Ruaridh Guy Partner
ICC Incoterms 2020
The International Chamber of Commerce (“ICC”) has announced the publication of Incoterms 2020. This is the first update to Incoterms since they were last revised in 2010. The new rules become effective from 1 January 2020.
Incoterms detail the obligations of the parties as well as the allocation of risk and cost in a trade contracted on three-letter trade terms (such as CIF and FOB). Incoterms are distinct from the meaning of the same three-letter trade terms at common law, and Incoterms will only apply if they are incorporated into the contract (usually by reference).
The revisions to the rules have been produced by the ICC Drafting Group, which was made up of eight members from Australia, China, EU member states, Turkey, and the USA.
Incoterms 2020 contain six significant changes from Incoterms 2010:
- The FCA rule now contains an additional element relating to bills of lading. Under this option, the buyer and seller agree that the buyer’s carrier will issue an on-board bill of lading to the seller after loading, which the seller will then tender to the buyer (likely through the banking chain). This is designed to overcome the issue that, under the old FCA rule, delivery was completed before the loading of the goods on board the vessel, which prevented the seller from obtaining an on-board bill of lading. This caused difficulties because on-board bills of lading are often required by banks before making payment under letters of credit and therefore the FCA rule was revised to take account of this market reality.
- Costs are now consistently listed in A9 (seller’s obligations) and B9 (buyer’s obligations), providing a “one-stop list of costs” for each rule. This new consolidated costs section appears in addition to the allocation of cost under the relevant obligation. For example, in an FOB sale, the costs involved in obtaining the delivery/transport document appear in both A6/B6 and A9/B9.
- The level of minimum insurance in CIF and CIP terms has diverged. CIF terms continue to require the seller to obtain cargo insurance complying with Clauses (C) of the LMA/IUA Institute Cargo Clauses. However, in CIP trades the level of minimum insurance has been increased to that complying with Clauses (A) of the Institute Cargo Clauses (meaning “all risks” cover, subject to exclusions).
- Provision has been made for the seller or buyer to employ their own means of transportation rather than employing a third party carrier, as was assumed in the Incoterms 2010. The changes are reflected in the FCA, DAP, DPU and DDP rules.
- The DAT (Delivered at Terminal) rule has been renamed DPU (Delivered at Place Unloaded). This is to reflect that the destination can be any place and not just a terminal.
- An express allocation of security-related obligations has been added to A4 and A7 of each Incoterm, the costs of which are included in A9/B9. For example, A4 of the FOB Incoterm states “The seller must comply with any transport-related security requirements up to delivery”. These provisions reflect the increasing prevalence of concerns relating to security in international trade.
A further change which runs throughout the document is purely cosmetic. The ICC has attempted to make the rules clearer than ever, with introductory and explanatory notes as well as changes in the order and layout of the rules. The motivation behind this change is apparently to encourage users to employ the most appropriate trade term for their particular trade, in particular to discourage the use of maritime terms for non-maritime trade.
Overall, the changes to the terms are more conservative than some predicted, and there are a few notable absences in the list of changes. There had been rumours that the DPP rule would be split into two terms, and that the FAS term would be removed entirely. There had also been suggestions of the introduction of a new “Cost and Insurance” term (“CNI”). In the event, these changes have not materialised.
We would be very pleased to discuss these changes and how they may affect your business in more detail. To arrange such a discussion or for any further information please contact the undersigned, or your usual Ince contact.
This article was co-authored by Keith Rowbory, Second year trainee solicitor at Ince.
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