ICC Guide to Incoterms® 2020

INTRODUCTION . . . . 9

• The evolution of the Incoterms® rules from 1936 to 2020 . . . 10
• Incoterms evolves with international trade. . . . 11
• Recent developments in the Incoterms® rules. . . . . 12
• The sales contract and additional contracts.  . . . . 13

UNDERSTANDING THE INCOTERMS® RULES. . . . . 17

• What are the Incoterms® rules and what can they do for you?  . . . 18
• Referencing the Incoterms® rules in a contract of sale . . . . 18
• What the Incoterms® rules do not do for you . . . . 19
• The Incoterms® rules and contracting practice. . . . 21

• • The need for interpretation of “key words” . .  . . 21
  • The most common practice. .  . . 21
  • The FOB point. . .  . . 22
  • EXW and the seller’s assistance. ..  .. . 22
  • Containerisation. . .. . . 22
  • Checking how the goods are handed over for carriage. . . . 23
  • The seller’s duty to provide substitute goods . .  . . 24
  • Checking availability of documents required under the Incoterms® rule. .. . . 24
• Why are as many as 11 Incoterms® rules required? . .  . . 24
• Which Incoterms® rule should be chosen?. . . . . 25
  • Terms and business strategies.  . . . 25
• The Incoterms® rules and the contract of carriage. . .. . 25
  • Charter parties. . .. . . 26
  • Usual, normal and suitable carriage. .. . . 27
  • The bill of lading. .. . . 27
  • Sale of goods in transit. . . . . 28
• The duties under the Incoterms® rules to load and unload the goods. .  . . 28
• The duties connected to export and import clearance.. . . . 29
  • Economic sanctions and export controls. . . . 29
  • EXW and export formalities. .  . . . 30
  • Customs-free regions. . .. . . . 30
  • Responsibility for charges. . . . . . 31
• The Incoterms® rules and insurance. . . .. . . 31
  • Insurance when the parties use FOB instead of FCA. . . . . 31
  • Insurance under CIF and CIP. . . . . 32
  • When insurance is excluded. . . . . . 32
  • Risks of war and labour disturbances. . .. . 32
• The Incoterms® rules and documentary credits. . . . . 32
• The Incoterms® rules and electronic commerce. . . . . 34
• Variations of the Incoterms® rules. . . . . 34
  • Additions to EXW. .. . . 35
  • Additions to FOB. . . . . 35
  • Additions to FCA. . .. . . 35
  • Additions to the C terms. . .  . 35
• The Incoterms® rules and other terms in the contract of sale. . .  . 36
  • Increase of costs after the contract is concluded. . . . . . 36
  • Risk of performance if goods are lost or damaged. .. . . 37
  • Non-conforming goods. . . . . 37
  • Transfer of risk v. transfer of property rights. . ..  . 37
• The Incoterms® rules and dispute resolution. .   .  . 37
  • The choice of arbitration. . . .  . . 37
  • Jurisdiction of the arbitral tribunal. . . .. 38
  • Alternatives to arbitration and litigation. . .   . . 38
  • Need for specificity in referencing arbitration. . . . . 38

THE FOUR CATEGORIES OF INCOTERMS® RULES: MAIN COMPONENTS.. .  . 39

• Important differences between shipment and arrival contracts. . . . 40
• The abbreviations: E, F, C and D terms. . . . 40
  • The Incoterms® 2020 rules. . . . 41
• The term EXW: placing the goods at the disposal of the buyer. .  . . 41
• F terms and C terms: the carriage-related terms. . . . . 42
  • F terms: main carriage not paid by seller.. . . . . 42
  • C terms: main carriage paid by seller. . .. . 43
• D terms: delivered terms (DAP, DPU and DDP).  . . 46

