INCOTERMS 2020

“The common language in international sales transactions”: this is how Incoterms have been defined on several occasions. Incoterms are the set of rules developed by the International Chamber of Commerce with the aim of facilitating international trade in goods since they define unambiguously and without the possibility of error all the competent rights and duties of the various legal entities involved in a transnational transfer of goods.

Through Incoterms, it is possible to immediately identify the rules applicable to such contracts by clarifying the obligations of the parties, the costs (including transport, insurance and customs costs) and the risks incurred by each of them during the import and export of goods, in order to prevent the uncertainties arising from the diversity of trade practices adopted in various countries. Incoterms regulate, therefore, the relationship between buyer and seller allowing to identify the distribution of transport costs, the time and place of the passage of the availability of goods from the exporter to the importer and the distribution of its risks.

Every ten years, the International Chamber of Commerce is responsible for reviewing the Incoterms, trying to adapt them to the new needs of society and trade.

For this reason, the Drafting Group, which for the first time includes representatives from China and Australia, has prepared the new Incoterms 2020 rules that will come into force from January 1st, 2020.

Despite predictions, Incoterms have not changed much. The rules of 2010 have undergone very small changes that did not change the fundamental elements.

In fact, as in the last edition, the number of Incoterms remain unchanged: the 11 Incoterms are divided into two groups according to the type of transport. There is a distinction between rules for maritime and river transport (FAS, FOB, CFR, CIF) and rules valid for all other types of transport and means (EXW, FCA, CPT, CIP, DAT, DAP, DDP).

Moreover, it is possible to distinguish between four main categories of acronyms identified by a specific letter of the alphabet (E, F, C and D) and ordered according to the obligations assumed by the seller, from the minimum to the maximum commitment.

Although forecasts predicted the EXW term elimination, in the 2020 version of the Incoterms the term EXW remains; commonly translated into Italian language as “franco fabbrica” it allows the seller to free himself from any obligation by making the goods available to the buyer at a specific location. The buyer will therefore be burdened with all the costs and risks that may arise from transport.

Even the term DDP (symmetrical rendering of “EXW”) – which means that the seller only frees himself of his obligations after having completed all customs formalities in the country of import – remains unchanged, despite the predictions provided for a split in two terms.

The main changes were made to the term FCA (commonly translated into Italian language as “franco spedizioniere”), which in the revision currently in force (Incoterms 2010) implies that the obligations and customs clearance costs are borne by the seller until the customs of export, where the risk is transferred to the buyer. In the original forecasts, this term should have been divided into two acronyms depending on the means of transport used. The change only concerns the possibility for the parties of a contract of sale by sea to agree that the buyer requires the carrier to deliver to the seller the “on board” policy – which indicates that the goods have been loaded on board – so as to allow the seller, through the bank, to issue the letter of credit to the buyer.

It respects the predictions the changes of DAT (“Delivered at Terminal”) incoterms whose modification was necessary after that several organizations had reported how this acronym had been misinterpreted in the past, including in the word “terminal” the use of a customs terminal. To ensure, therefore, the full understanding of this term, DAT has been modified to DPU (“Delivered at Place Unloaded“) which establishes – and fully clarifies – that the goods can be unloaded and delivered to any place.

Another change coming into effect is the possibility for the parties to agree whether the transport is carried out by a third party/carrier or personally, under the terms FCA, DDP and DAP.