Incoterms 2020

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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.

Incoterms cover:

  • 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.

Key Incoterms

Terms applicable to any mode of transport.

EXW – Ex Works. The seller delivers when the goods are made available to the buyer – normally at the seller's premises, but it could be another named location. The seller is not responsible for loading goods on any vehicle for collection or clearing the goods for export.

FCA – Free Carrier. The seller delivers the goods to the buyer's carrier either: at the seller's premises, loaded on to the buyer's transport, or another named location (such as a port or warehouse) delivered by the seller, ready for unloading. Risk passes to the buyer as soon as the goods are delivered. The seller clears the goods for export. 

CPT – Carriage Paid To.	The seller arranges for the carriage of the goods to the named place of distribution. The seller is responsible for costs and contracts necessary to transport goods to the agreed location. However, risk passes when the seller hands over to the carrier.

CIP – Carriage And Insurance Paid To. The same as CPT except that the seller also arranges for insurance.

DPU Delivered At Place Unloaded. The seller delivers the goods when they have been unloaded and available to the buyer at a named place at a named port or chosen location. The seller assumes responsibility for all risks until delivery. However the seller is not responsible for import clearance.

DAP – Delivered At Place. The seller delivers when the goods are at the disposal of the buyer, ready to be unloaded at a specified location. The seller assumes responsibility for all risk in delivering goods to location. However the seller is not responsible for import clearance.

DDP – Delivered Duty Paid. The seller has delivered the goods when they are placed at the disposal of the buyer, cleared for import and ready to be unloaded. The seller assumes responsibility for all costs and risks of transporting goods to the destination, as well as clearing them for export and import and paying any duties. 

Terms applicable to sea and inland waterway transport.

FAS - Free Alongside Ship. The seller has delivered when the goods have been placed alongside a ship chosen by the buyer at a named port of shipment. The seller is not obliged to load the goods. The buyer bears the risk of loss of damage once the seller has delivered. The seller needs to clear the goods for export.

FOB – Free On Board. The seller delivers the goods on board the ship designated by the buyer at the named port of shipment. The buyer is responsible for all costs once the goods are on board the vessel. The seller needs to clear the goods for export.

CFR – Cost and Freight. The seller delivers the goods to the vessel and also arranges for carriage to the named port of destination. The buyer is responsible for all loss or damage once the goods are on board the vessel.

CIF – Cost, Insurance and Freight. The same as CFR except the seller also provides insurance.

How should Incoterms be used?

Read the relevant Incoterms thoroughly before using it and be aware of how some of these have changed in the 2020 edition by the ICC. Make sure that the Incoterm does what you want it to. Use the Incoterms properly by referring to the relevant premises and incorporating Incoterms 2020. ICC Incoterms® 2020 will not automatically apply - you need to incorporate them into the contract. E.g. 'FCA (Gowling WLG's London Office) Incoterms 2010'

Download Incoterms infographic

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

In an increasingly globalised world, the laws surrounding international trade are becoming progressively relevant to businesses as they navigate the challenges and opportunities that it can present. Gowling WLG has a range of services available to its clients to ensure they have access to the advice and guidance they need in this area, including:

Download our checklist for creating effective international supply of goods contracts

How robust is your supply chain cover

A step-by-step guide to considering the key issues, reflecting them in your contract and using Incoterms 2020

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