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Incoterms® 2020: What Changes?

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Incoterms® 2020: What Changes?

10 September 2019 the ICC in Paris published the new edition of the Incoterms®. The Incoterms® 2020 will go into effect on 1.1.2020. It should be remembered, however, that the Incoterms® 2010 (as well as any previous edition of the delivery terms), remain valid and theoretically applicable. The intention of this article is to focus only on changes compared to the previous version of the Incoterms® – i.e. the 2010 edition.

The main changes are as follows:

1) FCA and Bills of Lading

In the context of FCA sales by sea transport, it may happen that the seller, perhaps the beneficiary of an L/C, is interested in obtaining a Bill of Lading with an on board notation. (Please note that UCP 600 article 20 which governs bills of lading presented under an L/C requires, in sub-aricle (a)(ii), the following:

“A bill of lading, however named, must appear to:
indicated that the goods had been shipped on board
• pre-printed wording, or
• a board notation of dates on which the goods have been shipped on board.”)

In the FCA term, however, the delivery of the goods is perfected before it is loaded on board the ship and the carrier would be obliged to issue a “shipped” Bill of Lading or a “received” Bill of Lading with an on board notation only when the goods are actually loaded on board the ship.

To resolve this criticality, a new option is envisaged in the term FCA Incoterms® 2020: Commercial counterparties can agree that the buyer will instruct his carrier to issue and deliver an on-board Bill of Lading to the seller – after loading the goods on board the ship – and the seller will be obliged to forward the Bill of Lading to the buyer using (usually) the banking channel. With this indication, the ICC has recognized a market need while noting a theoretical incongruity between the “delivery” point envisaged by the FCA term and the request of an on-board Bill of Lading. Finally, the ICC underlines the opportunity to use the term FCA for the sale of containerized goods (manufactured cargoes) avoiding the FOB since, this term, should be used exclusively for the sale of non-containerized goods, such as commodities (grains, oil, iron ore, etc.)

2) Costs, where they are listed

In Incoterms® 2020, the costs appear in articles A9 / B9 (section A; The Seller’s Obligation, section B; The Buyer’s Obligation – A9 / B9 Allocation of costs) of each Incoterms® rule. In essence, with the new approach, the identification of the costs borne by each counterparty is decidedly more immediate than the previous edition of the Incoterms®. It should be noted, however, that the references to the c.d. costs are reported in the respective articles: For example, the costs related to obtaining documents in the FOB yield appear both in articles A9 / B9 and in articles A6 / B6.

3) Different levels of insurance coverage in CIP and CIF terms

In the Incoterms® 2010, the seller was obliged, in the context of sales with CIP or CIF surrender, to “obtaining its own cargo insurance by complying with the minimum cover as provided by Claims (C) of the Institute Cargo Clauses (Lloyd’s Market Association / International Underwriting Association ‘LMA / IUA’) or any similar clauses. “We remind you that the Institute Cargo Clauses (C) cover a defined number of risks while the Institute Cargo Clauses (A) cover “all risks” (In both clauses some” exclusions “are provided). In Incoterms® 2020 there are different levels of insurance coverage required in the CIP and CIF terms.

In the CIF the obligation remains, for the seller, “to obtain, at its own cost, cargo insurance complying with the cover provided by Clauses (C) of the Institute Cargo Clauses (LMA / IUA) or any similar clauses “. In the CIP, on the other hand, the obligation on the part of the seller is that of, without otherwise agreed, “to obtain, at his own cost, cargo insurance complying with the cover provided by Clauses (A) of the Cargo Clauses Institute (LMA / IUA) or any similar clauses as appropriate to the means of transport used”.

4) Organization of transport by the seller’s or purchaser’s own means in the terms FCA, DAP, DPU and DDP

In Incoterms® 2020 there is the possibility, unlike previous editions of the delivery terms, that the transport in the FCA / DAP / DPU and DDP terms is carried out not with third-party carriers but using the seller’s own means of transport (in the D terms) and buyer (in the FCA term). 

5) Modification in the three-letter initials: from DAT to DPU

In Incoterms® 2010, the only difference between the term DAT and the term DAP was that in the DAT the seller delivered the goods “once unloaded from the arriving means of transport into“ terminal ”; while, in the term DAP the seller delivers the goods “when the goods are placed at the disposal of the buyer.” Two changes have been made to Incoterms® 2020. The order in which the terms are presented was reversed (in the Incoterms® 2020 edition DAP is listed before the DPU, while in the Incoterms® 2010 DAT was listed before the DAP). The name of the rule has also been changed from DAT (Delivered at Terminal) to DPU (Delivered at Place Unloaded). This change is intended to emphasize that the place of destination can be any place and not necessarily a terminal. Obviously, if the place of destination is not a terminal, the seller must make sure that there is the technical possibility of downloading the goods.

6) Insertion of the c.d. Security-related requirements within carriage obligations and costs

The “Security-related obligations” have been added to sections A4 and A7 of each Incoterms® rule. Furthermore, the costs related to these “requirements” are better highlighted in the A9 / B9 cost sections.

7) Explanatory Notes for Users

The “Guidance Notes” listed at the beginning of each Incoterms® rule in the 2010 edition, are now indicated as Explanatory Notes for User. These notes describe the “fundamentals” of each Incoterms® 2020 rule, indicating when the term can be used, when the risks are transferred and how the costs are divided between the parties. The stated objective is to help operators use Incoterms® 2020 correctly.

By Dr. Domenico Del Sorbo
Trade Finance Specialist
ICC Academy Incoterms®2020 Certificate (INCO)