COMMERCIALTERM S TO INTERNATIONAL FTW GUIDE FREIGHT & TRADING WEEKLY 2020
1 Copyright © Freight & Trading Weekly 2020 Table of Contents A. FOREWORD BY ICC SECRETARY GENERAL 2 B. INTRODUCTION TO THE IMPACT AND POTENTIAL LEGAL APPLICATION OF THE NEW VERSION 4 C. THE CRITICAL CHANGES BETWEEN THE 2010 AND 2020 VERSIONS 8 D. Incoterms® 2020 INSIGHT / COMPARISON TABLE 9 E. RULES FOR MODES FOR TRANSPORT – MARITIME AND MULTIMODAL 9 F. QUICK REFERENCE TABLE 10 G. ICC Incoterms® 2020 – BRIEF OVERVIEW & INSIGHT 12 H. The Incoterms® 2020 RULES – BRIEF EXPLANATIONS 14 I. THE PURPOSE OF THE ARTICLES (LEGAL INTERPRETATION) 18 J. TERMS AND VOCABULARY USED IN Incoterms ARTICLES – A QUICK UNDERSTANDING 18 K. BRIEF ON GLOBAL TRADE AND LEGAL PRINCIPLE OF DELIVERY 24 L. FCA & DPU – THE CHANGES 24 M. BRIEF UNDERSTANDING OF THE INTERNATIONAL CONTRACT OF SALE 24 N. THE DANGERS OF NOT BEING TRAINED CORRECTLY 26 O. ICC Incoterms Q & A 26 Disclaimer The “Incoterms” or “International Commercial terms” are a series of 11 pre-defined commercial terms published and trademarked by the International Chamber of Commerce (ICC). The intention of this booklet is to provide a basic understanding of the new Incoterms® 2020 rules. It should not be regarded as a comprehensive statement of law, and no liability can be accepted for errors and omissions. For a comprehensive explanation and understanding of Incoterms® 2020, contact the ICC (Paris, France), or the Johannesburg Chamber of Commerce and Industry from whom copies of the ICC’s Incoterms® 2020 and associated ICC publications can be obtained. Incoterms® 2020 publications can also be obtained from ICC-accredited trainers. Copyright © No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or means, mechanical, electronic, recording or otherwise without the express written permission of the publisher.
2 FTW Guide to International Commercial Terms Copyright © Freight & Trading Weekly 2020 The ICC Incoterms rules on the use of domestic and international trade terms address this risk by facilitating the conduct of global trade. Reference to an Incoterms 2020 rule in a contract for the sale of goods clearly defines the parties’ respective obligations regarding topics such as risk, cost and arrangement of transport and customs clearance, thereby reducing the potential for legal complications. The growth of the global economy has given most businesses greater access than ever before to markets all over the world. Goods are sold today in more countries, in larger quantities, in greater variety, and at a faster pace as a result. But, as both the volume and complexity of global trade increase, so do possibilities for misunderstandings and costly disputes when sale contracts are not adequately drafted. Incoterms®2020 publication, the eighth edition since 1936, is more widely applicable and easily understood. The 11 articles to the 11 terms more prominently position the place of delivery and the risk of transfer point. European trade, ports and terminal procedures function differently from Africa and this difference has had a strong influence on the structure of the Incoterms® rules. Substantial disagreement on the use of the Incoterms® rules flows from regional traders’ written and verbal input to the drafting committee over 15 years not being considered. ICCSA regularly receives enquiries for views on Incoterms® transactions where potential costs, arising from traders’ exposure, particularly on the passing of risk, can arise. The complex commitments on entering into a buyer-seller transaction require both parties to fully understand the agreed Incoterms® as they greatly favour the seller. Patrick Corbin Director of ICC - South Africa John W.H. Denton AO, ICC Secretary General A Foreword By ICC Secretary General Foreword By Director of ICCSA
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Thinking ahead – Incoterms® 2020 is going to impact your international trading business, risks, costs and obligations for many years. Contact us at [email protected] to book your course. In-House & Value Discounted Packages Available!!! Incoterms®2020 Rules are complex, and your organisation may face risks on many levels Ensure you receive the correct training to avoid costly mistakes and disputes!!! ATTENTION IMPORTANT INFORMATION FTW8862
4 FTW Guide to International Commercial Terms Copyright © Freight & Trading Weekly 2020 01 January 2020 saw the official introduction of the eighth iteration of the International Chamber of Commerce (ICC) Incoterms® 2020 rules. The first launch of Incoterms® rules took place in 1936 with six trade terms for the carriage by sea. In 1953, the second iteration saw the introduction of three non-marine terms. Since 1980, the Incoterms® rules have been published every decade. The ICC’s 11 Incoterms® 2020 rules reflect the business-to-business practice for contracts for the sale and the purchase of goods. The Incoterms® 2020 rules essentially articulate three aspects for sellers and buyers - obligations, risk, and costs. Obligations are concerned with which of contracting parties is responsible for arranging the carriage, insurance, shipping documents, import licences, and export licences. Risk is concerned with the point where the risk transfers between the contracting parties, where and when the seller ‘delivers’ the goods. Whilst, costs, relevant to an international transaction, relate to the responsibility for the payment for, amongst other, transport, packaging, loading, customs formalities, unloading cost, checking, and security, the