New Incoterms® for imports and exports

Incoterms® are fundamental to international trade, providing a set of contract terms for international freight. These clearly define the delivery point and the seller and buyers' responsibilities, risks and costs. First established in 1936, they are reviewed every 10 years and the new 2020 edition has now been published.

When do Incoterms® 2020 come into force?

Incoterms 2020 although now published come into force on 1 January 2020. This means that if a contract is entered into on or after 1 January 2020 then it is likely that Incoterms 2020 shall apply unless the contract says otherwise.

What should my clients do about Incoterms® 2020?

• Identify what Incoterms their business typically uses.
• Consider if they are using the right Incoterm.
• Once they know what Incoterms they are using and checked they are appropriate- check the changes introduced by ICC Incoterms® 2020 and consider if that has any impact on them.
• Refresh their standard contracts to update them to refer to ICC Incoterms® 2020.

Your clients involved with the import and export of Cargo should be aware of the changes, but we have highlighted some of the key changes below for your reference. 

1.        Change of insurance in CIP/CIF

Under Incoterms 2010 the seller is obliged to provide insurance for the buyer that is equivalent to Institute Cargo Clauses C.  This is a named peril insurance which typically might be suitable for bulk commodity cargoes but may not be appropriate for manufactured goods

In ICC Incoterms® 2020 CIF keeps the same insurance requirements (i.e. Institute Cargo Clauses C) but CIP has increased the insurance required to Institute Cargo Clauses A, or equivalent, which is an all risk cover. 

Not all situations are the same, but we generally recommend that clients try to agree an INCO term that would allow their own insurance policy to respond (to them or the buyer) i.e. FCA if importing or CIP if exporting. However, this isn’t always possible or in some cases, desirable. In those circumstances they need to understand when they are at risk and what level of insurance cover is being provided.  If they aren’t happy with what is being provided they can make changes via the contract of sale.       

2.       DAT is changed to DPU

In Incoterms 2010 DAT (Delivered at Terminal) means the goods are delivered once unloaded at the named terminal. The change in name to DPU (Delivered at Place Unloaded) makes it clearer that delivery can occur anywhere and that the seller is responsible for unloading at destination.

3.       FCA, FOB and bills of lading

Delivery under FCA occurs at first carrier and there is no obligation for the seller to arrange further transport.  A problem can arise when a payment is via a Letter of Credit and an onboard Bill of Lading is required.  If agreed, the FCA term now has a resolution for this in creating an obligation between the buyer and seller re the Bill of Lading.

You can buy the Incoterms text and other useful tools from the International Chamber of Commerce (which "owns" Incoterms).

If you have any questions on Incoterms® or would like to know more, please contact your NZI Marine Underwriter.