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By Michael Wilson ,
Shippers' Interest & Cargo Programs Leader
The Incoterms Rules are standard trade definitions issued by the International Chamber of Commerce (ICC). They are a set of rules outlining the standard commercial terms used in contracts for the sale of goods, and are intended to divide transaction costs and responsibilities between buyer and seller.
There are a total of 11 different standard trading terms with the Incoterms® 2020 Rules being as follows:
Rules for any mode or modes of carriage
Rules for Sea and Inland Waterway Transport
The Incoterms Rules have guided, facilitated, and assisted in standardizing sale purchase agreements by allowing parties to incorporate general responsibilities for each party, including the transfer of risk from seller to buyer, as well as specify the loading and unloading responsibilities of the buyer and seller.
These terms are recognized as the international standard and are accepted by governments, legal authorities, practitioners, and custom authorities worldwide for use in international trade.
The Incoterms Rules are not implied; they must be specifically stated in the contract. They are not binding and do not have the force of law or legislation in imposing upon the parties how a sales contract is conducted. The terms merely set out the obligations, but the specific manner of performance is left open to the parties.
Effective January 1, 2020, the Incoterms® 2020 Rules came into effect. As per their predecessor, the Incoterms® 2020 Rules have no mandatory force, and apply only where they are expressly incorporated into sale contracts.
The revisions to Incoterms® 2010 Rules are in part to encourage parties to consider more carefully the particular Incoterms Rules they choose to incorporate, by promoting a better understanding of the operation of the rules of incorporation.
Their main focus is the issue of the transfer of risk from seller to buyer defined in terms of “delivery.” They also highlight other responsibilities such as insurance, export and import clearance, and the division of other costs involved in the physical delivery of the goods from buyer to seller.
The Incoterms® 2020 Rules are more intuitively structured relative to the 2010 Edition for increased clarity and to facilitate risk analysis. The general rule with the Incoterms Rules remains with the point of delivery of the goods being the important discerning point as to who is responsible for costs incurred in transit. The new 2020 Rules provide further details concerning the specific allocation of costs between a buyer and a seller and reflect an evolutionary improvement over the 2010 Rules in that regard.
The main substantive changes are as follows:
It is very important to be clear and specific in your contract. If you want the Incoterms 2020 Rules to apply to your contract, the safest way to ensure that your intentions are clear is through the specific use of words, such as: “[the chosen Incoterms rule] [named port, place or point] Incoterms 2020.”
Additionally, as a point to remember, in all Incoterms except “C” terms, the named place indicates where the goods are “delivered,” which is where risk transfers from the buyer to the seller. Under “C” terms, the named place indicates the destination to which the seller must organize and pay for the carriage of the goods, which is not the place or port of delivery.
Please contact your Marsh representative to arrange for a more detailed presentation on Incoterms and how they impact your cargo insurance program.