ICC Publication also deals with risks and obligations. Important: Incoterms® 2020 rules are not a substitute for the contract of sale, and according to the ICC’s Incoterms® 2020 publication, the Incoterms® 2020 rules do NOT deal with the following matters: • whether there is a contact of sale at all; • change of ownership; • the specifications of the goods sold; • the time, place method or currency of payment of the price; • the remedies which can be sought for breach of the contract of sale; • most consequences of delay and other breaches in the performance of contractual obligations; • the effect of sanctions; • the imposition of tariffs; • export or import prohibitions; • force majeure or hardship; • intellectual property rights; or • the method, venue, or law of dispute resolution in case of such breach. A few pertinent legal questions may arise from global traders and the like; Does this mean that all deliveries that take place after the 1st of January 2020, will be subject to the Incoterms ®2020 rules? Or must we change the version as stated in our contract of sale? The succinct response is that: 1. If you do not amend your Incoterms version on existing contracts, then the 2010 (or earlier version as applicable) legal articles will be of application in the event of a dispute. 2. If you wish to continue to utilise a 2010 version in future contracts, you may do so, Introduction to the impact and potential legal application of the new version B
5 Incoterms® 2020 Copyright © Freight & Trading Weekly 2020 Source – Permission for print granted by ICC 17 Dec 2019
6 FTW Guide to International Commercial Terms Copyright © Freight & Trading Weekly 2020 and in the event of a dispute, the legal articles of Incoterms® 2010, will apply accordingly. 3. You may amend the Incoterms version if your seller or buyer, as the case may be, is in agreement. 4. Bear in mind, once an Incoterms rule is incorporated correctly into your contract of sale, that the specific rules, articles and version will be binding. 5. When you accept a pro forma invoice and/or quote without entering into a formal contract of sale, you have in fact by acceptance of same, via an order, (Offer and Acceptance principle) have a binding agreement, yet be in danger due to the limitations of what was only contained on that initial offer. Best practice to understand Contracts of Sale and ensure they are in place. 6. The Contract of Sale and the Incoterms version and rule incorporated therein give rise to other contracts with third parties and one should ensure that the terms of those agreements, or in fact other clauses within the contract of sale, do not contradict each other. 7. After training and guidance in the use of the new Incoterms® 2020 version according to the ICC Standards, you may wish to review all contracts and amend terms to suitability for the future shipments. 8. According to “The Global Negotiator, Incoterms are private law rules and are not underpinned by the laws of any country or by a supranational organisation. They are a set of rules by businesses (exporters and importers) within the International Chamber of Commerce, to regulate some aspects of foreign trade operations. 9. The Incoterms do not have the force of law and therefore there is no obligation to use these terms in international trade operations; their use will be conditioned on the acceptance of the parties (seller and buyer) in the contract of sale. The effectiveness of the Incoterms is that its rules are widely known and used by different parties in foreign trade (exporters, importers, carriers, freight forwarders, customs brokers, banks, and insurance companies etc.) Therefore, the Incoterms rules are very useful for sellers and buyers to agree on the terms of delivery of the goods and that the agreement corresponds with rules that are universally known and accepted. 10. The new Incoterms® 2020 version has now been published and it is interesting to note the history of the various publications as reflected in the diagram. (provided courtesy of ICC). DID YOU KNOW? The ICC offers Dispute Resolution Services. Download the ICC DRS App TODAY! Use these please
8 FTW Guide to International Commercial Terms Copyright © Freight & Trading Weekly 2020 C The ICC, in their Incoterms® 2020 publication, has numerous changes, some of which resonate with the changes in the 2010 version: • NB!! The ICC recommends that you incorporate the rules correctly into the contract of sale. Specify your named place, point, or port precisely; Remember that Incoterms rules do not give you a complete contract of sale, they are only a term within it; • There are 11 rules in two distinct classes – Rules for “Any Mode” and rules for “Sea and Inland Waterway” transport; • “Incoterms® 2020 also offers a simpler and clearer presentation of all the rules, featuring revised language, an expanded introduction and explanatory notes, and articles recorded to better reflect the logic of a sale transaction. Incoterms® 2020 is also the first version of ICC’s Incoterms® rules to include a ‘horizontal’ presentation found in the reverse of the publication, grouping all like articles together and allowing users to clearly see differences in treatment of particular issues across the 11 Incoterms® rules.” • Bills of Lading with an on-board notation, if agreed, and the FCA Incoterms® 2020 rule. FCA delivery points A2 and the catering for “On Board” B/L A6/B6; • Carriers may be the Buyer or Seller when utilisation of their own transport takes place for delivery; • Costs, where they are listed now Article A 9; • Different levels of the 2010 revised Institute Cargo Clauses for marine insurance cover in the CIF Incoterms® 2020 rule and CIP Incoterms® 2020 rule. Formally both Institute Cargo Clauses C in 2010 version. 