New editionIncoterms ®2020 entered into force on January 1, 2020, the Incoterms delivery terms established by the International Chamber of Commerce regulate the main obligations of the buyer and seller and are adapted to modern world trade practice. New edition Incoterms has become more convenient and makes it easier for users to choose a rule that is suitable for a particular situation.
In this article we will describe how to use the rules correctlyINCOTERMS2020 and explain the fundamental principles underlying them, as well as find out how best to incorporate them into the foreign economicthe contract.
We will describe the fundamental principles of the rules, the main roles and responsibilities of the seller and buyer, the rules of delivery, the distribution of risks and the relationship between the rules and the export-import contract of sale. Let's find out how to choose the most correct term of the contract of sale and highlight the main changes in Incoterms 2020 compared to Incoterms 2010.
Incoterms 2020 explains the content of eleven commonly accepted designations of trade terms,EXW,FCA,FAS,FOB,CFR,CIF,freight. The buyer pays for cargo insurance. The risks are transferred at the time of delivery of the cargo to the first carrier.
When using this term, the seller is obliged to conclude a contract of carriage and bear the transportation costs necessary to deliver the goods to the agreed destination. When using the term CPT, the seller transfers the goods to the carrier or another person nominated by the seller at an agreed place (if such a place is agreed by the parties and fulfills its delivery obligation.
The term contains two critical points, since risk and costs are transferred in two different places.
Incoterms rules cover these areas in the form of a set of articles, in the form of A1/B1. Articles A represent the obligations of the seller, articles B represent the obligations of the buyer.
The Incoterms rules themselves are not a contract of sale and therefore do not replace it. They are designed to reflect trade practices for any, and not for one specific type of goods.
Incoterms rules do NOT regulate:
These are the points on which the parties must provide for specific conditions (provisions) in their contract of sale.
The Incoterms 2020 rules are not in themselves a contract of sale, they become part of such a contract when they are included in an existing contract. The Incoterms 2020 rules also do not define the law applicable to the contract. It is possible to apply legal regimes to the contract, both international, for example, the UN Convention on Contracts for the International Sale of Goods (CISG), and domestic mandatory laws, for example, on health, safety, environmental protection.
If the parties wish to apply the Incoterms 2020 rules to their contract, it is necessary to explicitly state this in the contract as follows: "[selected term Incoterms] [named port, place or point] Incoterms 2020 (Incoterms 2020)", for example, CIF Shanghai Incoterms 2020.
The absence of an indication of the year of the rules can create intractable problems. The parties, the judge or the arbitrator should be able to determine which version of the Incoterms rules should be applied. Even more important is the indication of the named place after the chosen term Incoterms. In all Incoterms terms, with the exception of Group C terms, a named place means the place where the goods are to be "delivered", that is, where the risk passes from the seller to the buyer. In terms of Group D, a named place means the place of delivery, as well as the destination, and the seller is obliged to arrange transportation to this point. According to the terms of Group C, the named place indicates the destination to which the seller is obliged to arrange and pay for the transportation of the goods, but which, however, is not the place or port of delivery.
Uncertainty about the port of shipment when selling on FOB terms gives rise to doubts on both sides about where the buyer is obliged to provide the seller with a vessel for loading and transporting the goods and where the seller is obliged to put the goods on board the vessel in order for the risk to pass from the seller to the buyer. As well as the contract on the terms of the CPT, if the named destination is not clearly indicated, it gives rise to doubts on both sides about the point to which the seller is obliged to conclude a contract of carriage and pay for the carriage of goods.
In order to avoid such situations, it is best to geographically specify the name of the port, place or point as accurately as possible in the chosen term Incoterms. When a specific Incoterms term is included in the contract of sale, there is no need to use the trademark symbol.To familiarize yourself with the rules regarding trademark and copyright, click on the link.
