Canada: Coming To A Purchase Order Near You: 2020 Amendments To ICC Incoterms

Contract interpretation can be a serious frustration in international trade, owing to differences in language, law and custom, and leading to misunderstandings, delays, and costly disputes. Since the 1930s, the International Chamber of Commerce (ICC) has published its International Commercial Terms, or "Incoterms", as a set of uniform rules for interpreting the chief provisions used in foreign freight delivery contracts, aimed at assuaging some of the difficulties often experienced by international merchants. Incoterms are not contained in the text of any multilateral agreement or convention, but rather act as stand-alone instruments that parties can incorporate by reference into their agreements. Parties to international sales contracts will often specify that their contracts will be subject to "the most recent version of the Incoterms", which then prescribe the various duties and obligations to be assumed by the vendor and purchaser.

As the nature and scope of international trade are changing constantly, the ICC has amended its Incoterms in every decade since the 1950s. September 10, 2019, saw the release of the most recent iteration, which will come into effect on January 1, 2020.

Principal Changes in Incoterms 2020

The basic purpose of the Incoterms is to delineate how obligations, costs and risks will be divided between the parties in connection with delivery of the goods from the vendor to the purchaser. Such division is achieved by identifying the point where the obligation to arrange for further transport of the goods and to assume further costs and risks is transferred from the vendor to the purchaser. The previous edition — Incoterms 2010 — contains eleven trade terms that could be grouped broadly as (i) rules for sea and inland waterway transport, and (ii) rules for any mode of transport.

In the 2020 amendments, the ICC Drafting Committee has kept all eleven trade terms, but made some notable changes that sellers and buyers should be aware of:

Free Carrier Alongside (FCA).

  • FCA is the most widely-used Incoterm. Offering the most flexibility with delivery location, it is currently referenced in roughly 40 per cent of international trade agreements. Until now, FCA was applicable to all forms of transportation, making it ideal for multimodal transport contracts. Interestingly, the 2020 amendments have revised FCA to govern land and maritime transport separately.
  • This change addresses a gap between the FCA and Free On Board (FOB) Incoterm often used for container shipments. Whereas FOB directs that a seller deliver goods and load them on board the vessel, FCA requires a seller to deliver goods alongside the vessel, at which point the buyer assumes responsibility for loading and all costs thereafter. This process often requires the seller to secure an onboard bill of lading, which may not be easily obtained. Incoterms 2020 amends FCA such that a buyer may direct the carrier to issue such bill of lading to the seller and provides some clarity on the associated financing obligations.

Carriage and Insurance Paid (CIP) and Cost, Insurance and Freight (CIF).

  • The 2020 amendments also make important changes to the Incoterms insurance provisions. Previously, the CIP and CIF Incoterms directed that the seller be responsible for insurance, but required only a minimum level of coverage. This is often commercially unrealistic, requiring parties to better define the insurance and carriage obligations elsewhere in their agreement. Incoterms 2020 has increased the insurance required under CIP, acknowledging the reality that CIP is more often used with manufactured goods. Conversely, CIF typically governs with bulk commodity trades.
  • This Incoterm should also help to abate disputes surrounding duty payment, which frequently arise when using the CIP and CIF rules.

Delivered at Terminal (DAT)/Delivered at Place Unloaded (DPU).

  • In the new Incoterms, DAT has been renamed DPU. DAT is a useful rule, well suited to container operations where the seller bears responsibility for the main carriage. Risk transfers from seller to buyer when the goods have been unloaded. As the instructions to Incoterms 2010 explained however, 'terminal' in DAT could be any place — a quay, container yard, warehouse or transport hub. The renaming to DPU simply acknowledges that goods subject to this term need not be unloaded at a terminal. The change is small, but one that international merchants will appreciate.

Other Notable Changes

While Incoterms 2020 contains some notable improvements, the changes are not nearly as drastic as some commenters were speculating. Perhaps most useful for international traders, Incoterms 2020 includes a more detailed explanation on how to choose the most appropriate Incoterms rule for a given transaction, or how a sales contract interacts with ancillary contracts. The ICC Drafting Committee noted in the lead up to the release that it was well-aware of the seriousness and potential consequences caused by misinterpretations of Incoterms and explicitly aimed to facilitate the understanding of its transport terms with Incoterms 2020. To this end, the amended document includes much-needed clarifications on costs, and contains more precise allocations of the amounts to be paid between buyer and seller. Incoterms 2020 also makes security obligations more prominent, to address ever-increasing security requirements across all forms of transport.

It is also worth noting that, for the first time, the ICC Drafting Committee included representatives from China and Australia. The Committee has been predominantly comprised of European representatives for previous iterations of the Incoterms, so these additional perspectives were no doubt valued in drafting the 2020 amendments. Further, the ICC intends to make all essential information of the rules available via a dedicated Incoterms 2020 mobile app.

Impacts for You and Your Business

Incoterms 2020 will come into effect on January 1, 2020. In the interim, businesses would be well advised to adapt, prepare and train their personnel to address these amendments, and the effects they might have on their current trade practices. To help Canadian businesses get up to speed on the changes and what they mean, the Canadian Chamber of Commerce is working with the Forum for International Trade Training (FITT) to organize training sessions at local chambers of commerce. The locations and dates for these Incoterms 2020 training sessions are to be announced.

About BLG

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions