New Incoterms 2020 explained for importers and exporters

New Incoterms 2020 explained for importers and exporters

The standard terminology used to describe international contracts of sale, Incoterms, has been updated. The new Incoterms 2020 came into effect on 1 January 2020 and impacts everyone involved in buying and selling goods internationally.

They clearly set out the respective obligations of the buyer and seller and delineate responsibilities during the transport process. Importantly, they clarify who is responsible, or at risk, for the goods during the process. AlphaXO Risk Partners, Australia, New Zealand and the Pacific’s foremost specialist insurance broking and risk consulting company, explains the new rules:

Under Incoterms CIF (Cost Insurance & Freight) and CIP (Carriage & Insurance Paid To), the seller buys cargo insurance for the benefit of the buyer. The minimum level of cover required to be taken out by the seller under CIP has now increased to all risks cover as per the Institute Cargo Clauses (A). Under CIF, the minimum level of cover remains at Institute Cargo Clauses (C) which provide more limited cover subject to named perils.

The Incoterms FCA (Free Carrier), DAP (Delivered at Place), DPU (Delivered at Place Unloaded) and DDP (Delivered Duty Paid) now take into account that the cargo may be carried by the buyer’s own means of transport in the FCA rules and by the seller’s own means of transport in the D rules. The 2010 rules assumed that transport would be arranged through a third-party transport operator.

FCA and Onboard Bills of Lading
The Incoterms FCA (Free Carrier) has been amended to allow the parties to agree for the buyer to direct the Carrier to issue onboard bills of lading to the seller (at the buyer’s cost and risk). Normally, this document would not be issued to sellers in FCA deals as the terms only obligate the seller up to the point that the goods are delivered to places generally within the seller’s county (prior to loading). This addresses letter of credit requirements on the part of the bank for onboard bills of lading to be issued.

The costs now appear centralised in sections A9/B9 of each Incoterms rule and provide greater clarity on responsibility.

The Incoterms DAT (Delivered at Terminal) has been changed to DPU (Delivered at Place Unloaded) to clarify that delivery is effected once the cargo has been discharged from the vessel and made available to the buyer at a specified place (which could be any place and not just a “terminal”). The reference to “terminal” in DAT had caused some confusion.

Transport security requirements have become more onerous and Incoterms 2020 now shift responsibility for such requirements and ancillary costs to the seller.

AlphaXO Director, Rob Hammersley, stated, “Anyone involved in importing or exporting goods should be aware of these changes to Incoterms. It is always important to have clarity with contracts, so they are fully understood to avoid any costly misunderstandings.”

Anyone with questions is welcomed to contact AlphaXO’s experienced team on +61 (0)2 8236 8600 or via the website.