The named place or port after the three-letter designation of the term, for example, CIP Vladivostok or CIF Nakhodka, is crucial for working with the Incoterms 2020 rules. Depending on the chosen term Incoterms 2020, such a place means the place or port where the goods are considered to have been "delivered" by the seller to the buyer, the place of "delivery", or the place or port to which the seller is obliged to arrange transportation of the goods, that is, the destination, or in terms of Group D - both.
In paragraph A2, the place or port of "delivery" is defined for all Incotems 2020 terms, it is decisive in terms of both risk and costs. According to the terms EXW and FCA (in the seller's premises), this place or port is the closest to the seller, and according to the terms DAP, DPU and DDP - the closest to the buyer. The place or port of delivery indicates the place where the risk passes from the seller to the buyer in accordance with paragraph A3. It is at this place or port that the seller provides the goods, as provided in paragraph A1, after which the buyer cannot claim damages from the seller for loss or damage to the goods that occurred after this paragraph.
The place or port of delivery under point A2 also means the key point under point A9, which provides for the distribution of costs between the seller and the buyer. In general, the costs before the point of delivery are borne by the seller, and after this point - by the buyer.
Extreme and intermediate positions: four traditional groups of Incoterms terms
The Incoterms editions until 2010 combined the terms into four groups: E, F, C and D, with groups E and D being at the extreme poles from the point of view of the point of delivery, and groups F and C between them. Since 2010, Incoterms have grouped terms based on the types of transport used, the former system remains useful for understanding the point of delivery. Thus, the EXW delivery point represents an agreed point for the buyer to receive the goods, regardless of the destination to which the buyer will take the goods. On the contrary, according to DAP, DPU and DDP, the point of delivery also means the destination to which the seller or hiscarrierwe have to transport the goods. With EXW, the transfer of risk takes place before the start of transportation, whereas according to the terms of Group D, it takes place at the final stage of transportation. In addition, according to EXW, and equally according to FCA (at the seller's premises), the seller fulfills his obligation to deliver the goods regardless of whether the goods have actually arrived at the destination. In the second case, the seller fulfills his obligation to deliver the goods only if the goods have actually arrived at the destination.
EXW and DDP are two terms that are at opposite ends of the Incoterms rules. However, in international contracts, the parties must take into account alternative terms. For example, according to EXW, the seller is only obliged to place the goods at the disposal of the buyer. This may cause problems for both the seller and the buyer regarding the loading and export clearance of the goods. It should be recommended to the seller to make a sale on FCA terms. Similarly, under DDP, the seller has obligations to the buyer that can only be fulfilled in the buyer's country, for example, the implementation of import customs clearance. It may be physically or legally very difficult for the seller to perform such duties in the buyer's country, therefore, in such circumstances, it should be recommended that the seller consider selling the goods on DAP or DPU terms.
Between the two extreme groups E and D there are three terms of group F (FCA, FAS and FOB) and four terms of group C (CPT, CIP. CFR and CIF). For all seven terms of Groups F and C, the place of delivery is on the seller's side for the expected carriage, therefore sales under these terms Incoterms are often referred to as sales "on terms of shipment".
For example, the delivery took place:
According to the terms of groups F and C, the risk passes to the seller for the main carriage, as a result of which the seller is considered to have fulfilled his obligation to deliver the goods regardless of whether the goods actually arrived at the destination. This feature, consisting in the fact that when selling "on the terms of shipment", delivery takes place on the seller's side at the initial stage of transportation, is common to the terms of groups F and C, regardless of whether they are maritime terms Incoterms, or terms intended for any (any) modes of transport.
The terms of groups F and C differ as to who - the seller or the buyer - enters into a contract or organizes the transportation of goods outside the place or port of delivery. According to the terms of Group F, this is organized by the buyer, unless otherwise agreed by the parties. According to the terms of Group C, such an obligation is assigned to the seller.
Given that the seller enters into a contract of carriage for any term of Group C or organizes the transportation of goods after delivery, the parties need to know the destination to which the transportation should be organized, and it is this place that is added to the name of the Incoterms term, for example, "CIF port of Dalian" or "CIP Shanghai". Whatever the named destination, it is not and will never be a place of delivery. The risk passes when the goods are shipped or transferred at the place of delivery, but the contract of carriage must be concluded by the seller before the named destination. Therefore, in terms of Group C, the place of delivery and the destination are never the same place.
