Application of the Incoterms issued by the International Chamber of Commerce in Paris is voluntary. There is also no pressure to introduce the new rules immediately; the Incoterms 2010 remain valid. Remember to make adjustments – for example, also in your general terms and conditions or purchasing conditions – as soon as you have switched over to Incoterms 2020. An overview of the most important changes can be found in our video.
In general, what is there to watch out for?
The trademark symbol need not be used in contracts. However, the terms are only applicable if they are correctly integrated into the contract and if they have been mutually agreed upon between buyer and seller. This means that you must refer explicitly to the term Incoterms, you must specify a version (e.g. Incoterms 2020) and the term and most importantly: the location must be as precise as possible; for example, the terminal in a port.
Hand picked for you: Practical cases with relevant changes
In the following we would like to show you three practical examples with relevant changes.
C terms: What’s changed?
A higher level of insurance cover is now required for the C terms. This concerns CIF (Cost, Insurance and Freight) and CIP (Carriage and Insurance Paid to).
Conceptual clarity: DAT becomes DPU
The DAT term (Delivered at Terminal) has sometimes caused some confusion in practice: What does the T stand for, and what exactly is a terminal? It was always the case that a terminal can be any location: it can be your domicile or the ramp of the buyer. However, for the sake of conceptual clarity, the term was renamed DPU (Delivered at Place, Unloaded). The only difference between the DAT or DPU term and, for example, DAP (Delivered at Place) is the unloading. This is the only term that includes unloading.
On the safe side when processing letters of credit: FCA and transport document
The consignment note for the FCA term is also a major issue. FAC stands for Free Carrier. With the FCA term, in most cases it is the actually buyer who is entitled to the transport document, as they are also the one who commission the carrier. However, in the letter of credit business, for example, there is a problem here: It is very often agreed that the seller must first send a shipping document (e.g. Bill of Lading) to the bank. However, the seller does not receive the document because the claim is actually held by the buyer. In practice, this usually works anyway, but there is no guarantee that it will actually work. This has now changed: With an addition in the contract, the buyer can now instruct their carrier to deliver the transport document; the seller is then obliged to hand it over to the buyer – usually via a bank. This ensures that you are on the safe side when it comes to processing letters of credit.
Concrete tips: what applies to me?
Proceed step by step. Depending on the situation, it makes sense to differentiate by product categories or even by markets in order to determine strategies and no-gos:
- Check what is affected
- Define strategy by product categories
- Export: Strategy by target country
- Import: Strategy by procurement market
- Test step: Correct integration of Incoterms and unanimity of buyer and seller
- Negotiation skills: Know what leeway you have
- Coordinate insurance contracts with relevant persons (e.g. transport company, insurance company)
- Adapt transport contracts
These are not earth-shattering new developments, but they nevertheless present an opportunity to check the terms for correct interpretation and to optimize your own workflows. The rules also provide a very detailed and comprehensible introduction to the new terms. There you can see what the Incoterms really mean in practice and you can find out whether you are on the right track or not by reading the preface. Typical legal cases or applications are explained in detail for each term.