INCOTERMS 2020

Right from the beginning of creation, humanity has infinitely hosted blame games. This pandemic has flooded almost every relationship that involves humans. From family to friends, work, lovers/couples, among others, have boundlessly spilled the phrase, “It is/was your fault.”

International trading transactions have proven to be of no difference. The International Commercial Terms (InCoTerms) has been set up by the International Chamber of Commerce (ICC) to riposte or address some FAQs that often arise among parties. When a seller and buyer are negotiating a contract, the parties need to decide on:

Who will pay/arrange for the transport? Who will bear the risks of loss or damage to the goods during transport? How will the shipping tasks, costs, and responsibilities be shared? Etc. To rejoinder these questions, trading partners often decide to include International Commercial Terms (Incoterms) in their contracts.

Incoterms are pre-defined commercial terms published by the International Chamber of Commerce (ICC). The Incoterm rules define each party’s obligations to a sales contract and the transfer of liability at various stages of the transaction. Governments, legal authorities, and practitioners worldwide accept the Incoterm rules to interpret the most common terms in international trade. Be that as it may, incorporating Incoterms in a contract helps both parties avoid the risk of different interpretations in different countries.

The International Commercial Terms (InCoTerms) was developed by the International Chamber of Commerce (ICC) in 1936. Successive add-ons and modifications in 1953, 1967, 1976, 1980, 1990, 2000, 2010 and 2020. The incoterms 2020 entered into force on the 1st of January, 2020. The incoterms 2020 rules explain a set of eleven of the most commonly-used three-letter trade terms. For example, DDU, FOB, and CIF, among others, reflect business-to-business practices in contracts to sell and purchase goods. Based on the mode of transport, incoterms have been drilled into two categories; rules for any mode of transport and sea and inland transport. But how best to choose the right Incoterms® rule for the particular sale contract? In other words, how best to incorporate the incoterms® practices. Well, let’s consider the following phases one may consider in choosing an incoterm.

In a sales contract, if parties decide to the Incoterms® 2020 rules to apply to their contract, the safest way to warrant this is to specify that intention vibrant in their contract through words such as “[the chosen Incoterms® rule] [named port, place or point] Incoterms® 2020” Thus, for example, CIF Tema Incoterms® 2020, or DAP No 247, Osu Oxford Street, Accra Incoterms® 2020.

It is important to note that leaving the year (for example, 2020) out may cause problems that may be difficult to resolve. The parties, a judge or an arbitrator, need to determine which version of the Incoterms® rules applies to a particular sales contract.

Notably, the place named next to the chosen Incoterms® rule is extremely more critical attributable to the fact that;

  • In all Incoterms® rules except the C rules, the named place indicates where the goods are “delivered,” i.e., where risk transfers from the seller to the buyer. For example, FOB Iskenderun or DAP No 247, Osu Oxford Street, Accra Incoterms® 2020.
  • In the D rules, the named place is the place of delivery and the destination, and the seller must organize a carriage to that point.
  • In the C rules, the named place indicates the destination to which the seller must organize and pay for the carriage of the goods, which is not the place or port of delivery. The C rules then clarify that delivery and destination are not necessarily the same.

These bullets are crucial for risk and cost purposes, not forgetting their relevance in the dispute advice.

In conclusion, occasionally, the parties want or need to alter an Incoterms® rule. The Incoterms® 2020 rules do not forbid such modification; nonetheless, doing so comes with a certain degree of risk. To avoid unsolicited astonishments, the parties must make the intended effect of such changes tremendously apparent in their contract. For instance, if the allocation of costs in the Incoterms® 2020 rules is altered in the contract, the parties should also clearly state whether they intend to vary the point at which delivery is made and the risk transfers to the buyer. Thus, the allocation of cost and risk directly correlates with delivery points.

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