2020 now shows CIF still as Cargo clause C, and CIP now as Clause A – Both Still at 110%; • The Inclusion of security-related requirements with carriage obligations, information sharing, and related costs was introduced in 2010 and now further accentuated in 2020; • Explanatory Notes have replaced Guidance notes of the 2010 version and may be found at the beginning of each of the 11 Incoterms within the ICC publication Incoterms ®2020 by the ICC. • In 2010 DAT and DAP replaces DAF, DES, DEQ and DDU. In 2020 DAT is replaced by DPU and DPU now comes after DAP in the rules order; • 2010 introduced Domestic sale delivery application and this is still applicable to 2020 version; • NB!! A1/B1 Electronic Communication must be agreed; • Terminal Handling Charges – In 2010 clarified under A6/B6 and in 2020 under A9/B9; • String sales still applicable; • Variants introduced in 2010 are still applicable but BEWARE! When you use them; • The order of the articles within the rules are substantially different from 2010 to the 2020 version. The critical changes between the 2010 and 2020 versions
9 Incoterms® 2020 Copyright © Freight & Trading Weekly 2020 E Rules for modes for transport – maritime and multimodal • As related to customs, the inclusion of “formalities” and not just payment of duties and taxes as costs, but also customs is more precisely explained as to which party, seller or buyer, is responsible for carrying out customs formalities and clearance and assuming the costs and risks thereof, and also the release of goods in transit is included for the first time. For the later, the rule which is used that assigns the responsibility of the risk of transport, is the party responsible. (Extract Global Negotiator) • Delivery points and carrier contracts. 2020 requires that the seller must contract for the full multimodal / combined transport service for protection to the buyer according to the applicable rules utilised. • What is meant by “On Board”? See Useful terms and explanations in this publication. • Arranging for Carriage with Seller or Buyer own means of transport. • VGM costs are not covered under the Incoterms® 2020 version. Remember: For a comprehensive explanation and understanding of Incoterms® 2020, contact the ICC from whom copies of the ICC’s Incoterms® 2020 and associated publications can be obtained. Since the ICC does not provide any tables in their Incoterms® 2020 rules publication, it might be of value to consider the structure of the Incoterms® 2020 rules. In Incoterms®2010 rules the ICC deviated from grouping the Incoterms® in either E, F, C and D terms. The table overleaf is in the format of the Incoterms®2010 rules, and highlights instances of similarity. The Incoterms® 2020 version of classes follows the 2010 version format. D Incoterms® 2020 Insight / Comparison Table The ICC distinguished between two categories of transport, namely: • Rules for any Mode or Modes of Transport; and • Rules for Sea and Inland Waterway Transport. There are seven (7) rules relating to any mode or modes of transport, and four (4) rules for sea and inland waterway transport.
10 FTW Guide to International Commercial Terms Copyright © Freight & Trading Weekly 2020 F Quick reference table Overview of Costs, RisAny Transport Mode Sea & Inland WaterwayEXW FCA FAS FOB CFR Ex Works Free Carrier Free Alongside Ship Free on Board Cost & Freight Transfer of Risk At Buyer’s Disposal On Buyer’s Transport Alongside Ship On Board Vessel On Board Vessel Charges/Fee Packaging Seller Seller Seller Seller Seller Loading Charges Buyer Seller Seller Seller Seller Delivery to Port/Place Buyer Seller Seller Seller Seller Export Duty, Taxes & Security Clearance Buyer Seller Seller Seller Seller Origin Terminal Charges Buyer Buyer Seller Seller Seller Loading on Carriage Buyer Buyer Buyer Seller Seller Carriage Charges Buyer Buyer Buyer Buyer Seller Insurance Destination Terminal Charges Buyer Buyer Buyer Buyer Buyer Delivery to Destination Buyer Buyer Buyer Buyer Buyer Import Duty, Taxes & Security Clearance Buyer Buyer Buyer Buyer Buyer (Courtesy of GMLS)
11 Incoterms® 2020 Copyright © Freight & Trading Weekly 2020 Quick reference table ks & Responsibilities Transport Any Transport Mode CIF CPT CIP DAP DPU DDP Cost Insurance & Freight Carriage Paid To Carriage Insurance Paid to Delivered at Place Delivered at Place Unload Delivered Duty Paid On Board Vessel At Carrier At Carrier At Named Place At Named Unloaded At Named Place Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Buyer Seller Seller Seller Seller Seller Buyer Buyer Buyer Buyer Buyer Seller Buyer Buyer Buyer Buyer Buyer Seller
