Incoterms – Two Years Later – International Law

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In September 2019, the International Chamber of Commerce released Incoterms 2020, heralded as the groundbreaking version of Incoterms that would bring big changes to the supply chain community. Two years later we look back on the changes that have occurred and their effects on us.

First, what changes were made eventually? Let’s take a look at the main ones:

FCA – The buyer and the seller can agree that the buyer instructs his freight forwarder to issue an on-board bill of lading to the seller after the goods have been loaded, who is then obliged to hand this bill of lading to the buyer, typically through the banks.

Since that’s a little tight, let’s break it down. Basically, when the buyer uses a letter of credit to purchase something from the seller, the seller must file the on-board bill of lading with the bank to receive payment. However, since the buyer’s truck is sent to pick up the goods, the seller does not always receive a copy of the bill of lading. Using the Incoterms 2020, the buyer instructs his freight forwarder to hand over the on-board bill of lading to the seller so that he can submit it to the bank and pay for it.

The problem with that? The language is not very strong. Since the change is simply that the buyer will “instruct” their carrier to give the seller the bill of lading, what if the carrier doesn’t? Nothing. This change was good in theory, but I could see that stronger language will be used in future versions of the Incoterms to accommodate this.

CIP – CIP is one of only two Incoterms that require the seller to take out insurance. Switching to CIP includes the required insurance level. The seller must now take out insurance cover according to Institute Cargo Clause A instead of C. This is basically a “stronger” insurance. Institute Cargo Clause C covers very limited risks, while Institute Cargo Clause A covers maximum risks and is also known as All Risks cargo insurance.

WHICH – DAT is gone now, thank goodness. It was very confusing because it stood for “Delivered at Terminal” and a “Terminal” can have so many locations. As a result, DAT has been widely abused and misunderstood. In its place we have a new Incoterm – DPU. DPU stands for Delivered at Place Unloaded and is the only Incoterm that requires the seller to unload at the buyer’s destination. Although this Incoterm is not widely used, it has proven useful for things like very dangerous shipments of chemicals and the like that the seller wants full control over until unloading, and shipments of items that are not containerized in bulk Sensitive devices can be palletized.

While the above changes are not all of the changes made to Incoterms 2020, they are arguably the most important. I think it’s important to mention here that it’s fine if your company has not yet adopted Incoterms 2020 and is still using an older version. As long as you state which version you are using on your shipping documents, you are good to go. Feel free to switch as soon as your contracts expire or your company is ready. The Incoterms have changed every 10 years since 1980, so the next change shouldn’t be made for several years.

Overall, the changes to the Incoterms may not have been major, but they have proven to be helpful. If your company still needs help understanding the Incoterms, please contact me at Bonnie@brraumillerconsulting.com I am Incoterms 2020 Certified by the ICC and will be happy to help!

The content of this article is intended to provide general guidance on the subject. Expert advice should be sought regarding your specific circumstances.

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