On 1 January 2020, upon the arrival of a new decade, an updated version of the International Chamber of Commerce’s (ICC) Incoterms rules came into force.
Incoterms are a set of rules which facilitate the conduct of global trade between a seller and a buyer, covering some of the practical elements of a contract (such as transport and delivery). However, they do not address key commercial considerations such as price, payment, liability or title, which the parties must address themselves.
Incoterms 2020 are intended to be more detailed and transparent reflecting current industry practices.
Dan Dowen, a commercial contracts Associate Solicitor at Berry Smith, considers some of the main changes brought about by Incoterms 2020:
DAT has been replaced by DPU
- Under Incoterms 2010, DAT (Delivery at Terminal) provided that delivery took place upon the goods being unloaded at a named terminal. However, the ICC have recognised that buyers and sellers often want delivery of goods to take place somewhere other than a terminal and DAT has therefore been replaced by DPU (Delivery at Place Unloaded) under which goods are deemed delivered once they are unloaded at an agreed point.
- In previous Incoterms, the responsibility for costs has been unclear. In order to increase the transparency of Incoterms 2020, the costs have now been collated under a single heading of A6/B6 of each Incoterm. It has also been clarified that the broad principle is that the seller is responsible for costs up to the point of delivery and the buyer for costs beyond that point. This will make it clearer to parties what the cost allocations are and it is anticipated that this will reduce disputes about such issues.
Change in insurance cover
- Under Incoterms 2010, CIF (Carriage Insurance and Freight) and CIP (Carriage and Insurance Paid to) requires the seller to arrange a minimum level of insurance cover for specified perils only, but did not include accidental damage or loss of goods in transit. However, under Incoterms 2020, the default minimum level of insurance required under CIP has increased to cover all risks of physical loss or damage to goods (subject to certain exclusions).
Change in carriage/ transport requirements
- Incoterms 2010 assumed that sellers would contract with a third-party carrier to arrange delivery of goods. However, this did not reflect common practice or sellers wanting to make their own arrangements or use their own transport to deliver goods. Incoterms 2020 therefore expressly state that sellers can contract or arrange, at its own cost, the carriage of the goods.
- As with most things in the 21st century, the security requirements under Incoterms 2020 are more stringent in order to address security-related shipping and trade concerns. Import and export security requirements for each Incoterm have increased with such requirements now being defined in A4 (Carriage) and A7 (Export/Import Clearance) of each Incoterm.
- The seller is now required to comply with transport-related security requirements up to the point of delivery. The seller must also conduct any security-related export clearance formalities and assist the buyer in complying with any import security-related clearance formalities.
My advice to businesses would be to review Incoterms 2020 and consider whether they are suitable or appropriate for your contracts; this will depend on your day to day commercial arrangements. Avoid automatically incorporating the new rules without reviewing them first.
Keep in mind that the old Incoterm rules may still be used and any older versions noted in existing contracts will continue to apply even if performance of the contract will take place from 2020 onwards. Additionally, Incoterms do not apply automatically; they must be expressly incorporated into a contract by specific reference to the relevant Incoterm.
The changes brought about by Incoterm 2020 provide organisations with an opportunity to review any existing terms and conditions / contracts that they use on a regular basis, and update them accordingly.
Dan Dowen has expertise in all aspects of commercial contracts including advising sellers and buyers on sale/ purchase agreements. For further information or assistance, please contact Berry Smith on 029 20 345511 and ask for Dan Dowen or the commercial team.