Revised Incoterms take effect from Jan

Last month, the International Chamber of Commerce (ICC) launched Incoterms 2020, the revised trade terms for delivery of goods by traders worldwide. These take effect from the beginning of next year. The new rules are easier to understand, with more detailed explanatory notes, helpful explanations on how to choose the most appropriate rule for a given transaction and enhanced graphics to illustrate the responsibilities of buyers and sellers. 

ICC first introduced the International Commercial Terms, ie Incoterms, in 1936 to establish commonly accepted definitions and rules related to the delivery of goods between trading partners. These were revised periodically to reflect changes in the international trade system and have gained global acceptance. 

The latest revision retains the 11 delivery terms in the current Incoterms 2010 version. The only change being that Delivery at Terminal (DAT) is being replaced with Delivery at Place Unloaded (DPU). 

Many had understood the DAT rule to mean delivery at only the terminal, although it covered delivery at any place. The DPU makes it explicit that delivery at any place will do. Even under Delivery at Place (DAP) or Delivery Duty Paid (DDP), the delivery may be at any nominated place and not necessarily the buyer’s premises. 

There are other subtle improvements in Incoterms 2020. These include security-related requirements within carriage obligations and costs and arrangements for carriage with own means of transport in Free Carrier (FCA), DAP, DPU and DDP terms. It aligns different levels of insurance coverage in Cost Insurance and Freight (CIF) and Carriage and Insurance Paid To (CIP) terms. And, deals with obtaining bills of lading (BL) with an on-board notation even when Free Carrier (FCA) terms only require the seller to deliver the goods to the carrier.  

As in the Incoterms 2010 version, the new rules say the terms Free Alongside Ship (FAS), Free on Board (FOB), Cost and Freight (CFR) and CIF should be used only for transport by water from port to port, whether through ocean-going vessels, river barges or a combination. These terms should not be used for container shipment (even if carried by ships), other modes of transport (eg air or road) or multi-modal transport, for which other terms such as FCA, CIP, CPT, etc, must be used.  

The Incoterms deal only with obligations of  buyer and seller, how and when the delivery takes place, who bears what costs and when the risk of loss or damage to the cargo passes from buyer to seller. They are not substitutes for contracts for sales between buyers and sellers. They are rules for interpretation of three-letter abbreviations used in contracts and reflect business to business practices. 

Since Incoterms have global acceptance, all those dealing with import and export, transportation of goods, customs clearances and related documentation must get familiar with the new rules by the end of this year. 

They must avoid getting misled by various articles from unreliable sources being circulated in social media and other channels, saying terms such as EXW and DDP have gone away, FCA has been split into two separate rules and a new rule called CNI is there in Incoterms 2020. They must be guided solely by the official version of Incoterms 2020, issued by the ICC. 
E-mail: tncrajagopalan@gmail.com



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