12 FTW Guide to International Commercial Terms Copyright © Freight & Trading Weekly 2020 According to the ICC, there is a significant amount of misleading information concerning the Incoterms rules on the Internet. Users should be aware of the existence of incomplete, inaccurate, and unofficial information. Unless sourced directly from ICC or ICC regional offices (known as ICC national committees), these Incoterms® 2020 materials should not be trusted as they may result in contractual mistakes and ensuing disputes. BEWARE OF UNTRUSTWORTHY SOURCES The publication “Incoterms® 2020 by the International Chamber of Commerce (ICC) – ICC Rules for the Use of Domestic and International Trade Terms”, should be your definitive guide on the Incoterms® 2020 rules on the use of domestic and international trade terms when addressing the risk and facilitating the conduct of global trade. The ICC Incoterms® 2020 publication deals with the 11 Incoterms® rules in its two allotted categories. The ICC publication addressed six important points and provides “EXPLANATORY NOTES FOR USERS”: • Delivery and risk; • Mode of transport; • Place or precise point of delivery; • A note of caution to buyers; • Loading risks; and • Export clearance. Each of the Incoterms® 2020 rules are divided into two categories, referred to as the Articles or legal text. The headings of the Articles are referred to as: • THE SELLER’S COSTS, RISKS & OBLIGATIONS; and • THE BUYER’S costs, risks & OLIGATIIONS. “THE SELLER’S COSTS, RISKS & OBLIGATIONS” are divided into: • General obligations; • Delivery; • Transfer of risks; • Carriage; • Insurance; • Delivery/transport document; • Export/import clearance; • Checking/packaging/marking; • Allocation of costs; and • Notices. “THE BUYER’S COSTS, RISKS & OBLIGATIONS” are divided into: • General obligations; • Taking delivery; • Transfer of risks; • Carriage; • Insurance; • Proof of delivery; • Export/import clearance; • Checking/packaging/marking; • Allocation of costs; and • Notices. G Icc Incoterms® 2020 – Brief Overview & Insight
For further information on the courses and services we ofer, please contact Anthea Booysen T: +27 11 726 5300 | E: [email protected] | W: www.jcci.co.za FTW8855 EFFECTIVE 01 JANUARY 2020 Familiarise yourself with the latest Incoterms® rules to ensure you can provide your customers/suppliers with the best advice and minimise trade disputes and expensive litigation. Incoterms® rules, which defne the responsibilities of buyers and sellers in the international trade system, facilitate trillions of dollars of global trade each year. The JCCI Global Trade, Customs and Logistics Training Academy ofer training courses in the use of the new Incoterms® rules and has copies of the new Incoterms® books available to purchase. The Chamber is an independent, nonpolitical, subscription-based association dedicated to promoting a business-friendly environment. Our members are drawn from every sector of the economy, and range from independent entrepreneurs to the large corporate. We are a key player in the promotion and facilitation of international trade and an impartial third party which enables us to negotiate contracts and secure funding for projects that beneft its membership. We promote enterprise development, skills development training and business advisory services.
14 FTW Guide to International Commercial Terms Copyright © Freight & Trading Weekly 2020 In approaching your selection of the most appropriate Incoterms® 2020 Rule, the ‘General Obligations’ for Incoterms® 2020 are: • Seller’s - Must, in conformance with the contract of sale provide the goods, and the documentation (in paper or electronic form). • Buyer’s - In conformance with the contract of sale, and the documentation (in paper or electronic form.) What follows is the ICC’s headline definition of the Incoterms® 2020 rules and a brief explanation of each rule, which should be further considered in terms of the 10 “Seller’s Obligations” categories, and the 10 “Buyer’s Obligations” categories. The EXW Incoterms® 2020 – Brief Explanation EXW - Ex Works (insert named place of delivery) Incoterms® 2020 “Ex Works” means that the seller delivers the goods to the buyer: • when it places the goods at the disposal of the buyer at a named placed (like a factory or warehouse or procures such goods), and • that named place may or may not be the seller’s premises. For delivery to occur, the seller does not need to load the goods on any collecting vehicle, nor does it need to clear the goods for export, where such clearance is or export authority may be applicable. The FCA Incoterms® 2020 – Brief Explanation FCA - Free Carrier (insert named place of delivery) Incoterms® 2020 “Free Carrier” means that the seller delivers the goods to the buyer in one or other of two ways: • First, when the named place is the seller’s premises, the goods are considered delivered when they are loaded on the means of transport arranged by the buyer. • Second, when the named place is another place, the goods are considered delivered when, having been loaded on the seller’s means of transport, they reach the named other place and are ready for uploading from that seller’s means of transport and placed at the disposal of the carrier or of another person nominated by the buyer. The FAS Incoterms® 2020 – Brief Explanation FAS - Free Alongside Ship (insert named port of shipment) Incoterms® 2020 “Free Alongside Ship” means that the seller delivers the goods to the buyer • when the goods are placed alongside the ship (e.g. on a quay or a barge) • nominated by the buyer • at the named port of shipment • or when the seller procures goods already so delivered. • Subject to the Buyers Notice The risk of loss of or damage to the goods transfers when the goods are alongside the ship, and the buyer bears all costs from that moment onwards. H The Incoterms® 2020 Rules – Brief Explanations
