Incoterms 2020

Incoterms 2020: anything new under the sun?


di Avv. Giandomenico Boglione

Since next 1st January a new edition of the Incoterms will come into force, but it is fair to ask whether there have been any real innovations and, conversely,  if more efforts should have been done in the light of the most required need of certainty in commercial trade.

Being mere standard forms, it shall be borne in mind that Incoterms have limited scopes dealing only with the contract of sale, although they may also affect, in specific and nominated cases, some obligations proper of the relevant contracts of transport and insurance that may attach to the same sale & purchase.

Incoterms are so widely used in international sale of goods that international courts will often apply the ICC’s definitions of trade terms, even in the absence of express incorporation, as suggested by the 1980 Vienna Convention for international sale of goods (art.9.2). The potential area of interest is therefore quite ample, despite the set of only n°11 common used 3-letter trade terms adopted by Incoterms and that should reflect B2B practice in any contract of sale.

In essence, Incoterms help individuating when & where the risk upon goods will transfer from seller to buyer in respect of the point of delivery. Useful terms are also provided in relation to costs and documents that the contractual parties shall take care of respectively.

However, no indication or instrument of interpretation are given insofar as transfer of ownership and title to sue, nor do Incoterms assist in relation to quality & quantity of the goods or means of transport; as well as time, place, method or currency of payment and remedies or warranties to be considered in case of breach of any party or force majeure situation.  The following sketch may better assist in appreciating what Incoterms do and do not do, bearing in mind that they may not supersede or replace the contract of sale entirely, but a relevant part of it.

All these aspects, in the lack of any specific agreement, shall be considered under the relevant applicable law to be ascertained, as far as the European market is concerned, pursuant to EU Regulation (Rome I) and the above mentioned CISG Vienna 1980 Convention.

Even insofar as the Jurisdiction aspects, Incoterms may not play a conclusive role as the Italian Supreme Court (Unified Div.) recently held (28.6.2019). With reference to previous ECG dicta (i.e C-381/08, Car Trim case; 9/6/2011, C-87/10, Electrosteel case) the highest Italian tribunal stated that Incoterms may not by itself individuate the place of delivery in case of distance selling, being such pivotal aspect to be analysed according to Bruxelles I bis EU Regulation.

The European Court of Justice has anyhow confirmed that Incoterms play an important role in the non-governmental regulation of international trade or commerce, as they are clauses generally recognised and regularly applied in international commercial usage.

This is why one may read with some concern (or even disappointment?) the 2020 edition that, despite the expectations, have apparently improved very little.  Save for the most useful “Explanatory Notes” to each Incoterms rule and the initial “Guidance Notes” drafted by Prof. Debattista, besides a more precise list of costs and focus on the contractual parties’ obligations, there exists very little “upgrade” to note in respect of the previous edition.

For instance, notwithstanding some criticism and proposals that the provision should have been entirely repealed, the “ex works” (EXW) rule still remains. This leaves unresolved the difficulties faced by international buyers that, abroad of their countries and facing a totally different commercial environment, are usually not in a position to take physical possession of the goods so that they may be exposed to risks (very likely not covered by insurance) for longer than is envisaged by the commercial practice.

Delivery at Terminal term (DAT) has changed into a more identifiable “Delivery at nominated Place” (DAP), very likely because of the immense dimension of recent terminal areas.

The old “FOB” rule for sea transport has been amended, as it now requires sellers to load the cargo on board the vessel nominated by buyers, since apparently the previous indication of the “ship’s rail” as point delivery was cause of confusion.

It is indeed helpful for traders the possibility now envisaged in FCA sales to require buyers to obtain from their carrier a board notation upon bill of lading, as this instrument would be crucial for securing the related payment.

Following to much debate, the Commission has changed the conditions of the insurance coverage only in respect of CIP sales (Carriage & Insurance Paid to), requiring now to meet with Institute Cargo Clauses (A) conditions. CIF (Cost Insurance & Freight), insofar as sea voyages, remained unaltered and so the previous limit of guarantee proper of ICC (C) that appears more obsolete than evanescent in the modern commercial word.

In essence, news of Incoterms 2020 may be resumed as shown below:

As any practitioner may see, more efforts could have been done by ICC in matching the new frontiers of the International trade, for instance lacking any relevant preparation for smart contracts and other new technologies.

The same reference to requirements of security on obligations appears virtually unexplored, even insofar as topic that should deserve a particular attention, such as the VGM (Verified Gross Mass) the Solas mandatory requirement that any cargo shall cope with since July 2016 aiming at reducing the dangers to cargo, containers and everybody involved in container transport through the supply chain.

In conclusion, the timid approach shown may cause that next Incoterms revision should be needed much before next decade, urging ICC to a new edition in a very short future.