The International Chamber of Commerce (ICC) have now published the latest update to the Incoterms (Incoterms® 2020) which come into force on 1 January 2020. Traders can use Incoterms® 2020 with immediate effect as long as the contract specifies Incoterms® 2020.
What are the key changes?
Change of insurance requirements in CIP/CIF
Under Incoterms® 2010 the seller is obliged to provide insurance that is equivalent to at least C clauses (a basic level) when trading under CIP or CIF terms.
As the CIF term is to be used for maritime transport only it is typically only used for bulk commodities (e.g. minerals.) CIP on the other hand is a multimodal term and is more likely to be used with general manufactured goods which often require a higher level of insurance cover.
Under Incoterms® 2020 CIF still maintains the same insurance cover requirement (Clause C) but the CIP term now requires enhanced cover to Institute Cargo clause A.
Incoterm DAT is changed to DPU (Delivered at place unloaded.)
Incoterms 2010 DAT (Delivered at Terminal) means the goods are delivered once unloaded at the named terminal.
Apart from expanding the place of delivery there is no other change to the term. If you were previously selling on DAT terms then you simply need to change to DPU terms and nominate the ‘place.’
Clarification of costs:
The rule of thumb is that the seller is responsible for costs incurred up to the point of delivery, and the buyer is responsible for costs beyond that.
Incoterms 2020 now takes into account that there may be costs incurred for additional security measures that are undertaken during transport – e.g. screening of cargo / containers. This is now mentioned under each incoterm.
FOB v FCA:
There can also be an issue for sellers when using the FOB term for containerised shipments. Often a seller loses control of the container when the container arrives at the port of departure. However, even though the seller has lost control, they still bear a risk and are liable until the container is loaded on board the vessel.
This can lead to additional costs for the seller e.g. port storage costs. To protect themselves a seller should use the FCA term but this can cause issues if a shipped on-board Bill of Lading is required (e.g. for a Letter of Credit.)
The FCA term under Incoterms® 2020 has been amended slightly to allow for an agreement for the buyer to instruct the carrier to issue the onboard bill of lading to the seller.
For more information please click on the PDF below or visit our useful information pages.
If you do have any questions or concerns regarding what charges you are responsible for, please get in touch with our friendly team who will be more than happy to help.