Incoterms 2020 - Have you prepared for the changes? 

The new Incoterms rules will become effective on 1 January 2020. The rules were published in September so organisations involved in the international sale of goods have had plenty of time to prepare themselves for the changes.

However, if you are not familiar with the new rules and have not prepared for the changes, here is what you need to know.

Key changes  

1.    DAT Incoterm changed to DPU 

Delivery at Terminal (DAT) is changed to Delivery at Place Unloaded (DPU) to reflect that the delivery of goods can take place at locations other than terminals.

2.    Change of insurance coverage in CIP

Insurance for Carriage and Insurance Paid To (CIP) shipped goods are now required to comply with Clause A (Institute of Cargo clauses). The increased premium is attributed to the common use of CIP for shipping expensive manufactured goods. 

The insurance requirements for Cost Insurance and Freight (CIF) remain at Clause C (Institute of Cargo clauses), which reflect the common use of CIF to ship bulk, commodity goods.

3.    Costs are now clarified

All costs relating to the sale are listed at A9 and B9 under each of the Incoterms. The intention here is to provide the seller and the buyer with a complete list of costs in one place. Broadly, the seller is responsible for all costs up to the point of delivery, and the buyer will be responsible for all costs after the point of delivery.

4.    FCA, FOB and bills of lading

Under Incoterms 2010, the seller was limited to using FOB for shipped goods to ensure an on-board bill of lading was secured. This would expose the seller to the risks between the time of delivery of the shipment to the port (when the seller would lose control of the goods) and loading of the shipment (when the seller would lose responsibility of the goods).

Incoterms 2020 will introduce an option for the buyer and the seller to agree that the buyer will instruct its carrier to issue an on-board bill of lading to the seller for FCA shipped goods.     

5.    Use of buyer/seller’s own transport

The position of the buyer and seller using their own modes of transport is clarified under the new rules. For example, under Free Carrier (FCA) the buyer is stated to be responsible for contracting and arranging the transport as well as the associated costs from the point of delivery.

6.    Security in relation to transport

Incoterms 2020 expressly provides for security-related obligations (see A4 and A7 of each rule) and allocates responsibility and costs in an effort to reduce the risk of delays that could result if these obligations were not fulfilled.  

Next Steps

The introduction of the new rules is an opportunity for organisations to review the Incoterm they use and consider if it is still suitable for their business. Once the correct Incoterm has been identified, check if it has been impacted by the new rules and if your commercial contracts need to be updated. At the very least, contracts should be updated to make reference to Incoterms 2020.