Incoterms® 2020: What changes do you need to know?

Incoterms® are used worldwide to define the responsibilities of buyers and sellers under contracts for the sale of goods. They are not a contract for sale in their own right; the terms are incorporated into contracts and used to determine how costs and risks are allocated between the parties. They describe:

1. Obligations: what are the buyer and seller responsible for?
2. Risk: when does risk for the goods transfer from seller to buyer?
3. Costs: who is responsible for what costs?

The best way to incorporate the Incoterms® 2020 is through adding the following wording into your contract:

“[the chosen Incoterms® rule] [named port/ place of point] Incoterms® 2020 apply.”

It is important to include the year to make it clear what set of Incoterms® you are referring to, but you do not need to include the trademark symbol within the sale contract.

The main changes introduced by the Incoterms® 2020 are to how each term is presented and introduced. The introduction states that the aim is to provide the user with a clear explanation of what each term is and the allocation of risk. The main substantive changes included in the Incoterms® 2020 are:

1. The addition of the option to include Bills of lading with an on-board notation;
2. Changes into where the costs are listed (always now at A9);
3. Different levels of insurance cover in CIF and CIP;
4. Option for seller or buyer to use own transport for arranging for carriage in FCA, DAP, DPU and DDP;
5. Security-related requirements within carriage obligations and accounting for the costs associated with these; and
6. More detailed “Explanatory Notes for Users” replace the “Guidance Notes”.

The release of the new rules provides an opportunity to assess if you are using the most suitable set of Incoterms® for your business. To find out more about choosing the right terms and detail about how each article in the eleven Incoterms® has changed, contact Hinal Patel or your usual Simmons & Simmons contact.