Incoterms 2020

A new version of the Incoterms, the Incoterms 2020, will probably enter into force on January 1, 2020. These are currently being prepared by a committee of experts. According to the International Chamber of Commerce (ICC), the new Incoterms will not be announced until August or September 2019 at the earliest, there is no official presentation of the new Incoterms 2020 yet. The following changes are under discussion:

  • The Incoterms EXW, DDP and FAS should be removed. Since neither EXW nor DDP provide for an appropriate allocation of risks and obligations in connection with an international transaction and since FAS (‘free alongside ship’) is an outdated concept, this is probably in the interests of the parties. It is also possible that DDP will be replaced by additional D-Terms.
  • Creation of a new Incoterm “CNI” (Cost & Insurance) to close a currently identified gap between the terms FCA and CFR. FCA and CFR currently do not provide for any obligation to take out insurance. That would change with CNI then.

Of course, the current Incoterms can still be used, even if the new Incoterms come into force in 2020. However, it is advisable in any case to indicate in the contracts that the Incoterms refer to the 2010 version. It is precisely when the content of certain clauses in Incoterms 2020 is changed that interpretation problems can arise later, whether Incoterms 2010 or Incoterms 2020 are meant.

Elimination of Incoterm EXW

In particular, the delivery term EXW is to be abolished. Shippers have often liked to use this clause because it imposes the least obligations. The fact that the clause is to be abolished has to do with the fact that this contractual clause has often proved impractical in international business. If EXW is agreed, the Seller is only obliged to make the goods available on his premises. That is why one also hopes to speak of a so-called pick-up clause.

All other obligations are the responsibility of the buyer, in particular the submission of the export declaration and the obtaining of export licences.

In these cases, the seller does not even have to take over the loading of the vehicle. Since in transport law even the driver is not authorized to load , there are practical problems here.

Another problem with EXW deliveries for German companies is who has to complete the export formalities – in particular the export declaration. Anyone who sells ex works and then leaves the export formalities to the buyer outside the EU can quickly commit an administrative offence.

However, this is not necessarily a reason to delete the clause without replacement, as additional agreements are also possible.

The clause FAS shall be dropped in favour of FCA

The fact that the clause FAS is to be omitted is due to the fact that this is often not used . According to the FAS clause, the seller must deliver to the pier where the vessel moors. This clause has so far only been used in the raw materials trade. Obviously it is planned to use the clause FCA (“free carrier”) in the future, whereby the quay in the port has to be exactly designated. It is envisaged that this clause will then be reworded for both maritime and inland transport.

New clause CNI in Incoterms 2020

The clause CNI is to be created from scratch. This is intended to close an existing gap between the previous clauses FCA and CFR. In the case of the FCA clause, the seller only has to deliver the goods to the carrier specified in this clause. From this point on, the buyer assumes the risk and must insure the goods. With the CFR clause, on the other hand, the seller has to pay for the sea freight but does not have to take out insurance. In the case of CIF, on the other hand, the seller has to cover the insurance for the sea leg.

Adjustment of the clause DDP

The DDP clause also often causes problems in international trade. This is the maximum obligation of the seller. In this respect, the seller assumes full responsibility up to the buyer’s door. This means that the foreign seller also has to take care of the customs clearance of the goods. However, this is often not possible because he is based outside the European Union. However, customs law stipulates that the customs declarant must be resident within the EU. In practice, it is often the case that the customs declaration is lodged for the buyer who is resident in the country. However, if subsequent charges occur later, these are primarily shifted to the buyer, who then has to indemnify his foreign contractual partner.

In this respect, two new clauses are currently being considered to replace the DDP clause. This is on the one hand the clause DTP, if the destination is a terminal and the seller is to bear all customs and import turnover tax costs in the importing country. On the other hand, the DDP clause is intended to apply to the extent that the seller has to bear all the costs of customs clearance, customs duties and value added tax, although he does not have to clear the goods himself when importing them.

Training on the Incoterms 2020

Companies should ensure that their employees receive proper training on the amendments to Incoterms 2020. The meaning of the Incoterms will change in part in the context of the new Incoterms 2020. For example, an earlier clause may now be accompanied by a new meaning. One example of this is that Incoterms FOB and CIF can now also be used for goods in containers, which was not the case in the past.

In this respect, depending on who negotiates the contracts, the purchasing departments or the sales department should be trained for the new Incoterms 2020 . We are also happy to do this in-house.

If you have any questions about Incoterms 2020, please do not hesitate to contact our lawyers. We are also happy to provide in-house training on Incoterms 2020 or check your supply contracts for necessary adjustments.

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Lawyer Dr. Tristan Wegner

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