16 FTW Guide to International Commercial Terms Copyright © Freight & Trading Weekly 2020 The FOB Incoterms® 2020 – Brief Explanation FOB - Free on Board (insert named port of shipment) Incoterms® 2020 “Free on Board” means the seller delivers the goods to the buyer • on board the vessel • nominated by the buyer • at the named port of shipment • or procures the goods already so delivered. • Subject to the Buyers Notice The risk of loss of or damage to the goods transfers when the goods are on board the vessel, and the buyer bears all cost from that moment onwards. The CFR Incoterms® 2020 – Brief Explanation CFR - Cost and Freight (insert named port of destination) Incoterms® 2020 “Cost and Freight” means that the seller delivers the goods to the buyer • on board the vessel • or procures the goods already so delivered. The risk of loss of or damage to the goods transfers when the goods are on board the vessel, such that the seller is taken to have performed its obligation to deliver the goods, whether or not the goods actually arrived at their destination in sound condition, in the stated quantity or, indeed, at all. In CFR, the seller owes no obligation to the buyer to purchase marine insurance cover: the buyer would be well-advised therefore to procure such cover. The CIF Incoterms® 2020 – Brief Explanation CIF - Cost, Insurance and Freight (insert named port of destination) Incoterms® 2020 “Cost Insurance and Freight” means that the seller delivers the goods to the buyer • on board the vessel • or procures the goods already so delivered. The risk of loss of or damage to the goods transfers when the goods are on board the vessel, such that the seller is taken to have performed its obligation to deliver the goods, whether or not the goods actually arrive at their destination in sound condition, in the stated quantity or, indeed, at all. The CPT Incoterms® 2020 – Brief Explanation CPT - Carriage Paid To (insert named place of destination) Incoterms® 2020 “Carriage Paid To” means that the seller delivers the goods – and transfers the risk – to the buyer • by handling them over to the carrier • contracted by the seller • or by procuring the goods so delivered. • The seller may do so by giving the carrier physical possession of the goods in the manner and at the place appropriate to the means of transport used. Once the goods have been delivered to the buyer in this way, the seller does not guarantee that the goods will reach the place of destination in sound condition, in the stated quantity or indeed at all. This is because risk transfers for seller to buyer when the goods are delivered to the buyer by handing them over to the carrier; the seller must nonetheless contract for the carriage of the goods from delivery to the agreed destination. Thus, for example, goods are handed over to a carrier in Las Vegas (which is not a port) for carriage to Southampton (a port) to Winchester (which is
17 Incoterms® 2020 Copyright © Freight & Trading Weekly 2020 not a port). In either case, delivery transferring risk to the buyer happens in Las Vegas, and the seller must make a contract of carriage to either Southampton to Winchester. The CIP Incoterms® 2020 – Brief Explanation CIP - Carriage and Insurance Paid To (insert named place of destination) Incoterms® 2020 “Carriage and Insurance Paid To” means that the seller delivers the goods – and transfers the risk – to the buyer • by handling them over to the carrier • contracted by the seller • or by procuring the goods so delivered. • The seller may do so by giving the carrier physical possession of the goods in the manner and at the place appropriate to the means of transport used. Once the goods have been delivered to the buyer in this way, the seller does not guarantee that the goods will reach the place of destination in sound condition, in the stated quantity or indeed at all. This is because risk transfers for seller to buyer when the goods are delivered to the buyer by handing them over to the carrier; the seller must nonetheless contract for the carriage of the goods from delivery to the agreed destination. Thus, for example, goods are handed over to a carrier in Las Vegas (which is not a port) for carriage to Southampton (a port) to Winchester (which is not a port). In either case, delivery transferring risk to the buyer happens in Las Vegas, and the seller must make a contract of carriage to either Southampton to Winchester. The DAP Incoterms® 2020 – Brief Explanation DAP - Delivered at Place (insert named place of destination) Incoterms® 2020 “Delivered at Place” means that the seller delivers the goods - and transfer risk - to the buyer • when the goods are placed at the disposable of the buyer • on the arriving means of transport ready for unloading • at the named place of destination or • at the agreed point within that place, if any such point is agreed. The seller bears all risks involved in bringing the goods to the named place of destination or to the agreed point within that place. In this Incoterms® rule, therefore, delivery and arrival at destination are the same. The DPU Incoterms® 2020 – Brief Explanation DPU - Delivered at Place Unloaded (insert named place of destination) Incoterms® 2020 “Delivered at Place Unloaded” means that the seller delivers the goods - and transfers risk - to the buyer: • when the goods, • once unloaded from the arriving means of transport, • are placed at the disposal or the buyer, • at a named place of destination or, • at the agreed point within that place, if any such point is agreed. The seller bears all risks involved in bringing the goods to and unloading them at the named place of destination. In this Incoterms® rule, therefore, the delivery and arrival at destination are the same. DPU is the only Incoterms® rule that requires the seller to unload goods at destination.
