2020 help deliver control in an ever-changing trading environment…

12 September 2019

ICC Incoterms® 2020 - the standard international freight delivery terms - has been released, bringing a number of important changes for any business involved in the purchase and supply of goods across international borders. Reviewed every ten years, the new edition brings in a number of key changes that apply from 1st January 2020. Indeed, these arrive at a time when considerations around international contracts (especially those managed from, and into, the UK) could not be more important in terms of ensuring increased certainty.

The increasingly complex nature of global supply chains has also highlighted the similarly increased need for stable terms and guidelines that provide certainty through solid and direct international trade-related procedures.

The ICC has implemented key headline changes that respond to the common trading behaviours that businesses have displayed in recent years. However, the new terms also act as a clear signal of the need for firms to regularly review their trading arrangements to ensure these are optimised. For instance, what are the current Incoterms they are using? Is the right term being used for the current situation? Do the changes brought in by ICC Incoterms® 2020 mean existing contractual terms need to be adjusted?

While readers can consider the comprehensive changes that permeate ICC Incoterms® 2020 in our wider insight article on the matter here, the headlines which most would consider to be top priorities are: costs, security, the extent of responsibility within the supply chain and the definition of a 'terminal' or 'destination'.

David Lowe, Global Co-chair of the Incoterms 2020 drafting group and Gowling WLG partner, explains: "This once in a decade review is a major consultation process around what has become one of the most pressing issues where increased certainty is required, something which is distinctly lacking as we move towards leaving the European Union. Ensuring that areas such as cargo security are given higher profile has been a key element of the newly launched Incoterms but this is far from their extent.

"Responding to key behaviours being displayed throughout international contract management and supply chains is also important. For example, many businesses use the FOB Incoterm (Free on Board) for container shipments. This brings risk as in reality the exporter is not in control of the container stack and loading at port of export. Typically exporters should use the FCA Incoterm (Free Carrier) for containerised exports. However exporters fed back that banks typically insist the exporter presents an on board bill of lading to get paid, forcing them to use FOB (where they have better chance of getting an onboard bill of lading) over FCA ICC Incoterms® 2020 FCA has, therefore, been changed to allow the parties to agree for the buyer to direct the carrier to issue the onboard bill of lading to the seller - a fix to a wider trade finance issue.

"Another key change has been to consider the use of specific terms like 'terminal' and enable the point of delivery to be treated more generally - the word 'terminal' has been removed from the Incoterm 2010 DAT and it has been changed to DPU (Delivered At Place Unloaded). This is an example of a small technical change which could make a big difference. This and other key changes reflect the core theme of improving access to, and usability of the terms."

Of course, the impact of the changes should not be underestimated, with Incoterms already having played a fundamental role in facilitating international trade by providing a concrete set of contract terms for international freight delivery. By clearly defining the delivery point and the seller and buyers' responsibilities, risks and costs, the risk of having to navigate unchartered contractual waters reduces greatly.

Ursula Johnston, head of customs at Gowling WLG, adds: "For those involved in trade, getting their goods across a customs border, both from an operational and cost perspective, is a crucial aspect of the supply chain life-cycle, which is why it is vital to ensure Incoterms are fit for purpose. The high level of focus and dedication in ensuring the new 2020 Incoterms reflect the practical needs of those importers and exporters is therefore at the heart of consistently increasing clarity where the responsibilities of these parties are concerned."

The International Chamber of Commerce (ICC), which "owns" Incoterms, is the world's largest business organisation representing more than 45 million companies in over 100 countries. In launching, Incoterms® 2020, it is making the book available for purchase through ICC’s e-commerce platform - https://iccwbo.uk/pages/incoterms - and is holding a UK launch event, co-hosted by Gowling WLG, on 15 October 2019 in London.

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