INCOTERMS 2020

Incoterms are rules issued by the International Chamber of Commerce that facilitate global trade
and are updated every ten years or so in an effort to keep up with the changes that take place in
international trade. The current version is Incoterms 2010, but a new version, Incoterms 2020, is
expected to be released in the last quarter of 2019 and will take effect on January 1, 2020.
KEY CHANGES IN INCOTERMS® 2020

I. DAT IS CHANGED TO DPU

In Incoterms 2010 DAT (Delivered at Terminal) means the goods are delivered once
unloaded at the named terminal. User feedback was that users wanted an Incoterm
that allowed delivery at not just a terminal. For example, a capital equipment
manufacturer might agree to deliver at the site of a factory. Therefore the reference
to terminal has been removed to make it more general. There is no other change in
substance. Therefore if you currently use DAT Incoterms 2010 and are happy with
that then you should change to DPU (ICC Incoterms® 2020).

II. CHANGE OF INSURANCE IN CIP/CIF

The Incoterm CIP (Carriage and Insurance Paid to) means that the seller delivers to
the carrier, but then pays for the carriage and insurance to the named destination.
CIF (Carriage Insurance and Freight) is the same except that it can only be used for
maritime transport (delivery is onto a ship and the destination needs to be a port).

Under Incoterms 2010 the seller is obliged to provide insurance for the buyer that is
equivalent to Clause C (Institute of Cargo Clauses). This is a basic level of insurance
which typically might be suitable for bulk commodity cargoes but may not be
appropriate for manufactured goods.

In ICC Incoterms® 2020 CIF keeps the same insurance requirements (i.e. Clause C)
but CIP has increased the insurance required to Clause A (Institute of Cargo
Clauses). The reasoning behind this is that CIF is more often used with bulk
commodity trades and CIP (as a multimodal term) is more often used for
manufactured goods.

III. COSTS ARE CLARIFIED

The detail of the precise allocation of costs between seller and buyer has been
improved. In each Incoterm 2020 A9/B9 has gathered in all of the cost obligations.
This is to respond to user feedback that there were increasing disputes about the
allocation of costs, especially those in or around the port or place of delivery.

The broad principle is that the seller is responsible for costs incurred up to the point
of delivery, and the buyer is responsible for costs beyond that.

IV. SECURITY REQUIREMENTS

Transport security (e.g. mandatory screening of containers) requirements have
become more prevalent. These requirements bring cost, and risk delay if not fulfilled.
Incoterms 2010 did touch on responsibility for security requirements and their costs.
 ICC Incoterms® 2020 makes security obligations more prominent (e.g. see A4/A7 in
each Incoterm 2020).

V. SELLER/BUYER USING OWN TRANSPORT

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 own truck). ICC
Incoterms® 2020 now clarifies the position. For example, the buyer in FCA Incoterms
2020 is required to "contract or arrange at its own cost for the carriage of the goods
from the named place of delivery".

VI. FCA, FOB AND BILLS OF LADING

The Incoterm FOB is often used for container shipments. In doing this, the seller
takes on a significant risk. Typically a seller of a container shipment loses control of
the container on arrival of the container at the port. But even though the seller has
lost control, they are still liable until the container is loaded onto the ship. This
exposes the seller to cost and risk.

For example, if the container is damaged while in the container stack that will be the
seller's problem even though they may have no contractual relationship with the
stack operator. The ICC's drafting group also heard complaints from sellers who had
received surprise invoices from port terminal operators for the cost of storage and
loading.

The answer to this issue is for the seller to insist on using the Incoterm FCA.
However, sellers often want to secure payment with a letter of credit. Letters of credit
often require the presentation of an onboard bill of lading. For the seller using FOB
involves it in lading and therefore gives it a chance of obtaining an onboard bill of
lading. A seller using FCA will have little prospect of obtaining the onboard bill of
lading.

The long-term solution to this issue is for trade finance providers to shift from
requiring an onboard bill of lading. Incoterms cannot force change in trade finance.
Therefore, as a limited "sticking plaster" in ICC Incoterms® 2020 FCA has been
changed to allow the parties to agree for the buyer to direct the carrier to issue the
onboard bill of lading to the seller.
 INCOTERMS 2020

Sachin Biswal