Incoterms 2020: A mix of cosmetic and substantive changes

The main differences between the International Chambers of Commerce Incoterms published last month and those stipulated in the previous edition relate to levels of insurance cover that sellers must obtain, as an expert at Norton Rose Fulbright explains

The International Chambers of Commerce (ICC) released the new Incoterms – referred to as Incoterms 2020 – on September 10. Although many changes will not substantially affect traders, there have been significant alterations to insurance provisions.

The cosmetic changes to the new Incoterms include moving the explanatory notes to the beginning of the Incoterms, all the sub-rules being more conveniently aligned and the guide being generally far more user friendly.

Importantly, all 11 Incoterms of the previous edition – Incoterms 2010 – have remained. The only difference is the change in the three-letter initials for Delivered at Terminal (DAT) to Delivered at Place Unloaded (DPU).

In summary, there are four “wet” Incoterms for use if the mode of transport is not multi-modal and involves only transport by sea. The “wet” incoterms are: Free alongside Ship (FAS); Free on Board (FOB); Cost and Freight (CFR); and Cost Insurance and Freight (CIF).

There are seven multi-modal Incoterms: Ex Works (EXW0); Free Carrier (FCA); Carriage Paid To (CPT); Carriage and Insurance Paid (CIP); Delivered at Place (DAP); Delivered at Place Unloaded (DPU); Delivered Duty Paid (DDP). The multi-modal Incoterms deal with the transportation of goods across different modes of transport – rail, air or sea.

While FOCUS readers are strongly advised to obtain the Guide on Incoterms 2020 published by the ICC to familiarise themselves with all the nuances of the new edition, the main differences that we think will impact the local market are the different levels of insurance cover that the seller must obtain in CIP Incoterm.

Incoterms 2020 now permit the default position for minimum insurance cover to be Institute Cargo Clause (A) as opposed to Institute Cargo Clause (C). Institute Cargo Clauses (C) provides limited cover, whereas Institute Cargo Clauses (A) provides all risk, subject to itemised exclusions. Provision is, however, made for parties to agree on a lower level of insurance cover when using CIP Incoterm.

The insurance cover under the CIF Incoterm has remained unchanged and is Institute Cargo Clauses (C), although there is now an express provision in the Incoterm for the parties to agree that the seller can obtain a higher level of insurance cover, Institute Cargo Clause (A).

It is also noteworthy that Incoterms 2020 does not deal with the International Maritime Organisation (IMO) approved guidelines regarding the Verified Gross Mass (VGM) of a packed container carrying cargo. These guidelines are an amendment to the International Convention for the Safety of Life at Sea (SOLAS), which requires a packed container’s gross mass to be verified prior to storage aboard a ship, and are applicable to containers that are exported on sea-going vessels.

The ICC thought that the obligations relating to VGM were too specific and complex to be mentioned in Incoterms 2020.