Are You Ready for Incoterms 2020?
The International Chamber of Commerce (“ICC”) periodically publishes trade terms for domestic and international use in business contracts for the sale and purchase of goods. They are updated approximately every 10 years. The last revision was issued in 2010, and a new set of rules will become effective January 1, 2020. Incoterms 2020 was updated to reflect current trade practices, embraces domestic as well as international transactions, and has been expanded and simplified. Everyone engaging in commercial transactions should have a firm grasp of the Incoterms 2020. The following provides an overview of the new rules.
First, for anyone who may not be familiar with Incoterms, keep in mind that they are not law. They do not determine or govern when title transfers, breaches of contract, the applicable governing law, etc. Rather, they are intended to serve as guidance for those entering into contracts for the purchase and sale of goods, and they shed light on the costs, risks and responsibilities that are allocated between the seller and the buyer in subsidiary contracts for carriage and insurance. In order for Incoterms to apply to a contract, they must be specified and must identify the version that is being used (e.g., “Incoterms 2020” or “Incoterms 2010”). Use of an Incoterm also requires that the named destination or place of delivery be specified in the contract as well. The desired Incoterm should be expressly provided in the contract.
The ICC provides eleven (11) terms for the shipment and delivery of goods beginning with “Ex Works” (“EXW”), which effects delivery at the seller’s premises with the buyer assuming responsibility for all costs of transportation, insurance, export clearance, and import clearance.
Intermediate terms, which are used to effect delivery and the transfer of risk at places along the preferred shipment route, include:
- “Free Carrier” (FCA);
- “Carriage Paid To” (CPT);
- “Carriage and Insurance Paid To” (CPT);
- “Delivered at Place” (DAP);
- “Delivered at Place Unloaded” (DPU);
- “Free Alongside Ship” (FAS);
- “Free on Board: (FOB);
- “Cost and Freight” (CFR); and,
- “Cost Insurance and Freight” (CIF).
Finally, “Delivered Duty Paid” (“DDP”) is used when the seller delivers to the purchaser at the purchaser’s premises, having taken full responsibility for transportation, insurance and applicable export/import clearances along the transportation route.
Incoterms are available and recognized worldwide. They are written in English and translated into twenty-seven (27) languages. They have been in international use since 1936 and are written to reflect trade practices as they change—they are not intended to influence such practices. Recent revisions, since 2001, have addressed cargo security issues. Increasingly, Incoterms are being used in domestic shipments, replacing the Uniform Commercial Code shipment and delivery terms (UCC 2-319 through UCC 2-324), which are somewhat archaic having last been codified in 1962 with no subsequent updates or modifications.
According to the ICC, Incoterms 2020, are written in “layman’s language,” thus presenting a clearer and more intelligible presentation of the rules. The term “Explanatory Notes” replaces and upgrades the “Guidance Notes” of Incoterms 2010.
The 2020 rules take a more comprehensive view of cargo security issues, flexibility in insurance coverage and the need for on-board bills of lading in FCA shipments where delivery occurs upon transfer to the carrier prior to loading. Incoterms 2020 is the first version to group all like terms together so that users might compare their differences and more easily choose that term appropriate to their transaction.
In terms of the changes reflected in Incoterms 2020, note that the order of the eleven (11) terms has been changed to reflect the logic of sales transactions. In addition, the term “Delivered at Terminal” (DAT) has been eliminated altogether, which has been replaced by “Delivered at Place Unloaded” (DPU)—thereby requiring the seller to unload the vehicle before delivery occurs and risk transfers. The term DAP covers any named place of delivery, including a terminal, and effects delivery and the transfer of risk at the named place prior to unloading.
The Incoterms 2020 changes are not simply cosmetic; rather, according to the ICC, Incoterms 2020 provides substantive attempts to assist sellers and buyers of international goods towards achieving smoother transactions. The publication, “Incoterms 2020” (ICC Publication: 723E), is currently on sale on line by the ICC at https://2go.iccwbo.org and also through Amazon. The rules will officially take effect on January 1, 2020, but you are free to start using them immediately, if you prefer.
The Incoterms 2020 drafting group consisted of ICC members of the ICC Commission on Commercial Law and Practice with representatives from Australia, China, France, Germany, Turkey, the UK, and the US.
If you have any questions relating to Incoterms 2020 or other international trade-related issues, please contact Melissa Proctor (firstname.lastname@example.org) or Peggy Chaplin Louie (email@example.com) at Miller Proctor Law PLLC (https://millerproctorlaw.com ).
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