INCOTERMS®2020

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INCOTERMS®2020

INCOTERMS® 2020

On 1st January 2020 the new INCOTERMS rules developed by the International Chamber of Commerce (ICC) came into force.

The Incoterms rules, which provide established contract terms for the international trade of goods, have been updated after ten years.

Under a contract of sale of goods, an Incoterms® 2020 clearly defines the parties’ respective obligations regarding topics such as risks, cost and arrangement of transport and customs clearance, thereby reducing the potential for legal complications. (From “Incoterms 2020”, Foreword, page 209)

Incoterms are not laws: they are norms and practices, and so the new version does not revoke the previous ones.

“If parties want the Incoterms® 2020 rules to apply to their contract, the safest way to ensure this is to make that intention clear in their contract, through words such as “[the chosen Incoterms® rule] [named port, place or point] Incoterms® 2020″. Leaving the year out could cause problems that may be difficult to resolve.” (From “Incoterms 2020”, page 215)

Identifying the place or point of goods delivery with precision is critical in the workings of the Incoterms® 2020 rules because it marks the place at which risk and costs transfer from seller to buyer.

In the new edition, the number of Incoterms still stands at 11 with their classification between “any mode of transport” (multimodal) and “maritime”.
One of the most important developments concerns the Incoterm DAT (Delivered at Terminal) , which has changed its name to DPU (Delivered at Place Unloaded). The destination can be any place and not just a terminal. However, if the place is not a terminal, the seller must verify that the place where the goods are to be delivered is a place where he is able to unload the products.

For all other modes of transport, the EXW, FCA, CPT, CIP, DAP, DDP conditions remain the same as before, with some changes.

Under the new rules Incoterms® 2020, the on-board Bill of Lading (BL) option has been added to the FCA. It can be specified in the sales agreement that a Bill of Lading must be issued. The Bill of Lading indicates that goods have been loaded on board. The buyer hereby instructs the carrier to hand over this “note of board” to the seller.

Concerning transport insurance, Incoterms 2020 make a difference in terms of coverage. CIF and CIP contain different levels of coverage: with the CIP, the seller is obliged to take out comprehensive transport insurance. For CIF there is an obligation for insurance with minimal coverage.

Moreover, FCA, DAP, DPU, and DPP have their own means of transport: For these Incoterms, it is possible to arrange the transport of goods with their own means of transport.

 

 

Brief definitions of the new Incoterms® 2020

The 11 terms governed by the 2020 edition of Incoterms® outline the obligations, costs and risks of the buyer and seller
• Group E: EXW (Ex Works imposes the least set obligations on the seller. Almost all costs and risks are the                 responsibility of the buyer during the entire shipping process.)
• Group F: FCA – FAS – FOB (the seller does not cover the costs and risks of the main transport. As soon as the goods are handed over to the carrier, the costs and the risk of the main transport are transferred to the buyer)
• Group C: CPT – CIP – CFR – CIF (the seller has to bear all the costs of the main transport. As soon as the goods are handed over to the carrier, only the risk of transportation is transferred to the buyer. The costs and any insurance remains the risk of the selling party.)
• Group D: DAP – DPU – DDP (the selling party bears all costs and risks until the arrival of the goods at any agreed destination.)

Below is a brief analysis of each individual term:

 

EXW

EX WORKS

The seller must give the buyer access to goods at an agreed location. From that moment, the buyer bears almost all costs and risks during the entire shipping process.

FCA

FREE CARRIER

The seller must make the goods available at his own risk and expense at his own premises or at an agreed place. In both cases, the seller is responsible for the clearance of the goods for export. It can be agreed that the buyer must instruct the carrier to transfer a “Bill of Lading (BL)” with a note on board to the seller.

CPT

CARRIAGE PAID TO

The seller has the same responsibilities as with FCA, but in this case also pays the delivery costs.

CIP

CARRIAGE INSURANCE PAID TO

The same seller responsibilities as with CPT, only in this case the seller is obliged to pay the insurance with a high coverage ratio. Parties can agree separately to apply limited coverage.

DAP

DELIVERED AT PLACE

The seller bears the costs and risks during the transport of the goods to an agreed address. As soon as the goods have arrived at this address and are ready for unloading, the risk passes to the buyer.

DPU

DELIVERED AT PLACE UNLOADED

The seller is responsible for the costs and risks of delivering goods to an agreed destination where goods can be unloaded for further transport. The selling party arranges customs and unloads the goods at the agreed place. The buyer arranges the customs clearance and any associated rights.

DDP

DELIVERED DUTY PAID

The seller bears the costs and risks of transport, carries out the export and import responsibilities and pays any import duties. As soon as the goods have arrived at the address and are ready for unloading, the risk passes to the buyer.

FAS

FREE ALONGSIDE SHIP

The seller bears all costs and risks until the goods are delivered next to the ship. From that point, the risk is for the buyer and he also arranges the export clearance and import clearance.

FOB

FREE ON BOARD

The seller bears all costs and risks until the goods are on board the ship and also arranges the export clearance. As soon as the goods have been delivered to the ship, the buyer bears all responsibilities.

CFR

COST AND FREIGHT

The same applies to the seller and buyer as with FOB, but in this case, the seller must also pay for the transport of the goods to the port.

CIF

COST, INSURANCE AND FREIGHT

The seller has the same obligations as with CFR but also pays the (minimum) insurance costs. The buyer must pay for more comprehensive insurance.

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