• 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