SELLER’S AND BUYER’S OBLIGATIONS: AN OVERVIEW. . . . 51

• Sections A1 and B1: the obligation to exchange goods for money. .  . . 52
• Sections A2 and B2: the seller’s obligation to deliver and the buyer’s obligation to take delivery.. . . 52
  • The delivery obligation. . . . . 52
  • Delivery at the seller’s premises (EXW and FCA). . . . . 53
  • Delivery at the buyer’s premises . . . . 53
  • Delivery at the waterfront under DAP and DPU. . . . . 53
  • The buyer’s acceptance of the seller’s handing over for carriage. . . . . 54
  • The buyer’s obligation to receive the goods from the carrier . . . . . 54
• Sections A3 and B3: the transfer from seller to buyer of the risk of loss of or damage to the goods. . . 54
  • The “price risk”.. . . . 54
  • Premature transfer of risk. ..  . 55
  • Identification of the contract goods. . . . 55
  • Using force majeure clauses to protect the seller from the “breach of contract risk”. . . . 55
  • Cases of delay. .. . . 55
• Sections A2, B2 and A4, B4: division of functions between the parties.. . . 55
  • For economy of transport, do not divide functions. .. . . 56
  • Additional service to the buyer under the F terms. . . . 56
  • The custom of the port. . . . . . 56
  • Caution when using FOB if the custom of the port is not known . ..  . 56
  • Handing over to the carrier under the C terms . .. . . 57
  • Dividing the costs of discharge at destination. . .. . . . 57
• Sections A4 and B4: party to make the contract of carriage .  . . . . 57
• Section A5: the seller’s insurance obligation. . . . . . 57
  • Freedom of insurance restricted . .. . . 58
• Section A6 and B6: the parties’ duties to provide proof of delivery or of having taken delivery and the transport documents. .. .. . 58
  • CFR, CIF and on board documents. . . .. . 58
  • Surrender of original bill of lading essential. . . 59
  • Non-negotiable transport documents.  . . . 59
  • Payment against sea waybills requires caution . . . . 59
  • The problems of replacing bills of lading by electronic messages. . . . 59
  • The “usual transport document” under CFR and CIF. . . . 60
  • Transport document as proof of delivery. . . . 60
  • Documents required to obtain delivery under D terms. . .  . 60
  • Transport documents for carriage by sea . . . . 61
  • Delivery orders. . . . . 61
• Sections A7 and B7: the obligation to clear the goods for export and import.  .. . . 61
  • Take precautions against the risk of export and import prohibitions. . . . 61
  • Obtaining assistance to clear customs . . . 62
• Sections A7 and B7: security measures and the changing role of customs .  . . 62
• Sections A7 and B7: pre-shipment inspection. . . . 63
• Section A8: the seller’s checking, packaging and marking obligations. .. . . 63
• Sections A9 and B9: division of costs between the parties. . . 64
  • Main principle of distribution of costs .. . . 64
  • The four main categories of costs. . . . 64
  • Costs related to dispatch, carriage and delivery. . . . 64
  • Costs for export, import and security clearance. .  . 65
  • Costs for services, assistance and information. . . 65
  • Costs of insurance. . .. . . 65
  • Cost distribution systems. . . . . 65
• Sections A10 and B10: notices. . . . . 66
  • Conditions for the buyer’s giving notice. .. . 66
  • Conditions for the seller’s giving notice.. . . . 66
  • Sufficient notice. . . . . 66
  • Failure to give sufficient notice . . . . . 66

INCOTERMS® 2020, A DETAILED COMMENTARY

Why 11 different Incoterms® rules? And what has changed from Incoterms® 2010?. . . . 67

• A summary of the 11 Incoterms® rules . . .. 68
• What has changed in Incoterms® 2020?.. . . . 69

GROUP I: ANY MODE OR MODES OF TRANSPORT EXW • FCA • CPT • CIP • DAP • DPU • DDP.  . . . 71

• EXW | EX WORKS. . .  . . 72
• FCA | FREE CARRIER. . . . . 84
• CPT | CARRIAGE PAID TO. . .. . .100
• CIP | CARRIAGE AND INSURANCE PAID TO.. . .116
• DAP | DELIVERED AT PLACE. . . . .132
• DPU | DELIVERED AT PLACE UNLOADED. . . .146
• DDP | DELIVERED DUTY PAID. .. . . . .160

GROUP II: RULES FOR SEA AND INLAND WATERWAY TRANSPORT FAS • FOB • CFR • CIF. .  . . . . .173

• FAS | FREE ALONGSIDE SHIP. . .. .174
• FOB | FREE ON BOARD. . . .  . .187
• CFR | COST AND FREIGHT. . . . . . .200
• CIF | COST INSURANCE AND FREIGHT. .  . . . . .216

ROLE OF THE INCOTERMS® RULES IN AN INTERNATIONAL CONTRACT OF SALE. . .. . .233

• CHOICE OF TRADE TERMS. . . .234
  • GROUP I: ANY MODE OR MODES OF TRANSPORT. .  . .234
  • GROUP II: SEA AND INLAND WATERWAY TRANSPORT.. . .234
  • CHOICE WITHIN GROUP I. . . .  .234
  • CHOICE WITHIN GROUP II . .. . .234
• THE INCOTERMSRULESINC ONJUNCTIONWITHO THERTERMS OF THE CONTRACT AS SET FORTH IN THE ICC INTERNATIONAL SALE CONTRACT . . . .235
  • What happens if:. . . . . .235
  • Answer:. . .235
• THE INCOTERMS RULES IN CONJUNCTION WITH CISG. . . . .236
  • What happens if:.. . .236
  • Answer:. . . .236

TRANSFER OF RISK AND COST. . . . . .237

• About the authors. . .. . . 238
• Publications . . .. . .239
• Digital Tools . . . . . .242