Incoterms 2020 - 7 key changes

The Delivered at Terminal (DAT) clause has been replaced by the Delivered at Place Unloaded (DPU) clause. Name change in which the narrower meaning of “terminal” has been replaced by a broader meaning, i.e. “place”, so delivery by unloading the goods from the means of transport can happen anywhere, not just a terminal. This can be an airport terminal, a port terminal, etc.

 

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For the CIF (Cost Insurance and Freight) and CIP (Carriage and Insurance Paid To) clauses, the Incoterms 2020 rules set different minimum levels of cover and thus adapt to current business practices. The level of cover for the CIP clause has changed so that the seller must, unless otherwise agreed, obtain at its own expense cargo insurance complying at least with the "A" (All risks) coverage of the Institute Cargo Clauses. And under the CIF clause, the seller must insure the cargo at least in accordance with the "C" coverage of the Institute Cargo Clauses.

 

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Incoterms 2020 brings also a novelty in the order of ten A/B articles in each clause. In Incoterms 2010, payment and delivery and passing of risk commitments were classified under A1/B1 and have now been moved to A2/B2 and A3/B3. The layout of the ten A/B articles has been changed as follows:

• A1/B1 – General provisions (obligations)
• A2/B2 – Delivery/taking delivery
• A3/B3 – Transfer of risks
• A4/B4 – Carriage
• A5/B5 – Insurance
• A6/B6 – Delivery and transport documents
• A7/B7 – Export and import clearance
• A8/B8 – Checking/packaging/marking
• A9/B9 – Allocation of costs
• A10/B10 – Notices

All costs are now listed in the ‘Allocation of Costs’ sections for each rule, to avoid confusions. Because the ordering of articles within the Incoterms 2020 rules have also changed, these now appear in the A9/B9 section of each rule.

 

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Cargo security is particularly important, Incoterms 2020 now addresses many of the security-related requirements, which are defined in A4 and A7 of each Incoterms 2020 rule, and the necessary associated costs have been added under Articles A9/B9.

 

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Incoterms 2010 assumed that the transport of the goods between seller and buyer would be carried out by a third party carrier. They did not deal with where the transport is provided by the seller or buyer (e.g. the seller's or buyer’s own truck).

Incoterms 2020 also allow own transport by the buyer in the FCA clause, by the seller in the D rules. Incoterms 2020 include own transport agreements in the FCA, DAP (Delivered at Place), DPU (Delivered at Place Unloaded) and DDP (Delivered Duty Paid). The parties may, except in the case of Group C clauses, organize transport by their own means of transport, which was already possible under the Incoterms 2010 clauses, although there is no explicit rule to this effect.

 

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In connection with the FCA clause, a new rule applies regarding the issuance of a Bill of Lading (B/L).It may indicate the loading of the goods on board a ship, even if the goods are delivered to the carrier at a land point. Without this protection, the seller may lose control of the container shipments and assume the risk of damage to the goods until they are loaded. With Incotems 2020, the seller can therefore obtain a Bill of Landing from the carrier if required, e.g. under the Letter of Credit.

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The new Incoterms® 2020 international transport clauses contain much more extensive explanatory notes, with better diagrams, a different structure for users. Maritime related rules still haven’t changed and remain at the back of the rule book as they still might be used for bulk commodities.

 

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Despite an ‘effective’ date of the 1st January 2020, Incoterms 2020 could have been used before that date. That said, after this date, there is still no obligation to use Incoterms 2020. So what does ‘Effective 1st January 2020’ actually mean? If you haven’t made it clear in your contract which Incoterms version to refer to, or have a flexible contract which states that when the contract is effective, the latest Incoterms® rules apply, then the 2020 rules will apply in these circumstances. 

 

1. Choose the right rule
   
   
   
   
2. Specify the place/port precisely
3. Incorporate Incoterms 2020 clauses in your sales contract and invoice. 

The aim of the correct application of the Incoterms 2020 clauses is to unify the rules for the interpretation of the most important trade terms used in international trade. Ignorance of the differences in international trade between individual countries and the different interpretations of trade names causes a lot of disputes and a waste of time and money. 

The content of Incoterms 2020 has not changed significantly, but small subtle changes are crucial for trade professionals.

 

Are you up to date with Incoterms clauses? Perfect.
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Your RCM Team.

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