18 FTW Guide to International Commercial Terms Copyright © Freight & Trading Weekly 2020 The seller should therefore ensure that it is in a position to organise unloading at the named place. Should the parties intend the seller not to bear the risk and cost of unloading, the DPU rule should be avoided and DAP (Delivered at Place) should be used instead. As mentioned DPU replaced DAT and the order changed whereby DPU comes after DAP and the only difference is that the seller pays for unloading of the goods. The DDP Incoterms® 2020 – Brief Explanation DDP - Delivered Duty Paid (insert named place of destination) Incoterms® 2020 “Delivered Duty Paid” means that the seller delivers the goods to the buyer • when the goods are placed at the disposal of the buyer, • cleared for import, • on the arriving means of transport, • ready for unloading, • at the named place of destination or at the agreed point within that place, if any such point is agreed. The seller bears all the risks involved in bringing the goods to the named place of destination or to the agreed point within that place. In this Incoterms® rule, therefore, delivery and arrival at destination are the same. I Within each rule, the seller’s and buyer’s obligations have been shown in a column for each. These are still shown as ten articles for each rule, and are in a parallel format, however the order has been changed from the previous 2010 publication. The articles therefore fall more or less in the same order as they are experienced in practice. Reference to costs is still included wherever relevant but also summed up in a specific article. The seller’s obligations are on the left side commencing with an A and the buyer’s matching obligations are on the right commencing with a B. These are the legal content as opposed to the Explanatory notes preceding each rule in the official publication. The understanding and cross reference to the respective articles is the skill desired for the correct choice and interpretation of the respective rules. Source: Ronai, Robert (Bob). A Commentary on the Incoterms® 2020 Rules. Import-Export Services Pty Ltd. Kindle Edition. Available through Amazon. The purpose of the articles (legal interpretation) J Terms and vocabulary used in incoterms articles – a quick understanding Within the articles of the respective rules words or wording will be found that may, from a cautionary point of view, need to be checked for exact clarification and interpretation between buyers and sellers. The following words as example; “On Board” “At the Disposal of” “The Usual” Extracts from respective ICC publications are as
20 FTW Guide to International Commercial Terms Copyright © Freight & Trading Weekly 2020 such provided hereunder, which should give some guidance in interpretation and to the extent, where absolute clarity may be required to be obtained, before settling on a rule and all related obligations, risks and costs. Incoterms® 2010 Book Incoterms® rules: explain a set of three-letter terms reflecting business-to-business practice in contracts for the goods of sale. (Incoterms 2010 pg. 5) Named place is the place where delivery takes place and where risk passes from seller to the buyer, or, named place is the place of destination to which carriage is paid. (Incoterms 2010 pg. 5-6) Guidance note: explain the fundamentals on each Incoterms rule, such as when it should be used, when risk passed, and how costs are allocated between seller and buyer. (Incoterms 2010 pg. 8) Electronic communication: has the same effect as paper communication, as long as the parties so agree or where customary. (Incoterms 2010 pg. 8) International sale contracts: where goods pass across national borders. (Incoterms 2010 pg. 8) String sales: In the sale of commodities, as opposed to the sale of manufactured goods, cargo is frequently sold several times during transit “down a string”. When this happens a seller in the middle of the string therefore performs its obligations towards its buyer not by shipping the goods, but by “procuring” the goods that have been shipped. (Incoterms 2010 pg. 9) Carrier: for the purpose of the Incoterms® 2010 rules, the carrier is the party with whom the carriage is contracted with. (Incoterms® 2010 pg. 10) Customs formalities: These are requirements to be met in order to comply with any applicable customs regulations and may include documentary, security, information, or physical inspection obligations. (Incoterms® 2010 pg. 10) Delivery: this concept has multiple meanings in trade law and practice, but in the Incoterms® 2010 rules, it is used to indicate where the risk of loss or damage to the goods passed from the seller to the buyer. (Incoterms® 2010 pg. 10) Delivery document: a document used to prove that delivery has occurred. (Incoterms® 2010 pg. 11) Electronic record or procedure: a set of information constituted of one or more electronic messages and, where applicable, being functionally equivalent with the corresponding paper document. (Incoterms® 2010 pg. 11) Packaging: This word is used for different purposes: 1) packaging of the goods to comply with any requirements under the contract of sale 2) the packaging of the goods so that they are fit for transportation. 3) The stowage of the packed goods within a container or other means of transport. (Incoterms® 2010 pg. 11) Incoterm 2010 Q & A Publication Contract of Sale: The incoterms® are embedded in this contract, and agreement between the seller and the buyer. Contract of Carriage: The contract is between the shipper and the carrier (or the carrier’s agent). Depending on the contract of sale the shipper may be either the seller or the buyer (Incoterms 2010 Q & A pg. 10)
