Incoterms 2020 Changes in Effect January 1, 2020

The International Chamber of Commerce (ICC) has released the Incoterms 2020 update of their international trade terms for the sale of goods. The new version of Incoterms 2020 takes effect as of January 1, 2020.

The Incoterms rules define the division of responsibilities between a seller and a buyer for the tasks, costs and risks involved in delivering merchandise. First introduced in 1936, they have been revised on a regular basis to reflect changes in international trade; since 1980 they’ve been updated every 10 years. The Incoterms revisions are changed in style and substance, improve certain aspects of the Incoterms and includes a detailed explanation of how to choose the most appropriate Incoterms rule for a sale contract.

The Incoterms 2020 consider of the growth of the economy, increasing attention to security in the transportation of goods, insurance coverage flexibility and on-board bill of lading under Free Carrier (FCA) rule.

Some of the new issues and changes in the new edition of the Incoterms 2020 are:

DAT is changing to DPU.
DAT means Delivered-At-Terminal, will be replaced by DPU – Delivery-At-Place Unloaded. DPU mean that the seller delivers the goods and transfers risk to the buyer once the goods unloaded at place of destination agreed. The import customs clearance and related costs remain for the account of the buyer. DPU is basically a DAP Delivered at Place, with unloading. The reference to terminal has been removed to make it more general.

Change of insurance in CIP/CIF.
Cost of Insurance and Freight (CIF) means the seller delivers to the carrier and pays the carriage and insurance to named destination in any mode of transport. For 2020, the same insurance requirements apply but Carriage and Insurance Paid (CIP) has increased the insurance required under this term. The reason is CIF is generally used with bulk goods (waterways only) and CIP (multimodal)I s often used for manufactured goods. This is revised for the need of flexibility depending on the type and transport of goods.

Costs clarification
Incoterms 2020 has all the cost obligations for both buyer and seller. The principle is that the seller is responsible for costs up to the point of delivery and the buyer for costs beyond that. This change is in response to feedback received about the increasing number of disputes about allocation of costs especially those in or around the port of place of delivery.

Security requirements
Transportation security has become the new norm (example: mandatory screening of containers).  Incoterms 2020 brings security related obligations to the forefront in each Incoterm at A4 and A7 of each rule and the costs are featured under A9/B9 of each rule.

FOB term is generally used for container shipments, for this the seller takes risks as seller loses control of container on arrival at port and still liable until container is loaded which exposes the seller to cost and risk. FCA has been changed to allow the parties to agree for the buyer to direct the carrier to issue the onboard bill of lading to the seller.

In 2020, the buyer can instruct the carried to issue an on-board bill of lading after loading to the seller. The seller will be obliged to tender the bill of lading to the buyer. When this option is used the seller does not take on an obligation to the buyer in respect of the terms of contract of carriage.

In Incoterms 2020 the explanatory notes for each incoterm has been modified to provide more details and with useful pictures. It is important to use the appropriate Incoterm per contract.

The Guidance Notes that were previously at the start of each individual Incoterms have now been amended to Explanatory Notes for Users section in the new Incoterms 2020 publication.

Obtain your copy of the Incoterms 2020 through the ICC website.