The International Chamber of Commerce’s (‘ICC’) updated terms will come into effect on 1 January next year, providing standard terms that better reflect the realities of international trade.
Incoterms are a common set of rules that can be incorporated into international trade contracts for the sale of goods. The terms are jurisdiction-neutral, and provide certainty and clarity to traders across the globe.
The new Incoterms 2020 are designed to be easier to understand than the previous terms, containing more detailed explanations on the Incoterms and how to choose the most appropriate term. Improving the format of the terms, the ICC has added explanatory notes and graphics to illustrate the responsibilities of each contracting party, as well as detailed guidance on how to select the most appropriate Incoterms rule for a given transaction. These changes will aid interpretation, making trade contracts easier to negotiate and thereby reduce the risk of disputes arising further down the line. Helpfully, Incoterms 2020 also include more comprehensive details of the buyer’s and seller’s respective costs under each rule.
Incoterms 2020 are more consistent with current international trade practices and market requirements. An example of this is where goods are sold Free Carrier (FCA). Under Incoterms 2010 where goods are sold FCA for carriage by sea, although delivery is completed when the goods are delivered by the seller to the carrier, it is not always possible for the carrier to issue the seller with an on-board bill of lading. This is because such documentation can only be issued after the goods have been loaded onto the vessel. To overcome this, the Incoterms 2020 allow the parties to agree for the buyer, at its cost and risk, to instruct the carrier to issue to the seller a bill of lading with an on-board notation.
Another key change is the alignment and extension of the level of cargo insurance cover that a seller is required to obtain under the Cost, Insurance, and Freight (CIF) and Cost and Insurance Paid to (CIP) rules. Whereas the specific provisions of the Incoterms 2010 meant sellers were only obliged to obtain cargo insurance cover for specific risks, the Incoterms 2020 require sellers to obtain cargo insurance that covers “all risks”. The parties’ right to vary the prescribed level of cover is retained.
Other changes include:
- A change in the name for Delivered at Terminal (DAT) to Delivered at Place Unloaded (DPU);
- Arrangements for carriage with own means of transport in FCA, Delivered at Place (DAP), Delivered at Place Unloaded (DPU), and Delivered Duty Paid (DDP); and
- The inclusion of security-related requirements within carriage obligations and costs.
While the Incoterms 2010 can still be used, the ICC’s amendments should make Incoterms 2020 more accessible and better suited to the operational realities of international trade. Nonetheless, the scope of the terms has not changed and Incoterms 2020 remain silent on a number of critical issues. Parties should therefore seek legal advice when drafting and agreeing a contract of sale to ensure that key matters such as transfer of title, price, payment, and liability for breach of contract are expressly, adequately and correctly addressed.
If you require information or advice on international trade contracts, contact our Commercial team.
