By Megan Doyle
With several key updates to note, businesses involved in international trade may wish to prepare before Incoterms 2020 go into effect on January 1, 2020.
First released in 1936, Incoterms facilitate international trade by assigning cost and risk responsibilities to the correct parties during a shipment’s entire journey. For example, Incoterms rules are often used when goods change hands, when filing purchase orders, packaging and labeling shipments for transport, or preparing a certificate of origin at a port.1
“Because they help importers and exporters around the world to understand their responsibilities and avoid costly misunderstandings, the rules form the language of international sales transactions, and help build confidence in our valuable global trading system,” says ICC Secretary General John W.H. Denton AO.2
One of the ICC’s core roles is to continually establish sustainable international trade practices for business of all sizes in all parts of the world. Incoterms 2020 improves upon and addresses aspects of international trade that weren’t prevalent in Incoterms 2010.3
Specifically, Incoterms 2020 aims to recognize a growing global economy, an increased attention to security in the transportation of goods, and other industry requests. The update also features more detailed explanatory notes and graphics to make the rules more accessible and easier to use.4 Costs, for example, have been rearranged as a complete, centralized list to help buyers and sellers better understand the responsibilities for particular Incoterms.5
In addition, Incoterms 2020 will be available on a mobile app.6
Updated Bill of Lading Terms for FCA Deliveries. In response to industry requests, Incoterms 2020 amends the Free Carrier (FCA) rule to allow a carrier to issue an on-board bill of lading after goods have been loaded. This change was made because not all FCA Deliveries allow a seller to obtain an on-board bill of lading, as FCA terms are usually completed before goods are loaded onto the vessel.7 Now, parties can agree that the buyer will issue an on-board bill of lading after goods have been loaded.
New Default Insurance Coverage Level for Carriage and Insurance Paid To (CIP) Rules. Previous editions of the Incoterms rules required both Cost Insurance and Freight (CIF) and Carriage and Insurance Paid To (CIP) to have minimum insurance coverage at the level of Institute Cargo Clause C—a type of standardized cargo insurance policy used by marine operators.8 Clause C offers the least coverage with the lowest premium. Now, the minimum insurance coverage level for CIP deliveries has been increased to Clause A, which offers the most extensive coverage. However, parties are free to agree to lower levels of insurance if they choose. The default insurance coverage remains at Clause C for CIF deliveries.
Delivered at Terminal (DAT) Name Changed to Delivered at Place Unloaded (DPU). Incoterms 2020 changes the three-letter name for Delivered at Terminal from DAT to DPU to reflect the fact that a destination for a DAT/DPU delivery could be anywhere, not necessarily a terminal.9
Revisions Acknowledge that Parties Might Use Their Own Transportation. When Incoterms 2010 were drafted, the ICC assumed that when goods were transported from seller to buyer, they would be sent by a third-party carrier hired by either one. But that isn’t always the case. Incoterms 2020 rules have been adapted for situations in which the seller or buyer uses its own transportation during Delivered at Place (DAP), Delivered at Place Unloaded (DPU), Delivered Duty Paid (DDP), and FCA deliveries.10
Incoterms 2020 Reveals Stronger Security-Related Requirements. Since security-related concerns are becoming more and more common in international trade, the ICC made revisions to establish stronger security requirements when it comes to carriage costs and obligations.11
The ICC offers training to help businesses prepare for Incoterms 2020. Dedicated online training sessions and e-learning courses, for example, will be made available to help businesses appropriately apply Incoterms 2020 rules through interactive case studies and simulated work scenarios.12 For in-person learning, the ICC is organizing over 250 launch events and training seminars all over the world.13
The ICC also suggests that businesses take note of how changes could affect their standard contract forms and make any consequential changes, such as changing DAT to DPU. Otherwise, international legal experts suggest businesses note the following:14
One of the ICC’s main goals is to ensure a sustainable international global business environment, and part of that goal involves routinely updating their Incoterms trade standards. Set to go into effect January 1, 2020, Incoterms 2020 addresses modern industry trends and international businesses’ requests to help make trade standards more relevant, accessible, and easier to understand.
Megan Doyle is a business technology writer and researcher based in Wantagh, NY, whose work focuses primarily on financial services technology.
1. “Incoterms 2020,” ICC; https://iccwbo.org/resources-for-business/incoterms-rules/incoterms-2020/
2. “ICC releases Incoterms 2020,” ICC; https://iccwbo.org/media-wall/news-speeches/icc-releases-incoterms-2020/
3. “Incoterms 2020 – What you need to know,” Reed Smith; https://www.reedsmith.com/en/perspectives/2019/09/incoterms-2020-what-you-need-to-know
4. “ICC releases Incoterms 2020,” ICC; https://iccwbo.org/media-wall/news-speeches/icc-releases-incoterms-2020/
5. “Incoterms 2020 – What you need to know,” Reed Smith; https://www.reedsmith.com/en/perspectives/2019/09/incoterms-2020-what-you-need-to-know
6. “ICC releases Incoterms 2020,” ICC; https://iccwbo.org/media-wall/news-speeches/icc-releases-incoterms-2020/
7. “Incoterms 2020 – What you need to know,” Reed Smith; https://www.reedsmith.com/en/perspectives/2019/09/incoterms-2020-what-you-need-to-know
12. “ICC releases Incoterms 2020,” ICC; https://iccwbo.org/media-wall/news-speeches/icc-releases-incoterms-2020/
13. “Incoterms 2020,” ICC; https://iccwbo.org/resources-for-business/incoterms-rules/incoterms-2020/
14. “Incoterms 2020 – What you need to know,” Reed Smith; https://www.reedsmith.com/en/perspectives/2019/09/incoterms-2020-what-you-need-to-know