New Incoterms Include Changes to Place of Delivery, Insurance Requirements, More
The new 2020 incoterms include several significant changes that companies should update in their standard contracts, according to a Sept. 10 post from law firm Gowling WLG. The changes include revisions to incoterms related to deliveries of goods, commodity insurance, a clarification of costs between the buyer and seller, cargo transport security and more.
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The new version of the incoterms changed the “Delivered at Terminal” incoterm to “Delivery at Place Unloaded,” which broadens the scope to allow for deliveries at places other than terminals, the post said, such as a factory site. The revisions made the incoterm more “general” and did not make any “change in substance,” the post said.
The new incoterms also keep the same insurance requirements for “Carriage Insurance and Freight” but increase certain insurance requirements for “Carriage and Insurance Paid to." These changes stem from the fact that “CIF is more often used with bulk commodity trades and CIP (as a multimodal term) is more often used for manufactured goods,” the post said.
Changes also include an improved clarity on how costs are allocated between the buyer and seller, the post said. The new incoterms gathered “all of the cost obligations” in response to feedback “that there were increasing disputes about the allocation of costs, especially those in or around the port or place of delivery,” the post said. The "broad principle" is that the seller is responsible for costs up to the point of delivery, and the buyer is responsible for all costs after.
The new incoterms also make transport security requirements and obligations “more prominent” with each term, the post said, as the requirements have grown “more prevalent.” If not fulfilled, the requirements can bring increased costs and a higher risk of delays to shipments, according to the post.
The 2010 incoterms assumed that all shipments would be carried out by third parties and were not provided by either the buyer or the seller. The 2020 incoterms fix this assumption, the post said, and include wording in the “Free Carrier” incoterm that specifies the buyer “is required to ‘contract or arrange at its own cost for the carriage of the goods from the named place of delivery,’” the post said.
The incoterms also made a revision to allow parties in a transaction “to agree for the buyer to direct the carrier to issue the onboard bill of lading to the seller,” the post said. This addresses a complaint from sellers that they were placed with too much risk when using the “Free on Board” incoterm, which forces a seller to be liable for a container until it is loaded onto a ship, even though the seller loses control of the container after arrival at the port. Because of this, sellers often “received surprise invoices from port terminal operators for the cost of storage and loading,” the post said.
The new incoterms also made substantial changes to the presentation by including “explanatory notes and pictures” and a “reordering” of the incoterms to make the delivery obligation more prominent. The revisions also include a tool at the back of the book that can be used to quickly compare elements of incoterms, such as the delivery point, the post said.
This tool is also available online and will allow “buyers and sellers to more easily determine which Incoterms 2020 rule best suits their specific transaction,” according to an alert from C.H. Robinson.