20 April 2021
The Incoterms are a series of pre-formulated clauses that business parties can include in their contracts. They relate to the international trade in goods and regulate in particular the transfer of risk and costs in connection with the delivery of goods from the seller to the buyer.
Nowadays they are widely used in international trade transactions. The International Chamber of Commerce ( ICC ) published the first version of the Incoterms in 1936. Since then, they have been updated approximately every ten years. The Incoterms 2020 are the ninth version of the clauses that appeared on September 10, 2019 and came into force on January 1, 2020. Like the Incoterms 2010, the Incoterms 2020 comprise eleven rules. With the Incoterms 2020, however, the DAT clause will no longer apply and the new DPU clause will be introduced. The Incoterms 2020 are therefore the following:
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EXW ( EX Works )
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FCA ( Free CArrier)
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FAS ( Free Alongside Ship )
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FOB ( Free On Board )
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CFR ( Cost and FReight )
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CIF ( Cost Insurance Freight )
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DAP ( Delivered At Place )
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DPU ( Delivered at Place Unloaded )
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CPT ( Carriage Paid To )
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CIP ( Carriage Insurance Paid )
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DDP ( Delivered Duty Paid )
The newly created DPU clause replaced the DAT ( Delivered At Terminal ) clause , with no significant differences between the two clauses. The seller, who bears all transport costs, is obliged to unload the goods at the destination. All costs incurred after unloading are to be borne by the buyer. The seller bears the risk until arrival at the terminal. A terminal is to be understood as any destination, which can be a port or airport, for example. The change in Incoterms 2020 is intended to make this clear. DPU is the only Incoterms rule that obliges the seller to unload the goods. If, on the other hand, the seller is unable to organize the unloading of the goods, he should instead arrange a delivery to DAP.
Both the CIF and the CIP clause relate to the insurance coverage of the goods. Under CIP, the seller delivers to the carrier, but pays for the transport and insurance to the named destination. The CIF clause does the same, but can only be used for sea transport where the destination is always a port and the delivery is on a ship. Under the Incoterms 2010, the seller was obliged to take out basic insurance that included ICC-C ( Institute Cargo Clauses) and included minimum insurance protection against explicitly mentioned damaging events. However, this insurance turned out to be unsuitable for finished goods. The CIP clause is often used for such goods. For this reason, the insurance requirements under the CIP clause according to Incoterms 2020 have been increased. ICC-A ( Institute Cargo Clauses ) insurance cover , which covers all risks, is now required . The insurance requirements under the CIF remain unchanged.
The FCA clause was changed in Incoterms 2020 to include an additional option. The parties can now agree that the buyer can instruct the carrier to issue an on-board bill of lading for the seller. The background to the change were complaints about the use of the FOB clause, which is often used for container shipments. The seller typically has no control over the container after it has arrived in port. Nevertheless, he still bears the risk for the container until it is loaded onto the ship. To avoid the problem, it is recommended that delivery be agreed under FCA. In contrast to a delivery according to the FOB clause, however, it has been difficult for a buyer to get an on-board bill of lading under FCA, which is typically required to receive a letter of credit and thus secure the payment. However, such a possibility exists under the new FCA clause. It is already warned that this is not a final, but only an interim solution, as long as the submission of an on-board bill of lading is required for a letter of credit.
The cost presentation is clearer in the Incoterms 2020. All costs related to certain Incoterms clauses can be found in Article A9 / B9. This helps to clarify the distribution of costs between buyer and seller.
Incoterms 2020 no longer assume that a third party, a freight forwarder, will transport the goods between the seller and buyer. In the Incoterms 2020, however, it is taken into account that the seller and / or the buyer can carry out the transport with their own means of transport. This change can be seen in the clauses FCA, DAP, DPU and DDP.
In the Incoterms 2020, the presentation of the obligations and costs in relation to the requirements for transport safety is also clearer. The related obligations are specifically provided for in Articles A4 and A7, while the relevant costs are regulated in general cost articles A9 / B9.
The eleven Incoterms 2020 clauses are divided into two groups. The type of delivery is decisive for the division. The larger group contains seven clauses that can be used regardless of the mode of transport. These are the following: EXW, FCA, DAP, DPU, CPT, CIP, DDP. However, the four clauses of the second group can only regulate transport in inland and sea transport and may not be used for transport by road, air or rail. These are: FAS, FOB, CFR, CIF.
Even after the Incoterms 2020 come into force, the parties can still agree to apply the previous Incoterms 2010. However, such an agreement must be clear so that it is clear to all parties which terms and conditions apply.
For further information, please contact:
Dr. Henning Schaloske, Partner, Clyde & Co
henning.schaloske@clydeco.com
