As of January 2020, the latest Incoterms have been implemented. The Incoterms 2020 differ from the previous version dated 2010. This blog discusses the scope of the Incoterms 2020 and the importance of the Incoterms 2020. Finally, some practical tips are provided.
The ICC Incoterms
The Incoterms are "International Commercial Terms" established by the International Chamber of Commerce ("ICC"). Incoterms define the rights and obligations between buyer and seller. Incoterms can be used for (international) trade in all kinds of goods and for various forms of transport.
The importance of Incoterms
As mentioned, Incoterms regulate the rights and obligations between buyer and seller. Among other things, they state who is responsible for arranging transport and insurance, who bears the risk of transport and who must arrange customs formalities. When buyer and seller put the agreements made in writing (in a purchase agreement), they also determine which Incoterms apply.
Incoterms are an addendum to the purchase agreement. They are not intended to replace the purchase agreement. This makes sense, given the fact that Incoterms do not regulate everything that could (and should) be regulated in a purchase agreement. Consider (the consequences of) breach of contract, liability and transfer of ownership.
However, Incoterms can influence, for example, the transfer of ownership. The requirements for transfer of ownership can be found in Article 3:84 of the Dutch Civil Code. This states that three requirements must be met for transfer of ownership:
1. delivery must take place;
2. by virtue of a valid title;
3. by someone authorized to dispose of the good.
Because the 2020 Incoterms determine when delivery occurs, they affect the delivery requirement.
Tips & tricks
Now that we have established the importance of Incoterms, some practical questions remain. How do the buyer and seller know which Incoterms should be declared applicable? And how should Incoterms be referred to?
For the first question, it is important for the buyer and seller to determine what is possible. The form of transportation being used, or the type of goods being traded, precludes applicability of some Incoterms. For example, Incoterms FAS, FOB, CFR and CIF are intended only for maritime and inland waterway transportation. If the goods are not transported aboard a ship, these rules should not be used.
Moreover, the first Incoterm (FAS) is especially suitable for mass goods (products that you do not stack in a container). If the traded goods are transported by container, then these rules should not be used.
For the second question, it is important to know that each Incoterm is identified by three capital letters. Stating only these three capital letters is not sufficient. Reason being is that this could refer to other terms as well. To avoid confusion, a location should be stated after the three capital letters. The Incoterms with the relevant year (in this case 2020) are stated after the location.
If buyer and seller agree that the Incoterm 2020 CIF applies to the trading of mass goods delivered in the Waalhaven Rotterdam, this is stated as follows:
"CIF Rotterdam Waalhaven ICC Incoterms 2020"
Need advice?
Do you have questions about the content of the ICC Incoterms? Do you need help drafting a contract or choosing the right Incoterm? Or do you have other questions in the field of (international) transport law? If so, feel free to contact one of our lawyers.
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