INCOTERMS 2020 AND ITS CHANGES

On January 1st, 2020, the international trade rules “INCOTERMS 2020, ICC Rules for the Use of National and International Trade Terms” began to govern, which come to replace INCOTERMS 2010, and which will be in placefor the next 10 years.

 By Thomas Veszprémy 

The INCOTERMS 2020 of the ICC – International Chamber of Commerce-, are 11 rules of 3 letters (acronyms) with the most used terms in international transport of goods in relation to the sale of goods or merchandise. They correspond to 11 interpretative, voluntary, and standardized rules, which without substituting the respective contracts (transport and international sale and purchase), describe the obligations of the parties regarding delivery, risk, transportation, allocation of costs, and procedures for documents, among others.

The new version of INCOTERMS 2020 seeks to apply the rules for the use of trade terms, as its title indicates, both for the national and international level. In addition, they present a simplified and clearer wording and display of the rules, with a new language, an introduction with explanatory notes, and their publication in the traditional format and in a new horizontal format. Also, the new version takes into account the increased importance of security in the movement of goods, the need for flexibility in insurance coverage – depending on the nature of transport – and the request of banks for the introduction of a “Bill of Lading or BoL” of the transport in certain purchases of merchandise under the FCA rule.

In the new version of INCOTERMS, there are structural, formal and fundamental changes. The main differences between INCOTERMS 2010-2020 are:

1. Structural Changes

  • New order of the rules, with a greater emphasis on delivery and risk, as well as a greater emphasis on their introduction and on how to choose their terms when incorporating them into international transportation and sales contracts. Furthermore, they are presented as both national and international rules.
  • Clearer explanation of the limits and connections between the sale and the auxiliary contracts.
  • Improvement in the explanatory notes and guides. The new version contains explanatory notes for the correct use of the rules according to the means of transport and suggestions, such as the use of clauses other than EXW and DDP. It also establishes the way in which the commercial terms should be incorporated into a contract. (Term – Place of delivery / destination – INCOTERMS 2020)

Notwithstanding the foregoing, the explanatory notes do not address:

  • Existence of the sale contract.
  • Time, place and currency of the price payment.
  • The consequences of delivery delay.
  • Transmission of the property, title and possession of the merchandise.
  • Intellectual property.
  • Legal remedies available in case of breach of the sale contract.
  • Specifications of the merchandise sold.
  • It pronounces on the responsibility of the shippers regarding the weighing of the containers, to declare the Verified Gross Mass – MBV (Verified Gross Mass – VGM) of all export containers that are loaded with cargo inside. Regulation No. 2 of the International Convention for the “Safety of Human Life at Sea (1974)” – SOLAS, approved by the International Maritime Organization – IMO, imposes on container shippers the obligation to weigh containers, before be able to be loaded, in order to increase safety during navigation.

2. Fundamental Changes

  • The parties may agree that the seller instruct the carrier to issue a BoA with the mention “on board” of the transport in certain purchase of merchandise under the FCA rule, after loaded on the ship.
  • The new version presents an item in each rule (A9 – B9), which establishes a list with the allocation of costs for the parties.
  • Different level of insurance coverage for the CIF and CIP terms.
  • CIF – the seller’s obligation to obtain the loading clause of the Institute (C) LMA / IUA (Loyd’s Market Association / International Underwriting Association), which applies the minimum coverage, is maintained.
  • CIP – the seller must obtain the seller’s obligation to obtain, the loading clause of the Institute (A) LMA / IUA (Loyd’s Market Association / International Underwriting Association), which applies the maximum coverage – against all risks.
  • The possibility that the seller does not outsource the transport of the goods, and does it by his own means. In the new version, the possibility is established in commercial terms for the seller to carry out the transport through a third party, or through their own means of transport.
  • Change from the acronym DAT to DPU (Delivered at Terminal – Delivered at Place Unloaded).
  • In DAT, the seller delivers the merchandise once it is unloaded from the means of transport upon arrival at the terminal, and is made available to the buyer.
  • At DPU, the seller delivers the goods once they are made available to the buyer, at the arrival terminal, for unloading.
  • Added the security requirement for the transport of merchandise. In the new version, the obligation to obtain the security requirements of the merchandise and its costs is established in each commercial term (A4 and A7).