Michaela Merz

Incoterms (INternational COmmercial TERMS): New regulation from 1 January 2020

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Incoterms are agreed standardized clauses which enable the contracting parties to clearly determine regulations on the place of performance, performance obligations and the transfer of risk. The Incoterms, however, provide no information as to when and where ownership of the goods passes between the parties. Also terms of payment, jurisdiction and the power of disposal are not regulated in them. The Incoterms have no legal force, unless they are part of the contract signed by both parties. Very often there are special provisions in contracts that take precedence over the Incoterms.

The “Incoterms 2020” are valid from 1.1.2020 and are intended to replace the previous clause “Incoterms 2010”. However, the new version is not a radical change.

The update is intended to simplify handling of the Incoterms, for example through a clearer and more user-friendly structure and a better comparability of the clauses among each other. Incoterms 2020, like all previous versions, are not binding. Furthermore, the parties may also use the Incoterms 2010 or even older versions. According to the ICC, Incoterms are used in 90 percent of all international contracts. There are seven clauses for all types of transport, four more for sea and inland waterway transport.

The most important changes
-The DAT (Delivered at Terminal) clause is changed to DPU (Delivered at Place Unloaded). Thus, in the future, any location may be the destination.

-For goods sold under the FCA (Free Carrier) clause and intended for sea transport (such as goods in containers), FCA intends to introduce a new option in the future. Buyers and sellers can agree that the buyer instructs his carrier to issue the seller with an on-board bill of lading after loading the goods. At the same time, the seller is obliged to hand over this on-board bill of lading to the buyer. This is typically done through participating banks.

-The insurance cover in the clauses CIF (Cost Insurance Freight) and CIP (Carriage Insurance Paid) will be adapted to current business practice. So far, the seller has had insurance coverage in favor of the buyer at a minimum level covering a number of standard listed risks. Under the new rules, this minimum coverage will remain in place for CIF, while for CIP, standard insurance coverage has moved to more comprehensive all-risk coverage.

-The new Incoterms also take into account that more and more trading partners are organizing the transport of goods using their own means of transport. So far, it has consistently been assumed that the goods would be carried by a third-party supplier who was commissioned either by the buyer or the seller for this purpose (depending on which clause was used). However, it became clear in the discussions on Incoterms 2020 that there are situations in which the buyer or the seller wants to use their own means of transport to transport the goods. Therefore, in the Incoterms there will in future be the possibility of either concluding a contract of carriage or simply organizing the necessary transport itself.

-The last major innovation concerns the increased safety requirements for the carriage of goods. The Incoterms 2020 contain clear rules on the distribution of security obligations and the associated costs. An explicit distribution of security-related obligations has been added to many articles. The resulting costs are now more prominent in some articles.

Image source: Unsplash.com

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