The Incoterms 2020 are here!

 What are the Incoterms? What is new? What needs to be done?

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Die Incoterms 2020 sind da!, Insight von Johannes Brand, Rechtsanwalt der Kanzlei Buse

On January 1, 2020, the Incoterms 2020 came into force. The changes are negligible, however, future and sample contracts should be modified. Importers and exporters can also use the introduction to ensure they are used correctly. This is because the incorrect use of Incoterms often leads to lengthy and expensive legal disputes. This can be avoided.

1. What are the Incoterms?

Incoterms (short for “International Commercial Terms”) are issued by the International Chamber of Commerce (ICC), a non-governmental organisation. They are a collection of clauses which aim, compressed to three letters each, to regulate the most important parameters of a delivery of goods:

  • Duties: Who is responsible for transport, documents, customs clearance etc.?
  • Transfer of risk: Who is liable for damage, loss and destruction of the item on the delivery route, and when??
  • Costs: Who pays for transport and other costs incurred in connection with the shipping?

Each of the clauses is supplemented by the place of destination. “EXW (Frankfurt a. M.) Incoterms 2020” for example stands for “Ex Works (Frankfurt a. M.)”. This means the seller has to make the goods available at the gate of his factory or warehouse in Frankfurt. The Incoterms are effective solely by reference in the contract. They are not of public nature. Nor do they replace the governing law. This is the chosen state law (which includes the highly recommended UN sale of goods law, the application of which must be checked imperatively for international supply contracts.

2. What is new?

As before, the Incoterms 2020 consist of 11 clauses. The clause “DAT (Delivered at Terminal)” has been deleted, and the clause “DPU (Delivered at Place Unloaded)” has been added. And there is a reason for this. The DAT clause has often been used incorrectly as it was assumed that delivery must be made to a port terminal. In fact, even the old clause was only intended to oblige the seller to deliver to any terminal. For clarification and to facilitate the correct use of the clause, it has been replaced by the DPU clause, and its content has been slightly adapted.

The other modifications are mostly limited to adjustments and clarifications. Before the publication of Incoterms 2020, there were rumors that the clauses “EXW (Ex Works)” or “DDP (Delivered Duty Paid)” would be deleted. Despite frequent problems of application, neither of these two has been done. The DDP clause obliges the seller to deliver the goods duty paid. But often this is not possible at all, as the customs regulations of many countries require customs clearance by a native resident. However, when used correctly, the clause still fulfills its purpose, as Incoterms are basically suitable for import and export to all countries, and some countries do allow customs clearance by the importer. Likewise, if the EXW clause is used, the buyer often cannot even perform export customs clearance, although one should not forget that the EXW clause can also be used for domestic purchases.

3. What needs to be done?

Existing contracts do not necessarily need to be adapted. Since Incoterms only become part of a contract by reference, courts will basically also use the older versions of Incoterms for interpretation, provided that they are clearly indicated by adding the year (“Incoterms 2010”). But new contracts should be concluded on the basis of Incoterms 2020 – not only because business partners will probably request this, but also because Incoterms 2020 have eliminated many ambiguities in interpretation.

In addition, it is recommended to take the innovation as an opportunity to check the correct use of the Incoterms. The Incoterms facilitate the drafting of contracts enormously, but their correct use requires expert knowledge and examination in each individual case. A careless use of Incoterms involves the risk of legal uncertainties as well as costly and lengthy litigation. For example, a “FOB (Free on Board)” clause is conflict-laden in the case of a terminal port, where no delivery on board is possible. A “FAS (Free Alongside Ship)” clause makes no sense if the place specified there does not have a port. Such incorrectly used clauses are common in practice. There are conflicts when it comes to the bearing of costs or the transfer of risk. This dispute can be avoided by the correct use of Incoterms.

Should there be questions regarding the use of Incoterms, Johannes Brand (attorney and bar approved specialist for international commercial law) will be happy to help.