According to the terms of groups F and C, the fact that the goods are placed, for example, on board a ship or the fact that they are transferred or placed at the disposal of the carrier determines the moment when the goods are delivered by the seller to the buyer. Therefore, this moment is the moment when the risk passes from the seller to the buyer. Considering these two important consequences, it is necessary to identify who is the carrier if there is more than one carrier, each of which provides a separate transport arm, for example, road, rail, air or sea transportation. Naturally, if the seller chooses a safer option of concluding a contract of carriage with one carrier, which is responsible for the entire chain of carriage under the so-called "through" contract of carriage, there are no problems. But in the absence of a "through" contract of carriage, the goods can be transferred (using the CIP or CPT rules) to a road carrier or a railway company for further transfer to a sea carrier. A similar situation may arise with exclusively sea transportation, when, for example, the goods are first transferred to a river or feeder sea carrier for subsequent transfer to an ocean carrier.
In such situations, the question arises at what point does the seller deliver the goods to the buyer - when he transfers the goods to the first, second or third carrier? Before answering this question, it is necessary to give a preliminary comment. Although in most cases the carrier is an independent third party engaged on the basis of a contract of carriage by either the seller or the buyer (depending on the choice of the term C or F by the parties), there may be situations when such an independent third party is not involved at all, since the seller or buyer independently carries out the transportation of the goods sold. Most likely, this happens in terms of Group D (DAP, DPU and DDP), when the seller can use his own transport to transport the goods to the buyer to the destination.
Therefore, in Incoterms 2020, according to the terms of Group D, the seller is charged with either concluding a contract of carriage or organizing transportation, in other words, by his own means of transport.
Question at what point does the seller deliver the goods to the buyer - when he transfers the goods to the first, second or third carrier? This is not just a matter of transportation, it is an important issue of purchase and sale. It does not consist in which carrier the seller or buyer of the goods damaged during transportation can make a claim from the contract of carriage. The question of purchase and sale is as follows: if more than one carrier participates in the transportation of goods from the seller to the buyer, at what point in the chain of transportation does the transfer of goods mean the moment of delivery and the transfer of risk from the seller to the buyer? It is necessary to give a clear answer to this question, since the relationship between the numerous carriers involved and the relationship between the seller and/or buyer with these numerous carriers can be complex and depend on the terms of individual contracts of carriage. So, for example, in any of these chains of contracts of carriage, one carrier, for example, actually implementing a road transport arm, may well act as an agent of the seller when concluding a contract of carriage with a sea carrier.
The Incoterms 2020 rules provide a clear answer to this question if the parties have concluded an agreement on FCA terms. According to the FCA, the relevant carrier is the carrier nominated by the buyer to whom the seller transfers the goods at the place or at the point agreed in the contract of sale. Therefore, even if the seller engages a road carrier to deliver the goods to the agreed delivery point, the risk passes not at the place and not during the transfer of the goods to the carrier attracted by the seller, but at the place and during the provision of the goods at the disposal of the carrier attracted by the buyer. Therefore, when selling on FCA terms, it is extremely important to indicate the name of the place or point of delivery as accurately as possible. A similar situation may arise under FOB terms if the seller hires a feeder vessel or a barge to deliver the goods to a vessel hired by the buyer. Incoterms 2020 provides a similar approach, delivery is considered completed when the goods are placed on board the buyer's carrier.
