Reed Smith Client Alerts

The wait for the new Incoterms 2020 is finally over. The International Chamber of Commerce (ICC) has now published the latest revision of Incoterms, which comes into force on 1 January 2020.

This ninth revision of Incoterms is changed in style and substance. The revisions improve certain aspects of Incoterms 2010 and address issues which were not prevalent in 2010.  The introduction to Incoterms 2020 includes a detailed explanation of how to choose the most appropriate Incoterms rule for a sale contract.

This client alert, the first in a series, looks at what you need to know about Incoterms 2020, in particular, the changes from Incoterms 2010 and what you should consider doing next. We will follow this alert shortly with a more detailed review of the most important changes.

The basics

What are Incoterms?

Incoterms are a collection of internationally recognised standardised trade terms published by the ICC and widely used in domestic and international sales. 

What do Incoterms cover?

Incoterms cover various practical elements of a sale contract such as the primary obligations of the seller and the buyer; the responsibilities of each; time of delivery and the transfer of risk. They also deal with insurance, export and import clearance and the division of other costs pertaining to the delivery of goods. 

While a full set of terms are provided under each Incoterms rule, the parties to a sale contract do not have to adopt those terms in their entirety. Parties may incorporate specific provisions from the relevant Incoterms, although care is needed to avoid uncertainty.   

What do Incoterms not cover?

Incoterms do not constitute a complete contract of sale. A number of important (and in some cases fundamental) issues are intentionally left out of Incoterms and should therefore be set out in the sale contract. These include transfer of title to the goods; pricing of the goods; detailed payment obligations and terms; vessel requirements; force majeure; termination; insolvency; compliance and trade restrictions; and applicable law and jurisdiction. 

How are they used?

Incoterms are incorporated into contracts by express reference whether in special contract terms (for example, "DAP one safe berth Rotterdam, per Incoterms latest edition") or in standard contract terms (for example, BP Oil GTCs – “‘CFR’ and ‘CIF’ shall each have the meaning ascribed thereto in Incoterms”). Parties must expressly refer to Incoterms if they want them to apply to their contract, because they do not have any independent force of law.  Having said that, Incoterms may, in appropriate circumstances, offer guidance as to accepted meanings of trade terms, such as FOB, CIF or CFR, even where Incoterms are not expressly incorporated.