The first Incoterms® rules were introduced when the world was very busy with political events, businesses were facing uncertainty with high tariffs, trade wars and autocratic leaders of countries pursuing their own agenda. That was 1936 and the business community needed some stability to trade, so the Incoterms ® Rules were created to establish commonly accepted definitions and rules related to the sale of goods between trading partners worldwide.
Incoterms ® 2020 Rules: A word on the changes
As you will know the International Chamber of Commerce (ICC) released Incoterms® 2020, the globally recognised trade terms for the sale of goods in October 2019. The first Incoterms® rules were introduced when the world was very busy with political events, businesses were facing uncertainty with high tariffs, trade wars and autocratic leaders of countries pursuing their own agenda. That was 1936 and the business community needed some stability to trade, so the Incoterms ® Rules were created to establish commonly accepted definitions and rules related to the sale of goods between trading partners worldwide.
Since they were first introduced, the Incoterms ® rules have been revised about once a decade to keep up with the rapid expansion of world trade and globalization: the 2020 set could not be at a more apostate time. Since the last revision in 2010, much has changed in global trade and, for UK/EU companies especially, uncertainty about future trading agreements means contract terms must be resilient and effective to minimise disruption to trade.
On the release of Incoterms® 2020, ICC Secretary General John W.H. Denton AO said:
“Incoterms® 2020 rules make business work for everyone by facilitating trillions of dollars in global trade annually because they help importers and exporters around the world to understand their responsibilities and avoid costly misunderstandings. The rules form the language of international sales transactions and help build confidence in our valuable global trading system.”
The new set of terms officially came into force until 1st January 2020 but only if they have been included in commercial contracts. Old Incoterms ® Rules never die, they only fade away as older contracts are revised, and new contracts include the newest set. The changes are subtle but no less important to understand. Traders could be lulled into thinking nothing’s changed especially after some dramatic speculation on social media and in articles published by people who claimed to “be in the know” that ExWorks and DDP were going, that new terms would be introduced and a brand new version of Incoterms ® Rules called Euroterms would be created just for UK-EU trade! On that latter point there is only one official set of International Commercial Terms published by the ICC and they must be globally focussed and sit outside of individual countries’ issues.
The new set is more accessible and easier to use, Incoterms® 2020 includes more detailed explanatory notes with enhanced graphics to illustrate the responsibilities of importers and exporters for each Incoterms® rule.
The introduction to Incoterms® 2020 also includes a more detailed explanation on how to choose the most appropriate term for a given transaction. The user-friendly Introduction provides users with a helpful overview and discussion of key issues in the use of the rules, including how the sale contract interacts with ancillary contracts, such as contracts of carriage or insurance. So, what is new?
- Incoterms® 2020 provides for demonstrated market needs in relation to bills of lading (BL) with an on-board notation in the Free Carrier (FCA) Incoterms® Rule
- Incoterms® 2020 may disappoint some parties as Free on Board (FOB) is still not appropriate for containerised freight and definitely not for air freight as the delivery after loading over a ship’s sail and visibility of cargo is crucial
- Incoterms® 2020 aligns different levels of insurance coverage in Cost Insurance and Freight (CIF) and Carriage and Insurance Paid To (CIP), making “all risk “cover mandatory for CIP contracts.
- There is a change in the three-letter name for Delivered at Terminal (DAT) to Delivered at Place Unloaded (DPU).
- Incoterms® 2020 includes arrangements for carriage by own means of transport in FCA, Delivery at Place (DAP), Delivery at Place Unloaded (DPU), and Delivered Duty Paid (DDP).
- Incoterms® 2020 includes security-related requirements within carriage obligations and costs as well
The relevance of Incoterms ® Rules must not be ignored by businesses as it secures a safe and understandable contract link between buyers and sellers. For too long the clear focus of the ICC in 1936 has not seemed relevant and companies have paid lip service to the inclusion of these terms in contracts. The new 2020 set gives an ideal opportunity for businesses to learn how to use them correctly to ensure they fully understand the responsibilities, options and opportunities good use of the rules brings. With this in mind, the ICC want to ensure that companies get the right standard of internationally-recognised advice on a more consistent basis across the UK. ICC-UK is now making it easier for companies to access its world-class, certified training, support and expertise by working with Strong & Herd LLP as one of only 2 licensed training partners in the UK.