New routes for foreign trade
Published as a recommendation by the International Chamber of Commerce, the Incoterms rules govern the rights and obligations of buyers and sellers in foreign trade. The rules have undergone several changes since the start of 2020.
Incoterms 2020, the revised version of Incoterms 2010 and therefore the most important set of rules for international trade, came into force on 1 January. Although these rules are just a recommendation of the International Chamber of Commerce rather than a binding set of provisions, the Incoterms clauses are regularly incorporated into sales contracts, primarily to govern the cost sharing and transfer of risk between the buyer and seller.
‘Even if the changes in Incoterms 2020 turn out to have fewer implications than expected, it is still worth examining existing contracts to see if any action needs to be taken.’
‘Even if the changes in Incoterms 2020 turn out to have fewer implications than expected, it is still worth examining existing contracts to see if any action needs to be taken,’ says Siegfried Sterll, a transport insurance expert at Funk. The revised handbook on Incoterms 2020 presents the new and existing clauses for this purpose, illustrated both in images and text. The introduction is more detailed, and a horizontal overview and presentation of information in table format allow for a better comparison of the individual clauses. Moreover, the articles are arranged in an order that is based on the logical workflows of a sales transaction, which makes it easier to select the right article for an individual contract. Should you have any questions about the new Incoterms rules, you are more than welcome to reach out to your Funk experts.
The most important changes in the Incoterms 2020:
- The ‘DAT’ (Delivered at Terminal) clause has been removed in the face of critical feedback from the field that delivery to just one terminal for certain products was too restrictive.
- The newly added ‘DPU’ (Delivered at Place Unloaded) clause replaces the ‘DAT’ clause and underscores the fact that the designated place can be any place and does not have to be a terminal. The ‘DPU’ clause is the only clause whereby unloading at any designated place is insured.
- The minimum level of insurance cover required in the ‘CIF’ (Cost, Insurance and Freight) clause, which applies to transport by sea, remains the Institute Cargo Clause ‘C’ insurance.
- However, the ‘CIP’ (Carriage and Insurance Paid to) clause, which applies to all types of transport and otherwise matches the content of the ‘CIF’ clause, now requires the seller to have Institute Cargo Clause ‘A’ insurance. This level of insurance covers not just certain loss events but instead must include all risks.
- Under the ‘FCA’ (Free Carrier) clause, sellers and buyers regularly request a bill of lading from the carrier in the case of transport by sea, with the annotation of ‘aboard’, which indicates that the goods have been loaded on board the ship. However, delivery by the seller is considered complete even before the goods are loaded on board the ship. For that reason, it is not certain that the seller will actually be able to receive a bill of lading. The new ‘FCA’ clause provides the following option: the buyer must instruct the carrier to issue a bill of lading to the seller with an ‘aboard’ annotation, at the cost and risk of the buyer.
A comprehensive graphical overview (in German) of the Incoterms 2020 clauses can be found here.