According to the rules of Group C, the situation is more complicated and in different legal systems may well lead to different results. According to the CPT and CIP, the first carrier to whom the seller transfers the goods according to paragraph A2 will most likely be recognized as the relevant carrier (unless the parties have agreed on the delivery point). The buyer does not know anything about the contractual relationship between the seller and the first or subsequent carrier, or between the first carrier and subsequent carriers. However, the buyer knows that the goods are "in transit" and that the "journey" begins, as far as the buyer knows, when the goods are transferred by the seller into the hands of the first carrier. As a consequence, the risk passes from the seller to the buyer at an early stage of transfer to the first carrier. The same situation may arise under CFR and CIF if the seller uses a feeder vessel or barge to deliver the goods to the agreed port of shipment, if any. In some legal systems, a similar approach may be proposed: delivery takes place when the goods are placed on board a ship at an agreed port of shipment, if any
Such a conclusion, if accepted, may seem too harsh for the buyer. The risk passes from the seller to the buyer when selling on the terms of CPT and CIP, when the goods are transferred to the first carrier. At this stage, the buyer does not know whether the first carrier is responsible for the loss or damage of the goods under the relevant contract of carriage or not. The buyer is not a party to such an agreement, has no control over it and does not know its terms. Despite this, the buyer will eventually bear the risk in relation to the goods from the earliest moment of its transfer, possibly without compensation from the first carrier.
Despite the fact that the buyer ultimately bears the risk of loss or damage to the goods at an early stage of the transport chain, at the same time, with this approach, he has a remedy against the seller. According to paragraph A4, the seller is obliged to conclude a contract for the carriage of goods "from the agreed delivery point, if there is one, at the place of delivery to the named destination or, if agreed, any point at that place." Even if the risk passes to the buyer at the moment when the goods are transferred to the first carrier in accordance with the paragraph. A2/A3, if such a first carrier is not liable under the contract of carriage for the through carriage of the goods to the named destination, the seller, from this point of view, remains responsible to the buyer in accordance with paragraph A4. Most importantly, the seller should conclude a contract of carriage to the destination specified in the contract of sale.
The dispute over the role of the carrier in the delivery of goods between the seller and the buyer under the terms of Group C and F of the Incoterms rules raises the question, what role do the Incoterms rules play in the contract of carriage or in other contracts usually accompanying an export contract, for example, in an insurance contract or in a letter of credit? The Incoterms rules are not part of such other contracts, being included in the contract of sale, the Incoterms rules regulate and apply only to certain aspects of the contract of sale, however, it cannot be argued that the Incoterms rules do not affect other contracts. Goods are exported and imported through a whole chain of contracts, that is, in an ideal world, one contract must be agreed with another. For example, a contract of sale requires the presentation of a transport document issued by the carrier to the seller/shipper in accordance with the contract of carriage, and against which the seller/shipper/the beneficiary can receive payment by letter of credit. With the consistency of all three contracts, everything is going well, but if this is not the case, then problems arise.
What is specified in Incoterms, for example, regarding transportation or transport documents in paragraphs A4/B4 and A6/B6 or regarding insurance coverage A5/B5, is not mandatory for the carrier, the insurer or for any involved bank. So, the carrier is only obliged to issue a transport document, as required by the contract of carriage concluded with the other party, but he is not obliged to issue a transport document in accordance with the rules of Incoterms. Similarly, the insurer is required to issue a policy in accordance with the level and conditions agreed with the party purchasing the insurance policy, and not a policy that complies with the rules of Incoterms. And of course, the bank will consider only the documentary requirements contained in the letter of credit, if any, and not the requirements of the contract of sale.
However, it is in the interests of all parties to the various contracts in the chain to ensure that the conditions of carriage or insurance agreed with the carrier or the insurer, or the terms of the letter of credit coincide with what is specified in the contract of sale with respect to related contracts to be concluded or with respect to documents to be received and presented. This task is not assigned to the carrier, insurer or bank, none of which is a party to the contract of sale and, therefore, a party bound by the rules of Incoterms 2020. Nevertheless, it is in the interests of the seller and the buyer to try to ensure that the various parts of the contract chain coincide (and the starting point is the contract of sale), therefore, with the Incoterms 2020 rules where they apply.
