New version of the Incoterms as of January 1, 2020

The Incoterms, the standardized delivery clauses of the International Chamber of Commerce (ICC), originally developed for the international sale of goods but now also used in the domestic sector, are regularly revised every 10 years. Therefore, from January 1, 2020, the Incoterms 2020 will apply. The basic idea remains to express by only three letters detailed regulations on delivery, the transfer of the (price) risk to the buyer, transportation, insurance obligations and the cost of this, as well as, in some cases, transport documents, export and import clearance, and inspection, packaging and labeling obligations. The catalogue of obligations for buyers and sellers for each of the eleven clauses available is generally defined by the ICC, from the most seller-friendly variant EXW (Ex Works) to the most buyer-friendly variant DDP (Delivered Duty Paid), whereby deviations by agreement between the parties are permitted.

Innovations

In the revision, the ICC has sought to make the clauses more practical. The clauses are explained in more detail and the cost consequences of each clause are regulated uniformly in one paragraph. In addition, the structure now follows the logical sequence of a transaction of goods. Furthermore, the content of the following clauses has been changed:

FCA - Free Carrier: This provision is supplemented by the option for the seller to require the "Bill of Lading" (consignment note) from the buyer's carrier upon delivery to a container terminal. With this, the seller can initiate the transfer of the purchase price at the bank in the case of a documentary letter of credit. However, this must be expressly agreed upon between the parties and does not automatically apply when the clause is used.

CIP - Carriage and Insurance Paid To and CIF - Cost Insurance and Freight (transportation by water only): As is known, the agreement of CIP means that the seller must insure the goods. Whereas previously only a minimum cover was provided, the new version of the clause provides for the choice of various insurance standards, e.g. according to the "Institute Cargo Clauses (A), (B) and (C)", where (A) is the maximum cover, (C) is the minimum cover and (B) is an intermediate approach. For CIF, the standard variant is still the minimum coverage, but for CIP, the maximum coverage.

DPU - Delivered at Place Unloaded: This clause was previously called "DAT - Delivered at Terminal". In the new edition, the term "terminal" is replaced by the more general "place unloaded" to emphasize that the transfer of risk takes place at every place where the goods are unloaded.

Furthermore, in the case of the clauses EXW - Ex Works, FCA - Free Carrier, FOB - Free On Board and FAS - Free Alongside Ship, it is no longer sufficient for the buyer to notify the desired packaging when the contract is concluded, but a respective agreement is now required.

However, many changes expected by experts, in particular the abolition of the EXW and DDP clauses, were not implemented. These clauses are often regarded as unenforceable in international trade as they impose all import and export requirements on one contracting party, which the latter, being only a resident in one of the participating countries, is in part unable to fulfill for legal reasons. Buyers should therefore always (at least) insist on FCA when importing.

Practical advice

The Incoterms 2020 change the previous regulations rather moderately. The changes are primarily intended to eliminate previous ambiguities and make the clauses more user-friendly. In order to avoid ambiguities, the contract should always mention the current version of the Incoterms in addition to the clause and place of delivery. This is possible by the addition "2020" or the reference to "the version of the Incoterms valid at the time of conclusion of the contract" (e.g. in general terms and conditions). The ICC proposes the following formula for the unequivocal inclusion of the Incoterms: "[clause chosen] [named port, place or body] Incoterms 2020".

However, it is more the selection of the right clause than the inclusion in the contract that causes difficulties. Not every clause is suitable for every transaction. The so-called "blue" clauses (FAS, FOB, CFR and CIF), for example, are only intended for transportation by water. An inappropriate clause can cause unexpected costs for one of the parties or make the execution of the contract completely impossible. Furthermore, the parties should be aware that the Incoterms cannot replace a sales contract, but can only supplement it. They contain, for example, neither regulations on the transfer of ownership of the goods from the seller to the buyer, nor on the specifications or the type and due date of the consideration.