Summary
On September 10, 2019, the International Chamber of Commerce (ICC) published the new Incoterms® 2020 worldwide, which will apply from January 1, 2020. The Incoterms® set global standards for delivery terms and are included in around 90% of all international sales contracts.
The Incoterms® 2020 are intended to help reduce misunderstandings and prevent legal disputes. They contain a wealth of structural and content-related changes. A better overview of the individual rights and obligations should also reduce misinterpretation. This article provides an overview of the changes and possible solutions for greater legal certainty.
Introduction
Foreign trade between exporters and importers can only function smoothly if exports and imports include standardized and generally recognized trade clauses in their terms of delivery and payment that regulate the transfer of risk, transport costs and transport risk. They must clarify whether the exporter or importer alone or both participate in this on a pro rata basis.
The Incoterms®, the ICC's official set of rules for the interpretation of national and international trade terms, have facilitated the handling of global trade since they were first published in 1936. If the parties agree an Incoterms® clause, it is not necessary to regulate the distribution of costs and risks in detail. This is because these aspects are interpreted uniformly worldwide.
On September 10, 2019, the ICC published the new Incoterms® 2020 worldwide. These were drawn up by 500 experts (including 20 from Germany) from more than 40 countries. Over 3,000 comments from trade practice were evaluated and incorporated according to their relevance. The main results are presented below.
Incoterms® 2020 - What's new?
The Incoterms® 2020 contain a wealth of structural and content-related changes, which are described in detail below.
Introductory notes
In a detailed and readable introduction, the ICC explains the essential principles of Incoterms® 2020, their best possible inclusion in contracts, the best procedure for selecting the appropriate Incoterms® clause in individual cases and the most important differences between Incoterms® 2010 and Incoterms® 2020. In this context, it explains what the Incoterms® do and - at least as important for problem awareness - what the Incoterms® do not do.
Arrangement and wording of the interpretation rule
The ten A-/B interpretation rules for each Incoterms® clause have been reformulated and reorganized. The order is now:
- A1/B1 General obligations
- A2/B2 Delivery/acceptance
- A3/B3 Transfer of risk
- A4/B4 Transportation
- A5/B5 Insurance
- A6/B6 Delivery/transport document
- A7/B7 Export/import clearance
- A8/B8 Testing/packaging/labeling
- A9/B9 Cost allocation
- A10/B10 Notifications
Comments on the individual clauses
Furthermore, the application notes introduced in 2010 have been revised and reformulated and supplemented in the form of comments. These commentaries explain the essential content of each individual Incoterms® clause, e.g. when a particular clause should be used, when the transfer of risk takes place and how the costs are divided between the seller and buyer.
In practice, the commentaries are a useful aid because they guide the user precisely and quickly to the appropriate Incoterms® clause in each individual case and provide guidance for matters requiring interpretation in the event of any disputes.
Horizontal presentation of the interpretation rule
Finally, the Incoterms® 2020 contain for the first time a user-friendly, horizontal presentation in which all interpretation rules are arranged next to each other so that the user can easily understand the different treatment of certain questions in the Incoterms® clauses.
Clearer presentation of costs within the set of rules
The interpretation rule A9/B9 of the individual Incoterms® 2020 clauses contains a compact, continuous list of the various cost elements in order to give the contracting parties a better overview of the cost allocation. However, individual cost elements are still mentioned in the individual interpretation rules.
Additional option for bills of lading with an on-board endorsement and the Incoterms® clause FCA
The interpretation rule A6/B6 of the FCA Incoterms® clause now offers an additional option: the buyer and seller can agree that the buyer should instruct his carrier to issue an on-board bill of lading to the seller after the goods have been loaded, whereupon the seller is obliged to hand over this bill of lading to the buyer - usually by means of the banks. This also applies if the goods are not loaded on a ship but on another means of transportation (e.g. truck).
Change the DAT clause to DPU
The previous DAT (Delivered Terminal) clause is changed to DPU (Delivered at named place unloaded) to emphasize that the destination can be any place and does not have to be a "terminal". However, if this place is not at a terminal, the seller should ensure that the goods can be unloaded at the place where he wishes to deliver them.
Inclusion of safety-related requirements with transportation obligations and costs
The Incoterms® 2020 now contain clear rules on the distribution of safety requirements for the transportation of goods and the associated costs.
Examples of security requirements: International Ship and Port Facility Security Codes (ISPS Code), US Importer Security Filing (ISF), Container Security Initiative (CSI), Transported Asset Protection Association (TAPA), EU civil aviation security regulations. The security-related obligations are contained in the interpretation rules A4 (transportation) and A7 (export/import clearance) of each Incoterms® clause.
The resulting costs are now also highlighted more clearly in the design rule A9/B9 (cost allocation).