The main difference introduced in the Incoterms 2010 rules between terms for any type or modes of transport has been preserved (including EXW, FCA, CPT, CIP, DAP, DPU (formerTHAT) and DDP), and terms for sea and inland water transport (including FAS, FOB, CFR and CIF). Four so-called "marine" terms Incoterms are intended for use in cases when the seller places the goods on board (or FAS places along the side) of a vessel in a sea or river port. This is the point at which the seller delivers the goods to the buyer. When using these terms, the risk of loss or damage to the goods lies with the buyer, starting from this port. The remaining seven Incoterms terms for any type or modes of transport (so-called "multi-modal") are intended for use where
The delivery and transfer of risk for each of these seven Incoterms terms depends on which specific term is used. For example, under the CPT, delivery takes place on the seller's side when the goods are transferred to the carrier with whom the seller has concluded a contract of carriage. On the other hand, according to DAP, delivery occurs when the goods are placed at the disposal of the buyer at a named place or destination. The order of presentation of the Incoterms 2010 rules, as noted above, was mainly preserved in Incoterms 2020. It is important to emphasize the difference between the two groups of Incoterms terms, so that the appropriate term is used in the contract of sale, depending on the mode of transport used.
One of the most common problems when using Incoterms rules is choosing the wrong term for a particular type of contract. What type of contract of carriage should the buyer conclude? Does the buyer have an obligation to the seller to conclude a contract of carriage under which the carrier is obliged to accept the goods at a named land point or at the port closest to this point? So, for example, a contract of sale on FOB terms with an indication of a ground point (for example, an airport or warehouse) does not make much sense. Similarly, it does not make much sense to specify a named seaport in the CIF contract of sale when the buyer expects delivery of the goods to a land point in the buyer's country. Should the seller conclude contracts of carriage and insurance to the final land destination intended by the parties, or to the seaport specified in the contract of sale?
Gaps, overlaps and unnecessary costs are likely to occur - and all this is because the wrong term Incoterms was chosen for a particular contract. What makes an unsuccessful choice "wrong" is the lack of attention to the two most important elements of the Incoterms terms, which are a reflection of each other, namely the port, place or point of delivery and the transfer of risks.
The reason for the misuse of the term Incoterms is that the terms Incoterms are often considered solely as an indicator of the price: one or another EXW, FOB or DAP price. The abbreviations used in terms of Incoterms are undoubtedly convenient abbreviations for the formula used in calculating the price. However, Incoterms terms are not only or even primarily an indicator of price. They are a list of common obligations that the seller and the buyer bear to each other in accordance with the generally recognized forms of the contract of sale, and one of their main tasks is to indicate the port, place or point of delivery where the risk transfer occurs.
All ten A/B articles of each Incoterms term are important, however some of them are more important. Indeed, there have been radical changes in the internal order of presentation of ten articles within each term. In Incoterms 2020, the order of presentation for each term is as follows:
In the Incoterms 2020 rules, after setting out in paragraphs A1/B1 the main obligations of the parties with respect to goods and their payment, the delivery and Transfer of risks are placed in a more prominent place, namely in paragraphs A2 and A3, respectively.
After that follow:
Getting used to such a change in the order of presentation of items A / B will take some time. It is hoped that now that delivery and risk have become more noticeable, it will be easier for merchants to identify differences between individual Incoterms terms, that is, different times and places at which the seller "delivers" the goods to the buyer, and the risk that passes to the buyer at this moment and in this place.
For the first time Incoterms are published both in the traditional format with the presentation of eleven Incoterms terms, and in a new "horizontal" format with the presentation of ten articles of each Incoterms term under the headings listed above, first with respect to the seller, then with respect to the buyer. So now it is much easier to see the difference, for example, between the place of delivery under FCA and the place of delivery under DAP; or the items of expenses that are assigned to the buyer under CIF compared to the items of expenses that are assigned to the buyer under CFR.
The most important initiative of the Incoterms 2020 rules was the focus on improving the presentation format in order to direct users to choose the appropriate Incoterms 2020 term for the contract of sale. So:
The changes, although they look small, represent significant attempts on the part of the ICC to assist the international trade community in the smooth conduct of export-import transactions.
