ICC Incoterms® 2020 has arrived! Since 1936, Incoterms have outlined the responsibilities, risks and costs borne by a seller and buyer in any trading agreement. 10 years on from their last update, the International Chamber of Commerce (ICC) has now published Incoterms 2020 with David Lowe, Gowling WLG's Head of International Commerce, co-chairing the drafting of the new edition and playing a central role in shaping the new terms.
What are Incoterms?
Incoterms or International Commercial Terms are a set of contract terms for international freight delivery. They define the delivery point and the seller and buyer's responsibilities, risks and costs. They are often referred to as three-letter abbreviations, e.g. FCA for "Free Carrier".
Between the seller and buyer's premises there are many different cost points and areas of risk. Incoterms help each party in an agreement understand the costs and risks and determine how they will be allocated.
- Point of delivery
- Export/ import obligations - such as document checks
- Export/ import duties and tariffs
- Cost of carriage
- Risk of damage
Incoterms do not deal with title, price, intellectual property, law/jurisdiction. Incoterms allow a contract to be shortened, but not eliminated.
The different terms are split into two groups: terms that can be applied to any mode of transport and terms that can only be applied to sea and inland waterway transport.
Main changes in Incoterms 2020
While the set of 11 terms remain in Incoterms 2020, there are several specifics that are notably different that businesses should be aware of:
- DAT (Delivered At Terminal) is now DPU (Delivered at Place Unloaded) - User feedback was that users wanted an Incoterm that allowed delivery at not just a terminal, and so this change makes the term more general.
- Change of insurance in CIP/CIF (Carriage And Insurance Paid to / Cost, Insurance And Freight) - CIP has increased the insurance required to Clause A (Institute of Cargo Clauses), but CIF stays as Clause C.This allows for the fact that CIF is more often used with bulk commodity trades while CIP is used more with manufactured goods.
- Costs are clarified - The detail of the precise allocation of costs between seller and buyer has been improved, responding to user feedback about increasing disputes about the allocation of costs.
- Security requirements - Incoterms 2020 makes security obligations more prominent as transport security requirements have become more stringent.
- FCA (Free Carrier), FOB (Free On Board) and bills of lading - Exporters should use FCA alternative FOB. However, despite that advice FOB is often used for container shipments, meaning the seller takes on the cost and risk of, for example, loading goods onto the ship. This is because often a seller will want to secure payment with a letter of credit and this requires presentation of an onboard bill of lading; something not always easy to obtain for a seller using FCA. In ICC Incoterms 2020, FCA has 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.
The new book also provides a much clearer and accessible presentation of the Incoterms, including a more detailed and user-friendly introduction, further explanatory notes, and the rules are re-ordered so that the delivery obligation is more prominent.
The official UK launch was held at Gowling WLG's London office on 15 October 2019. It provided the opportunity to have questions answered by those directly involved in drafting the new edition and learn how the changes may affect business. Copies of Incoterms 2020 can be ordered on the ICC's website.
David Lowe sat down with fellow members of the Drafting Committee and the ICC UK to talk about what Incoterms are, the new edition, and why they are so important to international traders of goods.
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How can Gowling WLG help?
With Gowling WLG's breadth of experience in international trade and supply chain, as well as our involvement in the drafting of Incoterms 2020, we are in the unique position to provide real insight and clarity when it comes to using these terms in your international trading arrangements.
As the changes for 2020 come into force, you should consider reviewing the Incoterms you can use to ensure that your business uses the appropriate terms and understands the changes. By changing the Incoterms you use, there may also be tax and customs advantages to be leveraged. For further advice and guidance on international trade and using Incoterms in your contracts, contact David Lowe.
David Lowe - Partner, Head of International Commerce
David Lowe is an experienced partner focusing on commercial contracts, he helps clients negotiate and draft contracts to achieve their commercial aims in areas such as supply chain, logistics, supply of goods and services, international trade and consumer law. His expertise in the sale of goods is demonstrated by being one of the eight expert authors of Incoterms 2010 and global co-chair of the Incoterms 2020 drafting committee.
International Trade and Commercial Services
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