The Incoterms rule . Legal Challenges

In September 2019, the International Chamber of Commerce published Incoterms 2020, the latest edition of the Incoterms rules. First published in 1936 and incorporated by reference into sale and purchase contracts the world over, the Incoterms rules are industry-standard terms governing the delivery of goods in both domestic and international trade transactions. This note discusses some of the key differences between Incoterms 2020 and the previous iteration of the rulesIncoterms 2010.

The Incoterms rules are made legally binding by incorporation into a contract of sale, and the rules make it clear that best practice is always to refer to a specific edition of the rules. Following this principle, where a contract refers to a previous edition of the rules, such as Incoterms 2010, or even Incoterms 1990, the old rules will apply.

However, where a contract does not select a specific edition of Incoterms, but, for example, refers to the Incoterms rules in force "from time to time", the contract will incorporate the rules in force at the date the contract is made. Where contracts use that formula, as Incoterms 2020 come into force on 1 January 2020:

  • for contracts entered into before that date, Incoterms 2010 will apply – even if performance of the contract will not take place until after 1 January 2020; and
  • Incoterms 2020 will only govern such contracts entered into after the new year.

What are the key differences between Incoterms 2010 and Incoterms 2020?

One of the main aims of Incoterms 2020 is to make the rules more user-friendly. With this in mind, the articles have been re-ordered and obligations re-grouped to make the rules more easily navigable and transparent. An example of this is the inclusion within each rule of a new article entitled "Allocation of Costs", which lists all cost items in one place for ease of reference. Additionally, more detailed explanatory notes are designed to aid users in choosing the most appropriate Incoterms rule for their transaction, and to avoid disputes.

Where the parties have chosen FCA (Free Carrier) delivery, the seller delivers the goods to the buyer before the goods are loaded on board a ship. Under Incoterms 2010, this meant that the seller was unable to give the buyer an on-board bill of lading at delivery. Incoterms 2020 now allow the buyer to instruct the carrier to issue an on-board bill of lading to the seller following loading of the goods, which can then be tendered to the buyer. This change is designed to reflect the realities of financed transactions where a bank might require evidence that the goods have been loaded prior to the release of funds under a letter of credit.

Renaming of "DAT" to "DPU"

The term DAT (Delivery at Terminal) has been renamed DPU (Delivered at Place Unloaded). This is because delivery may not always occur at a terminal. In addition, the DUP rule has been placed after the DAP rule, to reflect that delivery under DAP would occur prior to delivery under DPU.

Incoterms 2020 now provide for different levels of insurance cover depending on whether CIF (Cost Insurance and Freight) or CIP (Carriage & Insurance Paid To) delivery is chosen. Previously both rules required insurance to comply "at least with the minimum cover as provided by Clauses (C) of the Institute Cargo Clauses (Lloyd's Market Association/International Underwriting Association "LMA/IUA") or any similar clauses". Now, the more stringent "all risks" requirements of the Institute Cargo Clauses (A) will apply to CIP deliveries.

Carriage by own means of transport

Previous iterations of the rules assumed that goods would be transported from the seller to the buyer by a third party carrier and not by the seller or the buyer themselves. Incoterms 2020 now provide for the possibility that the seller or buyer (depending on which Incoterm rule is chosen) may use their own means of transportation.

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