After the introduction of the last version of the Incoterms® 2010 the International Chamber of Commerce (ICC) announced to introduce a new version of the terms, referred to as the Incoterms® 2020. A new version of the Incoterms® is being drafted by a committee of representatives from different countries. The new Incoterms® are expected to be published in the last quarter of 2019, simultaneously with the centenary of the ICC, and will be operative officially as from the 1st January 2020.
The International Commercial Terms, or Incoterms®, are standard delivery terms that regulate the mutual obligations mainly amongst others in relation to the costs and place of delivery, export and import custom formalities, carriage, the distribution of the risks and insurance of the seller and buyer in the context of (international) sales agreements. The Incoterms®, according to the ICC having been drafted since 1923, and are used to make globally recognized agreements about the issues referred to. Parties can have the Incoterms® apply to their contractual relationship by simply referring to (one of) the Incoterms® and by doing so introduce and incorporate in their sales agreement a complete set of contractual terms which are subject to a worldwide common use and interpretation.
The current Incoterms® for any mode of transport are:
EXW (Ex Works). “Ex Works” means that the seller delivers when it places the goods at the disposal of the buyer at the seller’s premises or at another named place (i.e.,works, factory, warehouse, etc.). The seller does not need to load the goods on any collecting vehicle, nor does it need to clear the goods for export, where such clearance is applicable.
FCA (Free Carrier Alongside). “Free Carrier Alongside” means that the seller delivers the goods to the carrier or another person nominated by the buyer at the seller’s premises or another named place. The parties are well advised to specify as clearly as possible the point within the named place of delivery, as the risk passes to the buyer at that point.
CPT (Carriage Paid To). “Carriage Paid To” means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such place is agreed between parties) and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination.
CIP (Carriage And Insurance Paid To). “Carriage and Insurance Paid to” means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such place is agreed between parties) and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination. The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage, although the obligation of the seller extends to a minimum insurance cover only.
DAT (Delivered At Terminal). “Delivered at Terminal” means that the seller delivers when the goods, once unloaded from the arriving means of transport, are placed at the disposal of the buyer at a named terminal at the named port or place of destination. “Terminal” includes a place, whether covered or not, such as a quay, warehouse, container yard or road, rail or air cargo terminal. The seller bears all risks involved in bringing the goods to and unloading them at the terminal at the named port or place of destination.
DAP (Delivered At Place). “Delivered at Place” means that the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. The seller bears all risks involved in bringing the goods to the named place.
DDP (Delivered Duty Paid). “Delivered Duty Paid” means that the seller delivers the goods when the goods are placed at the disposal of the buyer, cleared for import on the arriving means of transport ready for unloading at the named place of destination. The seller bears all the costs and risks involved in bringing the goods to the place of destination and has an obligation to clear the goods not only for export but also for import, to pay any duty for both export and import and to carry out all customs formalities.
Current terms specifically to be used in relation to sea and inland waterway transport
FAS (Free Alongside Ship). “Free Alongside Ship” means that the seller delivers when the goods are placed alongside the vessel (e.g., on a quay or a barge) nominated by the buyer at the named port of shipment. The risk of loss of or damage to the goods passes when the goods are alongside the ship, and the buyer bears all costs from that moment onwards.
FOB (Free On Board). “Free On Board” means that the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel, and the buyer bears all costs from that moment onwards.
CFR (Cost and Freight).“Cost and Freight” means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel. the seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.
CIF (Cost Insurance and Freight). “Cost, Insurance and Freight” means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination. The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage.
The amendments being circulated and considered by the drafting committee are the following:
Removal of Incoterm FAS.
This Incoterm is used very little and does not have any additional value compared to the term FCA. FAS is only used for the exportation of some commodities (minerals and cereals) and, it is considered to create a specific Incoterm for this type of products.
Expanding the Incoterm FCA:
The proposal is to split FCA in two Incoterms®, one for terrestrial delivery and another for maritime delivery.
Changes to the FOB and CIF Incoterms®.
The modification made in the edition of Incoterms® 2010 provided that when the merchandise was carried in a container, the Incoterms® FOB and CIF should not be used. Instead the counterpart Incoterms® FCA and CIP had to be used. These new terms were not applied by a vast majority of the parties involved in international trade. This is likely due to the fact that FOB and CIF are two Incoterms® with a very long history and a persistent use over time. In the Incoterms® 2020 version, it is possible that FOB and CIF can be used again for container shipping, as was the case with Incoterms® 2000 and earlier versions.
Moreover, changes are believed to take place for the FOB, CIP and CIF terms in respect of the responsibility for Insurance between the Buyer and the Seller, recommended penalties for the manipulation of the sellers under CIF terms, critical investigation of hidden supplier profit and the addition of Destination Handling Charges (DTHC) in the CIF shipment quotations.
Creation of a new Incoterm CNI.
The introduction of the Incoterm CNI (Cost and Insurance) should help to resolve controversies and disputes surrounding duty payment as well as bridge the gap between FCA and CFR. This CNI will enable the seller/exporter to take responsibility for the international insurance coverage, and the buyer will have to bear the risk of transportation.
Changes to the Incoterm Ex Works.
The Incoterm Ex Works should be removed from the set of Incoterms® completely. This is because there are many aspects that are confusing. The removal advocates and reinforces it’s use and applicability to the domestic trade market, however, refuse to give Ex Works a place in the international one.
Two Incoterms® based in DDP.
The ICC drafting committee is considering creating two Incoterms® based on DDP: DTP (Delivered at Terminal Paid) when the goods are delivered to a terminal (or any other logistic centre such as a port or airport) in the country of the buyer, and the seller assumes the payment of customs duties, alternatively DPP (Delivered at Place Paid), when the goods are delivered at any place other than a transport terminal (for example, at the buyer’s address), and the seller assumes the payment of the customs duties.
In addition to the elimination and creation of some Incoterms® other issues are being considered to be included in the new version of the Incoterms® 2020. Among these are threats existing in relation to cyber-security, including the deletion, corruption or theft of digital information, as well as issues concerning transportation security and regulations on transportation insurance.