Organization of transport using the seller's or buyer's own means of transport
Incoterms® 2020 take into account the increasing business practice of the seller or buyer organizing the transport of goods using their own means of transport in the FCA (Free Carrier), DAP (Delivered At Place), DPU (Delivered Duty Unpaid) and DDP (Delivered Duty Paid) clauses. In addition to the previously envisaged conclusion of a contract of carriage with a third party, it is now possible to organize the transport of goods yourself.
Levels of insurance cover in CIF and CIP
The Incoterms® adapt the insurance cover in the Incoterms® clauses CIF (Cost, Insurance and Freight) and CIP (Carriage Paid Insurance) to current business practice.
In the case of CIF, the previous regulation with the standard position of the Institute Cargo Clauses (C) is retained, although it is of course left to the parties to agree higher amounts of cover if necessary.
In the case of CIP, the seller must now provide comprehensive insurance cover in accordance with Institute Cargo Clauses (A), although here too the parties have the option of agreeing on a lower minimum level of insurance cover. The usual minimum insurance therefore remains in place for sea transportation with CIF, while this was found to be insufficient for CIP for multimodal transport practice, especially with containers.
Solutions for more legal certainty
Many contracts contain inappropriate Incoterms® clauses, which can lead to considerable economic disadvantages and legal risks for the parties involved.
The frequently used EXW (ex works) or DDP (delivered duty paid) clauses, for example, are - contrary to what is often assumed - only the best solution in exceptional cases.
The agreement of DDP often leads to difficulties in terms of customs and tax law. This applies in particular to the processing of cross-border sales contracts where export and import processing is required. DDP is often agreed without the contracting parties being aware of the associated difficulties due to customs and tax regulations or restrictions. This is due to the fact that with DDP, the seller is responsible for customs clearance, but the seller is not always entitled to actually carry out customs clearance in the buyer's country for customs reasons.
Furthermore, the ICC has been pointing out for years, for example, that the FAS, FOB, CFR and CIF clauses are only suitable for sea and inland waterway transport. Nor are these clauses suitable for container shipping.
Incoterms do not regulate load securing. Rather, this is governed by the statutory provisions of freight law. According to German law (Section 412 (1) sentence 1 HGB), the sender is generally responsible for securing the load for transportation. The sender in the sense of freight law (Section 407 (2) HGB) is only the carrier's client. This is not necessarily the seller and/or shipper. If, for example, the buyer instructs the carrier to collect a consignment from the seller, the buyer is also the sender. In these cases, the seller is not responsible for securing the load.
Also not regulated in the Incoterms® are the obligations and costs associated with determining and recording the Verified Gross Mass (VGM) for freight containers. The international drafting committee was of the opinion that this topic is too specific and complex. This should be settled between the parties.
Another problem is that companies often change Incoterms® clauses (e.g. "EXW with loading"). Changes are possible in principle. However, in order to avoid unnecessary discussions in the event of a dispute, the contracting parties should take a closer look at the legal and practical consequences of the desired changes in such cases and make the intended effect of such a change very clear in their contract. This applies in particular to the question of whether this shifts the transfer of risk from the seller to the buyer.
Caution is also required if something different is "lived" than contractually agreed. In such cases, a court could assume in the event of a dispute that the contracting parties have implicitly agreed a different clause.
The contracting parties also have to deal with what the Incoterms® do not do.
This includes, for example, specifications of the goods sold, warranty, time, place, method or currency of payment, transfer of ownership including retention of title, liability or reduction of liability, legal consequences of a delay, breaches of duty and legal consequences, effect of sanctions, imposition of customs duties, export or import bans, force majeure, intellectual property rights, choice of law. liability or reduction of liability, legal consequences of a delay, breaches of duty and legal consequences, effect of sanctions, imposition of customs duties, export or import bans, force majeure, intellectual property rights, choice of law, in particular UN sales law (CISG) as well as national mandatory law (safety, health, environmental protection, etc.), rules of evidence, type of dispute resolution, place of jurisdiction or arbitration clause. These important aspects must be regulated by the parties in the purchase contract.
Unclear, contradictory or missing provisions can lead to unnecessary discussions and legal disputes between the parties. Omissions in the choice of law and place of jurisdiction are particularly critical. For example, many companies are not aware that judgments handed down by ordinary courts in Germany are not enforceable in many countries.
Finally, responsible employees regularly report a lack of coordination between the individual departments. This also applies to communication with external third parties (forwarders, carriers, banks, insurance companies, lawyers, tax consultants, customs and tax authorities, etc.). The Incoterms® represent an important interface between important topics (sales contract, export and import control, taxes, customs law, transportation contract, insurance contract and financing). International trade will only run smoothly if all parties involved coordinate and the individual contracts are in harmony. In-house training courses, for example, in which all specialist departments are involved, are useful for this.
Conclusion
The new Incoterms® 2020 provide greater legal certainty when the appropriate clause is used in conjunction with professionally drafted international sales contracts. This requires problem awareness and a critical examination of this topic.
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