[Ed Note: the following is a summary of remarks made by John Habergham at a recent BIFA Regional Meeting]
It is 10 years since the last revision of Incoterms, 2010, and I think that, although much anticipated, the new version appears to be a bit of a damp squib. Certainly, on an immediate view, there appears to be little significant change.
First, there has been a re-ordering of the rules which apply to any mode of transport: Delivered at places (DAP) now being placed ahead of what was delivered at terminal (DAT).
This is because in DAP, delivery takes place when the goods are made available to the buyer on the arriving means of transport ready for unloading. Under what was DAT, delivery took place once the act of unloading had taken place. Therefore, logically, DAP should come ahead of DAT because it has a lesser obligation upon the seller.
In any event, DAT has become DPU – delivered at place unloaded. The purpose really is to emphasise that as this rule was applicable for carriage by any mode of transport, the place of delivery need not be a “terminal” that is more synonymous with carriage by sea.
But the International Chamber of Commerce, themselves, don’t think that the changes are cosmetic. They are of the view that their changes are substantial attempts to make the international trading community more readily understand the rules, how they work and which may, therefore, have been more appropriate for their particular line of business.
In this regard, what were Guidance Notes and which appear at the start of each particular rule are now titled “Explanatory Notes for Users” and they are more detailed. There are more schematics. The idea is to explain when risk transfers and how costs are allocated. As ever, the idea is that the more certainty there is in these matters, the less potential for disputes.
Costs: A further example is costs. Previously, costs could be found amongst the various lettered paragraphs. What they have done now is to lump costs into one particular place so it is, as they say, a “one stop list of costs”.
Security, reflecting the heightened status of security in the world as a whole, and noting that the security related obligations are mainly to do with carriage, security related obligations are included in the carriage requirements of each particular rule. Security relating to costs are also given a more prominent position in the costs article. See A4 and A7 of each Incoterm rule and A9 and B9.
Insurance: remember that CIF applies to carriage by sea. CIP, which is essentially the same obligations upon the seller, applies to any mode of transport.
In the 2010 Rules, the obligation in this regard was to procure cover on Institute of Cargo Clauses C – in other words the minimum cover and itemising perils. There was pressure to have the bench mark to be ICC(A) – all risks. But in the end, after some debate, and after pressure from certain industry sectors, it was agreed that ICC (C) should remain for ocean carriage – CIF,; but for CIP, ICC(A) would be the norm. In either stance, parties can contract for either higher or lower standards of cover.
Own carriage: previous Incoterms were premised on carriage by a third party.
But in their deliberations leading up to Incoterms 2020, the committee realised that, in some instances, both sellers and buyers were using their own transport and the rules didn’t appear to take into account this scenario. So, certain of the rules, FCA (applicable to buyers) and DAP, DPU and DDP (applicable to sellers) the now cater not only for making a contract of carriage but also for simply arranging the necessary carriage.
Bills of lading and FCA: In FCA sales, it was considered that banks, in documentary credit type transactions, would want an “on board” notation in the bill of lading. But delivery under the FCA rule occurs before loading on board the vessel. This is because FCA can be used for any mode of transport and there may be a road leg before ocean carriage. Delivery can take place at the seller’s premises. So an on board bill of lading would be difficult to obtain. To solve this particular problem, FCA now provides an additional option the parties can agree that the buyer will instruct its carrier to issue an on board bill of lading to the seller after the loading of goods, the seller then being obliged to tender that bill to the buyer – typically through the banks in a documentary credit type transaction. The ICC were clearly unhappy about this blurring but made it clear that they were simply responding to a market driven need.