22 FTW Guide to International Commercial Terms Copyright © Freight & Trading Weekly 2020 Stowing and trimming are operations that must be performed upon bulk commodities after they are loaded into a ship’s hold. (Incoterms 2010 Q & A pg. 30) A “usual” transport document follows usually from the relevant transport legislation and from the practice of the trade. Generally speaking, transport documents represent receipts and proof that the goods are taken in the charge of the carrier and they evidence the contract of carriage by containing or referring to the transport conditions. (Incoterms 2010 Q & A pg. 58) A shipper can be a contractual shipper, who has contracted with the carrier, or an actual shipper simply handing over the goods to the carrier, or both. (Incoterms 2010 Q & A pg. 84) “placing” the goods “on board”: Delivery must be completed “in the manner customary at the port”, In the absence of custom of the port, or other relevant considerations such as practice between the parties, the default position is that goods may be considered to be delivered on board the vessel when first at rest on deck (Incoterms 2010 Q & A pg. 100). Incoterms® 2020 Book Obligations: who does what as between seller and buyer, e.g. Who organises carriage or insurance of the goods or who obtains shipping documents and export or import licenses; Risk: Where and when the seller “delivers” the goods, in other words where risk transfers from seller to buyer; and Cost: which party is responsible for which cost, for example transport, packaging, loading, or unloading costs, and checking or security related costs. (Incoterms® 2020 pg. 2) On-board: In the F and C rules, placing the goods, for example, on board the vessel or handing them over to, or placing them at the disposal of, the carrier marks the point at which the goods are “delivered” by the seller to the buyer. Therefore, this is the point at which risk transfers from the seller to the buyer. (Incoterms® 2020 pg. 6) Carrier: Given those two important consequences, it becomes essential to identify who the carrier is when there is more than one carrier, each carrying out a separate leg of transport, for instance by road, rail, air or sea. Where the seller has taken the far more prudent course of making one contract of carriage with one carrier taking responsibility for the entire carriage chain, in a so-called “through” contract of carriage, the problem does of course, not arise (Incoterms® 2020 pg. 6) FAQ: Where there is more than one carrier involved in the carriage of goods from seller to buyer, at which point in the carriage string does the handing over of the goods, mark the point of delivery, and the transfer of risk as between seller and buyer? (Incoterms® 2020 pg. 7) The seller should make a contract if carriage to the destination named under the contract of sale. (Incoterms® 2020 pg. 8) The “usual” - as is customary.
24 FTW Guide to International Commercial Terms Copyright © Freight & Trading Weekly 2020 L K For many Incoterms® 2020 rules, the delivery document is a transport document. However, with EXW, FCA, FAS & FOB, the delivery document may simply be a receipt: “delivery” The concept has multiple meaning in trade law and practice, but in the Incoterms® 2020 rules, it us used to indicate where the risk of loss of or damage to the goods passes from the seller to the buyer. (A2/B2). Therefore, not only does the seller have an obligation to deliver, but the buyer also has an obligation to accept delivery. “delivery document” This phrase is used as the heading to article (A6/B6) and means a document used to prove that delivery has occurred. For many of the Incoterms® rules, the delivery document is a transport document or corresponding electronic record. A delivery document may also have other functions, for example, as part of the mechanism for payment. Brief on global trade and legal principle of delivery In the 2020 version DPU replaced DAT, thus one new term, and FCA was subject to fundamental changes. These two thus are briefly analysed for purposes of this publication. According to the ICC Secretary General, John W.H. Denton, “The Incoterms® 2020 rules take account of the increased attention to security in the movement of goods, the need for flexibility in insurance coverage depending on the nature of goods and transport, and the call by banks for an “on-boarding bill of lading” in certain financed sales, under the FCA rule.” In the FCA rule, there is a specific provision to allow, by agreement, that the carrier may provide a Bill of Lading as an example to the seller. This would facilitate Letter of Credit obligations for the parties and confirm to the buyer that the goods have been shipped. The new DPU term was introduced to replace DAT, and now falls into the position after DAP, whereas DAT was previously preceding DAP. Sellers in DPU contracts will wish to ensure that the buyer will perform their customs clearance obligations as the seller will not be in a position to complete delivery if the buyer has not performed customs clearance. Fca & dpu – The changes M Brief understanding of the international contract of sale As you have noted, the chosen Incoterms rule and version must be correctly incorporated into the Contract of Sale. It is again highly recommended that you obtain the official ICC publication titled “ICC Model International Sales Contracts”. Here are some brief legal tips for securing standard contractual terms, conditions, and applications; Contract terms can be divided into “Specific conditions” and “General Conditions”. Definitions Time factors and deadlines Shipment and Delivery conditions - Incoterms (Place) Version etc.