In addition to general, there are more substantive changes in Incoterms 2020 compared to Incoterms 2010. Before considering them, it is worth mentioning one important change in trading practices that occurred after 2010 and which, in the opinion of the ICC, should not lead to an adjustment of the Incoterms 2020 rules, namely the appearance of a Proven Massgross- In accordance with the amendment introduced to improve the safety of navigation to Chapter VI "Transportation of goods and Liquid Fuel" of the 1974 International Convention for the Safety of Human Life at Sea - MK SOLAS, from July 01, 2016, according to rule 2 of the International Convention for the Safety of Human Life at Sea (SOLAS), shippers are obliged to either weigh a packed container using calibrated and certified equipment, or weigh the contents of the container with the addition of the weight of an empty container. In any case, the VGM must be fixed by the carrier. Failure to comply with this requirement entails a sanction under the SOLAS Convention, consisting in the fact that the container 'must not be loaded onto the ship', see paragraph 4.2, MSC1/Circ.1475 (adopted by the International Maritime Organization (IMO). According to the rules, the mass of the container must be checked (certified) by the shipper by weighing the loaded container, or by weighing the units/cargo items loaded into the container that will be packed into the container, followed by summing their mass with the mass of the empty container. The shipper is obliged to provide the forwarder with the received reliable information in the following volume no later than 24 (twenty-four) hours before the planned departure of the vessel: Additionally, we draw attention to the fact that due to the increase in cases of weighing containers in the port of Vladivostok, reliable information about the weight of cargo in a container significantly reduces the time and financial costs that the owner of the cargo will incur if there is a discrepancy between the weight data in the bill of lading and the weighing act. If a discrepancy of 500 kg from the declared weight is detected in any direction, customs puts the container up for 100% inspection with weighing of the contents of the container.
In accordance with the amendment introduced to improve the safety of navigation to Chapter VI "Transportation of goods and Liquid Fuel" of the 1974 International Convention for the Safety of Human Life at Sea - MK SOLAS, from July 01, 2016, according to rule 2 of the International Convention for the Safety of Human Life at Sea (SOLAS), shippers are obliged to either weigh a packed container using calibrated and certified equipment, or weigh the contents of the container with the addition of the weight of an empty container.
In any case, the VGM must be fixed by the carrier. Failure to comply with this requirement entails a sanction under the SOLAS Convention, consisting in the fact that the container 'must not be loaded onto the ship', see paragraph 4.2, MSC1/Circ.1475 (adopted by the International Maritime Organization (IMO).
According to the rules, the mass of the container must be checked (certified) by the shipper by weighing the loaded container, or by weighing the units/cargo items loaded into the container that will be packed into the container, followed by summing their mass with the mass of the empty container.
The shipper is obliged to provide the forwarder with the received reliable information in the following volume no later than 24 (twenty-four) hours before the planned departure of the vessel:
Additionally, we draw attention to the fact that due to the increase in cases of weighing containers in the port of Vladivostok, reliable information about the weight of cargo in a container significantly reduces the time and financial costs that the owner of the cargo will incur if there is a discrepancy between the weight data in the bill of lading and the weighing act.
If a discrepancy of 500 kg from the declared weight is detected in any direction, customs puts the container up for 100% inspection with weighing of the contents of the container." >VGM. Guidelines for checking the gross weight of a container for the carriage of goods appeared in 2016. Since this happened after 2010, it is not surprising that there was some pressure in the framework of the Incoterms 2020 consultations to clearly indicate who - the seller or the buyer - should perform such duties. But the working group found that the responsibilities and costs associated with VGM are too specific and complex to be explicitly mentioned in Incoterms 2020.
