International Chamber Updates 10-Year Rule on Incoterms
November 22, 2019
The International Chamber of Commerce has just published Incoterms 2020, the regular 10-year update to its rules for the sale and purchase of goods. Incoterms describe the allocation of obligations, risks, and costs between buyers and sellers in a contract for the sale and purchase of goods. Each rule can be incorporated into a contract with a three-letter abbreviation and the year of the Incoterm to make clear which version of the rule applies. The 2020 rules, which go into effect January 1, 2020, feature several changes to the prior version, Incoterms 2010, including:
Costs, where they are listed
- The allocation of costs associated with each rule is listed both throughout the rule where relevant and then collected in Article A9/B9. Now, users can find in one place who will bear particular costs associated with a given rule.
Different levels of Insurance cover in CIF and CIP
- In the 2010 Incoterms, both CIF and CIP imposed on the seller the obligation to obtain, at its own expense, insurance complying with the minimum cover provided by Clauses (C) of the Institute Cargo Clauses. In the 2020 Incoterms, the CIF rule maintains the Clause (C) coverage, while sellers using the CIP rule must obtain insurance complying with Clause (A), which requires insurance that covers “all risks”, with some exceptions, as opposed to Clause (C), which provides cover for a number of listed risks (again with some exceptions).
Arranging for carriage with seller’s or buyer’s own means of transport in FCA, DAP, DPU, and DDP
- The old rules presumed the goods would be carried from the seller to the buyer by a third party, engaged either by the buyer or the seller depending on the specific rule. The new rule recognizes this is possible by expressly allowing for the making of a contract of carriage or arranging for the necessary carriage.
Inclusion of security-related requirements within carriage obligations and costs
- Express allocation of security-related practices has been added to A4 and A7 of each Incoterms rule. The costs also are prominently positioned in A9 and B9, the cost sections, of each rule. Businesses buying and selling goods should be aware of the updated terms. References to Incoterms 2020 in sales contracts can have significantly different meaning compared to prior versions of the rules. Please contact a member of the RCO Business Practice Group to discuss Incoterms 2020 or any other aspect of the law of the same of goods.