26 FTW Guide to International Commercial Terms Copyright © Freight & Trading Weekly 2020 Applicable Law Payment Conditions Price Ownership and Retention of Title Breach Documents required Termination Dispute Resolutions Breach Notices Conformity of Goods Insurance obligations The above are important criteria to be addressed, however they may not be all the terms to be contained within an international contract of sale. On the ICC official website, is a list of ICC Registered Incoterms® 2020 rules trainers, who have passed ICC’s official Incoterms® 2020 examination to become an ICC Registered Trainer. The registration and certification are issued exclusively by the ICC Academy, the International Chamber of Commerce’s e-learning platform. To become an ICC Registered Trainer of the Incoterms® rules, candidates must undergo an intensive selection process. First, candidates must be nominated by their local ICC national committee, and then, they must pass the ICC Incoterms® 2020 Registered Trainer examination. Given the global importance of the Incoterms® rules, several companies and online publications have sought to profit off the dissemination and sale of false information. ICC has worked in collaboration with the ICC Academy and ICC national committees to ensure that these trainers are fully versed in the Incoterms® rules. If you would like seek assistance from an ICC Registered Trainer, please contact them directly with their local national committee in copy as per details on the ICC website. https://iccwbo.org/resources-for-business/incotermsrules/incoterms-rules-registered-trainers/ N The dangers of not being trained correctly O The ICC previously published a book titled: “Incoterms® 2010 Q&A – Questions & Expert Guidance on the 2010 rules.” The ICC are in the process of compiling a new publication for the Incoterms® 2020 rules, however, the prior publication is very useful to address various key criteria. It is recommended that the new version be obtained as soon as it is published. ICC Incoterms Q & A
Any Mode of Transport Including Multimodal Sea and Inland Waterway Transport EXW Ex Works (...named place) ! e EXW Incoterms® 2020 EXW - Ex Works (insert named place of delivery) Incoterms® 2020 FCA Free Carrier (...named place) ! e FCA Incoterms® 2020 FCA - Free Carrier (insert named place of delivery) Incoterms® 2020 CPT Carriage paid to (...named place to destination) ! e CPT Incoterms® 2020 CPT - Carriage Paid To (insert named place of destination) Incoterms® 2020 CIP Carriage and Insurance Paid To (...named place to destination) ! e CIP Incoterms® 2020 CIP - Carriage and Insurance Paid To (insert named place of destination) Incoterms® 2020 DAP Delivered at Place (...named place to destination) ! e DAP Incoterms® 2020 DAP - Delivered at Place (insert named place of destination) Incoterms® 2020 DPU Delivered at Place Unloaded (...named place to destination) ! e DPU Incoterms® 2020 DPU - Delivered at Place Unloaded (insert named place of destination) Incoterms® 2020 DDP Delivered Duty Paid (...named place to destination) ! e DDP Incoterms® 2020 DDP - Delivered Duty Paid (insert named place of destination) Incoterms® 2020 FAS Free Alongside Ship (...named port of shipment) ! e FAS Incoterms® 2020 FAS - Free Alongside Ship (insert named port of shipment) Incoterms® 2020 CFR Cost and freight (...named port of shipment) ! e CFR Incoterms® 2020 CFR - Cost and Freight (insert named port of destination) Incoterms® 2020 FOB Free on Board (...named port of shipment) ! e FOB Incoterms® 2020 FOB - Free on Board (insert named port of shipment) Incoterms® 2020 CIF Cost, Insurance and Freight (...named port of shipment) ! e CIF Incoterms® 2020 CIF - Cost, Insurance and Freight (insert named port of destination) Incoterms® 2020 ICC Accredited Trainers Thinking ahead – Incoterms® 2020 is going to impact your international trading business, risks, costs and obligations for many years. Contact us at [email protected] to book your course. © All rights reserved. This chart may not be copied, sold or distributed in any manner whatsoever without the express written permission of the publishers FTW. The use of the infographics in this publication wallchart has been provided, courtesy of the International Chamber of Commerce (ICC). #Incoterms2020 @ICC_Incoterms iccwbo.org/incoterms FREIGHT & TRADING WEEKLY www.ftw.co.za