Upcoming Changes on International Commerce with Incoterms® 2020 Rules
Incoterms® are the rules established by the International Chamber of Commerce (“ICC”), which determine the delivery methods, responsibilities and distribution of costs between parties in the delivery process of goods in international trade. Determining the rights and obligations of the importer and exporter by including a reference to Incoterms® rules in an Agreement decreases and even eliminates the risk of conflict between the parties. Therefore, referring to these rules in international Agreements will be for the benefit of traders and in this sense choosing the most appropriate rule for their commercial business becomes more crucial. Recently, Incoterms® 2010 rules were being used in the Agreements relating to the international delivery of all kinds of goods and / or products whereby the rules have been updated by ICC entering into force as of 1 January 2020 and the Incoterms® 2020 rules have been established.
Incoterms® 2020 rules have brought many changes that can be considered more economical and practical and delivery methods have been regulated in a more clear and simple manner. Incoterms® 2020 introduces new terms and removes and modifies existing terms and a brief summary of the changes introduced by Incoterms® 2020 rules are as follows;
- Assessment of EXW (Ex Works-Delivery at Place) and DDP (Delivered Duty Paid):
Except for the EXW and DDP delivery methods set out in Incoterms® 2020, the seller is responsible for the export procedures while the buyer is responsible for the import procedures. Companies that prefer the EXW and DDP rules face with difficulties in carrying out customs procedures, such as:
- In accordance with EXW rules, the buyer is responsible for both import and export procedures. However, if the buyer is not an established company, especially in the export country, it may face difficulties in carrying out export transactions. Therefore, in the “Explanatory Notes” section of Incoterms® 2020 for EXW, it is emphasized that FCA (Free Carrier) is more appropriate if the buyer wishes to perform export.
- In accordance with DDP rules, the seller is obliged to perform both export and import transactions. Especially if the seller is not an established company in the importing country, it may face various difficulties. With the Incoterms® 2020 rules, it is stated that it will be in the benefit of the contracting parties to choose the DAP (Delivered at Place) delivery method in order to prevent the seller from carrying out the import procedures and ensure that the place of delivery is the same place of destination.
- Additional options for issuing a bill of lading with an on board notation while applying the FCA rule:
In the method of delivery with FCA rule, the seller completes the delivery procedures at the time he completes the customs procedures and transfers goods to the supervision of the first carrier at the designated date and place. From this moment all costs and risks related to the goods pass to the buyer. Incoterms® 2020 offers an additional option with the new regulation; if the parties have agreed, the buyer has the right to request a bill of lading, which includes a transport document stating that the goods have been loaded to the seller. By making such a request, the seller may receive a bill of lading with a loading record i.e. a bill of lading with an on board notation from the carrier before the goods are loaded onto the ship. As a matter of fact, this could become a problem, if banks requested a bill of lading with an on board notation, as the seller's obligation to deliver was completed before the goods were loaded to the ship in the form of delivery under which FCA rule was applied. However, Incoterms® 2020 rules are intended to address this problem and, if an agreement is made between the buyer and the seller to submit a bill of lading containing the loading date to the seller, the seller will have to send the bill of lading with an on board notation to the buyer.
- Insurance coverage at different levels in CIF (Cost, Insurance and Freight) and CIP (Carriage and Insurance Paid to) delivery methods:
In accordance with Incoterms® 2010 rules, CIF and CIP delivery rules had a standard minimum guarantee. With the revisions made in Incoterms® 2020, the insurance coverage limit provided by CIP delivery method has been increased to the so-called “all risks” and different minimum insurance guarantees has become applicable for CIF and CIP delivery methods unless otherwise agreed by the parties. In accordance with Incoterms® 2020 rules, the parties are free to decide a higher or lower collateral limit for both delivery methods.
- Arrangements for FCA, DAP, DPU (Delivered at Place Unloaded) and DDP delivery modes to ensure transport by the seller or the buyer's own means of transport:
With the introduction of Incoterms® 2020 rules, the regulation in Incoterms® 2010 that the requirement for the transportation to be carried out by a third party in case the goods pass from the seller to the buyer has been revised and the possibility that the buyer or seller can carry out the transportation with their own vehicles has been enabled.
- Changing the abbreviation DAT (Delivered at Terminal) to DPU:
While DAT delivery method means Delivery at Terminal, this abbreviation has been changed by Incoterms® 2020 to DPU, as Delivery at Place Unloaded at the specified location. In Incoterms® 2010 rules, since the abbreviation DAT means that delivery can only be made at the terminal, the term has been modified in Incoterms® 2020 to emphasize that delivery can be made anywhere and the term of “terminal” is omitted from the abbreviation. According to Incoterms® 2020, if the place of delivery of the goods is not a terminal, the seller must ensure that the place where he intends to deliver the goods is suitable for unloading of the goods.
- Including safety requirements in transport obligations and costs:
Safety requirements are discussed in more detail in Incoterms® 2020 and in accordance with each clause, provisions regulating the customs procedures required for transportation and export / import are included within the provisions for the sharing of these obligations between the parties.
- A clearer listing of costs:
One of the innovations introduced by Incoterms® 2020 is that all costs related to delivery methods are listed under a single costs list as “Allocation of Costs”.
Incoterms® 2020 rules will be applied as of January 1, 2020, and it has been developed by examining and updating the Incoterms® rules which are currently applied throughout the business life and has been designed to respond to the needs of traders taking into account the current trade conditions and developments.
Aslı Kınsız, Associate
Dilara Kaymaz, Associate