Incoterms 2020

The first Incoterms® rules, published in 1936 by the International Chamber of Commerce (ICC), were the first standard terms for international trade that could be used worldwide. Since then, the ICC has been updating them about every ten years. The Incoterms® 2010, a set of international contract terms widely used in many contracts in effect today, were replaced by its 9^th version, Incoterms® 2020, on 1 January 2020.

Incoterms® rules are standardised trade rules which are recognised worldwide in everyday international trade but which also can be and often are used in purely national transactions. They play a major role in international commerce, as they are now included in the vast majority of international purchase agreements. Incoterms® rules govern the most important rights and obligations of buyers and sellers and the delivery of goods. This includes the transfer of goods to the buyer, transport costs, liability for loss of or damage to the goods and insurance costs. Aspects not covered by the Incoterms® rules include payment conditions, transfer of ownership of the goods and dispute resolution.

In the new version, the ICC has made changes in response to past criticism and once again adapted the rules to the ever-changing practices prevalent in the international sale of goods.

What’s new?

The guiding principle behind the latest update to the Incoterms® rules is to adjust their language and organisation to make them more easily accessible for daily use. No far-reaching changes have been made to their content.

Thus, the first impression made by the updated rules is that their form of presentation has been slightly adjusted to make them somewhat more user-friendly. The tips for use are added in the form of explanatory notes for each individual Incoterms® rule, and the order in which the Incoterms® rules are presented has been changed to emphasise those referring to delivery and transfer of risk. In addition, all cost rules included in the various rules have been gathered together in one place to provide a quick overview.

The Incoterms® 2020 follow the basic structure introduced in Incoterms® 2010, continuing to make a distinction in various categories between rules that apply to all types of transport (EXW, FCA, CPT, CIP, DAP, DPU, DDP) and those that can only be used for transport by means of inland waterway vessels and seagoing vessels (FAS, FOB, CFR, CIF).

The content changes that are arguably the most important are that the former DAT (Delivered at Terminal) rule has been changed to the DPU (Delivered at Place Unloaded) rule to emphasise that the place of destination can be any place and not just a “terminal” and that the FCA rule has been changed to include an option that the purchaser can be obliged to instruct the carrier to issue an on-board bill of lading to the seller with an on-board notation which the seller then tenders to the buyer. This change is helpful in that it enables the FCA rule to be used in container transactions involving letters of credit. The Incoterms® 2020 rules also provide for different levels of insurance coverage in the CIF (Cost Insurance and Freight) rule and the CIP (Carriage and Insurance Paid to) rule. Under the CIF Incoterms® rule, which is reserved for use in maritime trade and is often used in commodity trading, the Institute Cargo Clauses (C) remains the default level of coverage, (however, the parties can of course agree to a higher level of insurance cover). The CIP Incoterms® rule, on the other hand, now requires a higher level of cover, compliant with the Institute Cargo Clauses (A). Incoterms® 2020 also further emphasise security-related requirements. While the security issues inherent in transport did not play a key role in the Incoterms® 2010, Incoterms® 2020 now include express attribution of security-related requirements to transport obligations and transport costs.

How do these changes affect everyday business practices?

The Incoterms® rules are not laws; thus, they are not automatically included in a contract, but only become an integral part of a contract when and if the seller and buyer expressly agree to include a specific Incoterms® rule in their contract.

Thus, the new version of the Incoterms® rules does not make the previous Incoterms® rules obsolete, as is the case with a law. It only enables contracting parties to use the new version instead of Incoterms® 2010 for their contracts. However, rules from Incoterms® 2010 can continue to be agreed if they more closely correspond to the parties’ wishes. Nevertheless, due to the fact that the two versions exist side by side, it is (and continues to be) important to stipulate clearly in each contract which version of the Incoterms® rules is to apply. If the parties do not state this expressly, Incoterms® 2020 will be deemed to apply in case of doubt.