Returning to the changes made in Incoterms 2020 in comparison with Incoterms 2010, the following should be highlighted:
When selling goods on FCA terms with sea transportation, the seller or buyer (or, more likely, the bank in which the letter of credit is opened) may need a bill of lading with a side mark. However, according to the FCA, the delivery is completed before the goods are loaded on board the vessel. It is impossible to be completely sure that the seller will be able to receive an onboard bill of lading from the carrier. Such a carrier is bound by the obligations under the terms of the contract of carriage and has the right to issue an onboard bill of lading only after the goods actually appear on board.
To take this situation into account, points A6/B6 of FCA Incoterms 2020 now provides an additional option. The buyer and the seller can agree that the buyer will instruct his carrier to issue the seller with a bill of lading after loading the goods, after which the seller will be obliged to provide this bill of lading to the buyer, usually through banks. The ICC acknowledges that, despite such a somewhat unfortunate combination of an on-board bill of lading and delivery on FCA terms, this takes into account the obvious need of the market. Finally, it should be emphasized that even with the application of this additional option, the seller does not have any obligations to the buyer with respect to the terms of the contract of carriage.
Can it still be argued that if the goods in containers are delivered by the seller to the buyer by transfer to the carrier before loading on the ship, then the seller is recommended to sell on FCA terms, not FOB? The answer to this question is yes. However, the difference is that when such a seller needs or wants a bill of lading with a side mark, a new additional option in paragraph A6/B6 of the term FCA Incoterms 2020 provides for such a document.
In the new order of presentation of articles in Incoterms 2020, expenses are reflected in paragraphs A9/B9 of each term. However, in addition to this transfer, there is another change that will immediately become obvious to users. Various expenses allocated to various items within the framework of the Incoterms rules are traditionally found in different parts of each Incoterms term. For example, the costs associated with obtaining the delivery document under FOB 2010 were mentioned in paragraph A8, referred to as the "Delivery Document", and not in paragraph A6, referred to as "Cost allocation". However, in Incoterms 2020, the equivalent of item A6/B6, namely item A9/B9, now lists all the costs allocated in each specific Incoterms term. Therefore, item A9/B9 in Incoterms 2020 is larger than item A6/B6 in Incoterms 2010.
The goal is to provide users with a single list of expenses so that the seller or buyer can see in one place all the expenses they will incur under a specific Incoterms® term. Individual expenses are also mentioned in the article to which these expenses relate: for example, the costs associated with obtaining documents on FOB terms are reflected in paragraph A6/B6, as well as in paragraph A9/B9. The idea is that users who are interested in the distribution of costs specifically for obtaining documents will prefer to refer to a specific article concerning the receipt of delivery documents, rather than to a general article listing all costs.
In the Incoterms 2010 rules, paragraph A3 for both CIF and CIP imposed on the seller the obligation "to insure the cargo at its own expense, corresponding to at least the minimum coverage, as provided for in paragraph "C" of the Institute's Cargo Insurance Conditions (LMA/IUA) or other similar conditions". The provisions of the clause From the Terms of Cargo Insurance of the Institute of London Insurers provide for the coverage of a number of listed risks, taking into account individual exceptions. The provisions of clause A of the Cargo Insurance Conditions of the Institute of London Insurers, on the contrary, cover "all risks" also taking into account certain exceptions. During the consultations during the development of Incoterms 2020, the possibility of switching from clause C to clause A was considered, which makes it possible to increase the insurance coverage issued by the seller in favor of the buyer. This, of course, may entail additional costs in relation to the insurance premium. The opposite approach, namely the use of clause C, has also found support, especially among those involved in maritime commodity trading.
After extensive discussion within the Working Group and beyond, it was decided to provide different minimum coverage for the CIF term and for the CIP Incoterms term. In the first case, which is more likely to be used in the maritime commodity trade, the status quo has been maintained, and by default a clause From the Terms of Cargo Insurance of the Institute of London Insurers is used, although the parties, of course, can agree on broader coverage. In the second case, namely in relation to the term CIP Incoterms®, the seller is now obliged to provide insurance coverage in accordance with clause A of the Terms of Cargo Insurance of the Institute of London Insurers, although the parties, of course, can also agree on a lower level of coverage.
