Is your company ready for the Incoterms 2020?

On 1 January 2020, the new Incoterms® 2020 as published by the International Chamber of Commerce (ICC) will come into force. The Incoterms 2020 remain global standards that, if they are included in an agreement between trading parties, set out the mutual obligations of the buyer and seller regarding the national and international delivery of goods. The Incoterms clearly define the place of delivery and the responsibilities, risks and costs of the buyer and seller.

Despite rumours to the contrary, all existing 11 Incoterms will continue to exist.

So what has changed?

The key changes in a nutshell are:

1. DAT (Delivered at Terminal) becomes DPU (Delivered at Place Unloaded). 
   As users wanted an Incoterm that allowed delivery at not just a terminal, the delivery point is no longer limited to a terminal but can take place at any location.
   
2. The insurance coverage under CIP (Carriage and Insurance Paid to) is extended. 
   Under CIP (and CIF (Carriage Insurance and Freight)), the seller provides insurance for the buyer. In Incoterms 2020, CIP now obliges the seller to provide insurance for the buyer that is equivalent to Clause A (Institute of Cargo Clauses) instead of insurance equivalent to Clause C. Insurance equivalent to Clause A covers a more comprehensive higher level of insurance.
   
3. Clarification of the allocation of costs.
   Following user feedback on disputes over the allocation of costs, each Incoterm now contains a clarification of the allocation of costs between the seller and buyer. The general principle is that the seller is responsible for the costs up to and including the moment of delivery and that the buyer is responsible for the costs thereafter.
   
4. Security requirements. 
   Incoterms 2010 did touch upon security requirements. Transport security requirements have become more prevalent in the early part of this century. Incoterms 2020 make security obligations more prominent and address many of these security-related requirements. Security-related allocations and the costs associated have been added to each Incoterm.
   
5. Transport by buyer/seller. 
   The 2010 Incoterms assumed that the transport of the goods between the seller and buyer would be carried out by a third carrier. Incoterms 2020 currently include the option for the seller or the buyer to arrange the transport themselves.
   
6. FCA (Free Carrier) has been modified and should now be more suitable for maritime transport.
   The parties are now allowed to agree for the buyer to instruct the carrier to issue a transport document stating that the goods have been loaded (such as the onboard bill of lading) to the seller, at the buyer’s cost and risk.
   

What does this new version mean for your business?

Find out if and which Incoterm(s) your company uses.

Check whether your company is using the correct or most appropriate Incoterm. Many companies use Incoterm(s) that are no longer suitable.

Check whether the changes in Incoterms 2020 have changed your specific Incoterm(s) and whether this change has an impact on your company’s responsibilities, risks or costs.

Decide whether your company’s standard documents should refer to Incoterms 2020 in the future and amend these standard documents.

Feel free to contact us for more information or our analysis of your company’s Incoterm use.