In brief - What does this mean for international traders?
The standard international trading terms produced by the International Chamber of Commerce have now been updated and Incoterms 2020 will come into widespread use from 1 January 2020.
What are Incoterms?
The Incoterms are a standard set of trading term rules that explain the most commonly used terms of international trading terms in contracts for sale and purchase of goods. They describe obligations - who is responsible to do what. They describe where and when risk passes from seller to buyer and they describe the responsibility for costs in the supply chain.
What they are not is a replacement of a contract of sale. For example, they do not deal with specifications for the goods, payment arrangements, remedies for breach of the sale contract or what is to happen in the event of a dispute.
What is different about Incoterms 2020 from Incoterms 2010?
Aside from there being some cosmetic changes to make it easier for users to choose the right Incoterm rule for their sale contract and some upgraded Guidance Notes, the major changes are:
- Inclusion of an additional option in the FCA (Free Carrier at…) terms under which it can be agreed that the buyer will instruct the carrier to issue an on-board bill of lading to the seller after loading.
- Articles within each rule have been re-ordered so that Costs now appear at A9/B9 of each rule.
- The CIF (Cost Insurance and Freight) rule continues to require minimum insurance cover equivalent to the Institute Cargo Clauses (C) while the CIP (Cost and Insurance Paid To…) rule provides for minimum cover equivalent to Institute Cargo Clauses (A).
- In FCA, DAP (Delivered at Place), DPU (Delivered at Place Unloaded) and DDP (Delivered Duty Paid) rules, there is now provision for the seller to simply arrange carriage without a necessity to engage a third party carrier.
- The DAT (Delivered at Terminal) term has been renamed DPU.
- Security-related requirements in each term are now added to A4 and A7 of each term.
What should traders do now?
In advance of 1 January 2020, those involved in international trade transactions should carefully consider the new Incoterms 2020 and determine whether the sale terms they currently use are the most appropriate for the future.
Sales contracts should be carefully reviewed to see that they cover the various elements not covered by Incoterms 2020.
Staff should be trained to know which terms to use and when to use those terms.
In future sale transactions entered into covering shipments after 1 January 2020, references to Incoterms 2010 should be replaced by references to Incoterms 2020.
This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2021.