Incoterms 2010 provided that in cases where goods are to be delivered from the seller to the buyer, they are transported by a third-party carrier engaged for this purpose either by the seller or by the buyer, depending on which Incoterms term was used.
However, during discussions during the development of Incoterms 2020, it became clear that there are situations in which, although the goods must be transported from the seller to the buyer, this can be done without the participation of any third-party carrier. So, for example, when using Group D terms, nothing prevents the seller from organizing transportation without transferring this function to a third party, that is, using their ownvehicles. Similarly, when buying under FCA, nothing prevents the buyer from using his vehicle in order to pick up the goods and deliver them to his premises.
The rules did not take into account this possibility. Incoterms 2020 takes it into account, directly allowing not only the conclusion of a contract of carriage, but also the simple provision of the necessary transportation.
The only difference between DAT and DAP in Incoterms 2010 was that according to DAT, the seller delivers the goods unloaded from the arrived in "" >terminal" of the vehicle, while according to the DAP, the seller delivers when the goods are placed at the disposal of the buyer on the arrived vehicle ready for unloading. It should also be recalled that in the explanation of the term DAT in Incoterms 2010, the word "terminal" is defined in a broad sense and means "any place, closed or not ...".
The ICC decided to make two changes to the terms DAT and DAP. Firstly, the order of presentation of these two terms in Incoterms 2020 has been changed, and the term DAP, according to which delivery takes place before unloading, is now placed before the term DAT. Secondly, the name of the term DAT has been changed to DPU (Delivery at the destinationin the unloaded state (Delivered At Place)), which emphasizes that the destination can be any place, not just a "terminal". However, if such a place is not located in the terminal, the seller must make sure that the place where he intends to deliver the goods is the place where he can unload it.
Recall that regarding the safety requirements in Incoterms 2010, there were fairly general instructions in paragraphs A2/B2 and A10/B10 of each term. Incoterms 2010 was the first edition of Incoterms, which came into force after security problems became commonplace at the beginning of this century. These issues and the resulting practice of transportation are now well-established. In connection with such requirements for transportation, paragraphs A4 and A7 of each Incoterms term explicitly provide for the distribution of safety-related responsibilities. Expenses resulting from the fulfillment of such requirements are allocated a more prominent place in the article on expenses, that is, in paragraph A9 /B9.
The explanations that in the 2010 version were contained at the beginning of each Incoterms term are now called "Explanations for Users". They explain the basics of each Incoterms 2020 term, for example, when it should be used, when risk transitions occur, and how costs are distributed between the seller and the buyer. The explanations are intended to
Sometimes the parties wish to change the term Incoterms. The Incoterms 2020 rules do not prohibit such a change, but there is a danger in this, in order to avoid which the parties need to provide in their contract as clearly as possible the expected consequences of such changes. So, for example, if the contract changes the distribution of costs according to the rules of Incoterms 2020, the parties should clearly indicate whether they intend to change the point at which the delivery is carried out and the risk passes to the buyer.
Summing up, it can be seen that the new version has made significant changes Incoterms 2020 does not contain, the names of the terms have not changed, with the exception of the term DAT (Delivered at Terminal) from Incoterms 2010, in the new version it was replaced by DPU (Delivered at Place Unloaded). So now we are talking about any destination where the goods can be unloaded, and not just about terminals.
In separate rules of the new version, additional options were introduced regarding the responsibilities of the parties, the distribution of the insurance burden, the possibility of using their own transport by the parties (without involving the carrier), and the full list of costs associated with the use of each of the terms was clarified.
The Incoterms 2020 rules can be applied from January 1, 2020. At the same time, you can continue to use the previous versions of the rules. In this regard, participants in international trade who choose Incoterms to regulate their relations, when specifying the basis of delivery, it is recommended to indicate which edition of Incoterms they intend to use. Incoterms 2020 will be valid for the next 10 years, until 2030. The next revision of the Incoterms rules is scheduled for 2029.