Published since 1936, the International Chamber of Commerce (ICC) has published

a set of three-letter trading terms for the use in sale and purchase

contracts. These ‘Incoterms' deal withthe obligations of the buyer

and seller and consists of 11 three- letter trading terms grouped as follows:

C rules: governs

where the seller arranges and pays for carried to a named place and indicates

the destination of the goods;

D rules: governs

where the seller arranges and pays for carriage to a named place, and indicates

the destination of the goods and place of delivery;

F rules: governs

where the buyer pays for and usually arranges carriage;

EXW (ex-works):

governs where the seller delivers to the buyer from the seller's premises.

In the D, E and F rules, deal with the passing of risk between parties

and at a named place, and such rules deals which include but not limited to delivery

of goods, transfer of risks, arranging and paying for carriage, insurance

obligations, procuring of transport documents, proof of delivery, arranging

export/import clearance, goods checking operations and giving of notices.

Recent changes made to Incoterms 2020 provides an update to 2010

edition and primarily clarifies several sections making it easier to

understand, and providing less room for error, and the main changes are:

1. FCA, FOB, and Bills of lading

There is a chance for the FCA (free carrier) term. The 2020 FCA Incoterm now contains an option

under which the buyer agrees to instruct the carrier to issue the bill of

lading to the seller. In the past, the

seller usually delivers the goods to the buyer before they are loaded onto a

ship and may not necessarily receive a bill of lading from the carrier, so the

new Incoterms 2020 makes it clearer for both parties involved.

In the past, the seller of a containerized shipment

under Freight

on Board (FOB) terms lost control of the goods on their arrival at the export

container port but remained liable until the container was loaded onto the

ship. So previous provisions exposed the

seller to potential cost and risk, whilst Incoterms 2020 provides more

certainty and comfort for the parties.

2, Insurance clarified in CIP/CIF

Under Incoterms

2020, a CIP (carriage and insurance paid to) seller must purchase insurance on

Institute Cargo Clauses (A), which is an "all risks" policy with some

exclusions, which broadens the scope of insurance than under Incoterms 2010

which would have been covering provided for a limited number of risks.

Both CIF (Cost Insurance Freight) and CIP (Carriage and Insurance Paid

to) require the seller to provide a basic level of insurance for the buyers

equivalent to Clause C (Institute of Cargo Clauses).

The Incoterms 2020 sought to clarify the distinction between these two

terms which usually applies to different classes of goods which call for

different levels of insurance coverage.

3. Renaming

of DAT to DPU

DAT (Delivered at Terminal) will be replaced by Delivered at Place

Unloaded (DPU) and is seen as simply a change of name with obligations and

functions of both terms being almost the same.

The ICC states this change was made primarily to eliminate confusion

between DAT and Delivered at Place (DAP) in terms of where and how delivery

takes place.

DPU is now the only Incoterm in which the goods are delivered unloaded

at the place of destination. Costs such

as import customs clearance and other costs, however, remain the buyer's

responsibility.

4. Customs clearance

Under Incoterms 2020 wording is more precisely

explained which party, seller or buyer is responsible for carrying out customs

formalities and clearance. Furthermore,

the release of goods in transit is included for the first time and liability is

assigned to whoever assumes the risk of transport to the place to delivery. For example, in the past the terms EXW, FCA,

FAS, FOB, CPT, CFR, and CIP where the risk of transport is transferred at the origin

and usually the country of the seller, the liability in customs transit

clearance is assumed by the buyer; whilst in contrast in Incoterms DAP, DPU and

DDP the risk is passed on at the destination, the seller bears the liability. Such

change could have a significant impact on sales where goods must pass through

customs prior to arriving at the customs of the importing country.

5. Security in relation to transport is now clearly

detailed

Under Incoterms 2020, liability is addressed more

specifically under two instances: in relation to transport from the country of

origin to that of the destination and customs clearance formalities and

procedures.

Liability is assumed by the party who executes the

goods contract, i.e. for sellers (CPT, CFR, CIP, CIF, DAP, DPU, and DDP) or

buyer (EXW, FCA, FAS and FOB). In

relation to customs clearances, the safety liability lies with the party which

must undertake such clearance. In

summary, The ICC has expanded security-related requirements in Incoterms 2020

with provisions to allocate responsibility for these between seller and buyer.

Other additional changes to incoterms include:

6. Simpler language and less legal content

7. More detailed content providing greater clarity to the text;

8. Further clarity on the breakdown of cost allocation

9. Relationship between incoterms and

international commercial contracts

10. Comparison to obligations between

the 11 Incoterms.

In summary, the new Incoterms2020 aims to provide greater clarity for

the parties, on costs,insurance and greater efficiency for international

trade.

Author: Helen Tung, Senior Associate