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Incoterms® 2020: main changes and difference between 2020 and 2010

Who are Incoterms®?

Incoterms®, short for International Commercial Terms, are a series of commercial terms defined by the ICC (the International Chamber of Commerce) and used in imports and exports around the world: they define the rights and duties of all the legal entities involved in the transfer of goods.

New Incoterms® 2020

Updated every ten years, Incoterms® 2020 will be the ninth published series and the direct sequel to Incoterms® 2010.

For the first time since 1930, the Drafting Group responsible for drafting will include representatives from China and Australia.

Compared to the previous ones, there are changes in the Incoterms® which will come into force from 1 January 2020. Here are some:

  • Bills of lading with an on-board notation and the FCA Incoterms® rule

If the goods are sold under the FCA sea freight rule, sellers or buyers may want a bill of lading with a boarding note. However, the delivery is made before the goods are loaded on board the ship and it is not at all certain that the seller will be able to obtain a bill of lading from the carrier with a note of loading on board, but it is probable that this carrier is authorized to issue it only once once the goods are actually on board. To address this situation, articles A6/B6 of the FCA Incoterms® 2020 rule offer an additional option: buyer and seller can agree that the former instructs his carrier to issue a bill of lading with put on board note to seller after loading the goods.

  • Costs, where they are listed

In the new provision within the Incoterms® 2020 rules, the expenses are all listed in articles A9/B9. The aim is to provide operators with a single list of expenses, so that the seller, or buyer, can now find in a single article all the expenses for which he is responsible based on a particular Incoterms® rule.

  • Different levels of insurance cover in CIF and CIP.

In the Incoterms® 2010 rules, A3 of both CIF and CIP imposed on the seller the obligation to “obtain at its own expense cargo insurance complying at least with the minimum cover as provided by Clauses (C) of the Institute Cargo Clauses or any similar clauses. The Institute Cargo Clauses (A) provide coverage for a number of named risks, subject to detailed exclusions; the Institute Cargo Clauses (A) instead cover all risks, with the exception of those explicitly excluded.

After considerable discussion, it was decided to provide a different minimum coverage for the Incoterms rules® CIF & CIP. In the first rule the status quo with the Institute Cargo Clauses (C) has been maintained, in the second the seller is now required to obtain insurance coverage compliant with the Institute Cargo Clauses (A), although once again the parties are free to agree a different level of coverage.

  • Arranging for carriage with seller’s or buyer’s own means of transport in FCA, DAP, DPU and DDP.

In the Incoterms® 2010 rules, it was assumed throughout that where the goods were to be carried from the seller to the buyer, they would be carried by a third-party carrier engaged for the purpose either by the seller or the buyer, depending on which Incoterms® rule was used. However, there were some situations where they could be so carried without any third-party carrier being engaged at all. The Incoterms 2020 take account of these eventualities, by expressly allowing not only for the making of a contract of carriage, but also for simply arranging for the necessary carriage.

  • Change in the three-letter initials for DAT to DPU

The only difference between DAT and DAP in the Incoterms® 2010 rules was that in DAT the seller delivered the goods once unloaded from the arriving means of transport in the “terminal”; while in DAP the seller delivered the goods when they were made available to the buyer on the arriving means of transport for unloading. Now, however, not only has the order been reversed (DAP appears before DAT), but the name of the DAT rule has been changed to DPU (Return to destination downloaded), highlighting that in reality the destination could be any place and not just the terminal.

  • Inclusion of safety requirements in the scope of transport obligations and costs

A specific section regarding safety-related obligations has been added in articles A4 and A7 of each Incoterms® rule. Expenditure incurred to meet these requirements has also now been given a more prominent position in the expenditure article, namely A9/B9.

Conclusion

Many innovations are anticipated, to which all logistics operators will have to pay attention: it is very likely that, given the increase in communication speed seen in the last ten years, these changes will see a faster and more reliable implementation by all operators involved in international shipping and transport processes.

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