On 10 September 2019, the International Chamber of Commerce (the “ICC“) released Incoterms 2020, the ninth version of the Incoterm Rules on domestic and international trade, which will enter into effect on 1 January 2020. This article highlights the main changes made by the ICC and aims to provide practical advice to sellers and buyers wishing to incorporate the new terms into their sale and purchase agreements.
Incoterms 2020’s purpose remains to facilitate the conduct of global trade by providing a standard set of terms that clearly define the obligations of the seller and the buyer. The ICC’s stated aim is to increase the parties’ understanding of their respective positions thereby reducing the potential for disputes, whilst accommodating current industry concerns.
As with previous versions, Incoterms 2020 cover:
(i) the parties’ obligations to arrange for the carriage and insurance of the goods;
(ii) the point at which goods are “delivered”, and the point at which risk in the goods for loss or damage is transferred from seller to buyer; and
(iii) the various costs associated with the transportation of the goods.
They do not address other key commercial considerations, which are left for the parties to address in the sale contract.
(i) transfer of title over the goods;
(ii) contractual payment terms (distinct from costs associated with transportation of the goods);
(iii) consequences for breach of performance;
(v) governing law and jurisdiction;
(vi) dispute resolution; and
(vii) regulatory obligations.
Incoterms 2020 per se are not legally binding, unless they are incorporated into an agreement by express reference to the specific Incoterm.
The ICC suggests the following template for incorporation:
“[the chosen Incoterms rule] [named port, place or point] Incoterms® 2020”
e.g. CIF London Incoterms® 2020; DAP 1 Lime Street, City of Delivery, Country of Delivery Incoterms® 2020
When adopting the above formulation, parties should note the following:
(i) It is not necessary to use the trademark symbol but it is essential to state the version of Incoterms used, otherwise a dispute could arise as to the correct version and lead to a different outcome to that intended.
(ii) Parties must insert the correct “named port, place or point”, which may refer to the place of delivery, the place of destination or both, depending on the Incoterm chosen. To avoid confusion, the parties should always consult article A2 (“Delivery”) of the appropriate section of Incoterms 2020.
(iii) Incorporation of an Incoterm 2020 into a sale contract will not bind any third party, or govern any other contract; it is for the seller and / or the buyer alone to ensure that any contract of carriage, insurance contract or letter of credit entered into, corresponds with the Incoterm they have agreed.