Incoterms ® 2020 came into effect on 1 January. Here’s what you need to know about the changes to insurance provisions.
Preparing businesses for the next decade of global trade
The International Chamber of Commerce’s international commercial terms – Incoterms® – are the world’s essential terms of trade for the sale of goods. Incoterms® are the regulations that define responsibilities of buyers and sellers for the delivery of goods in international trade and provide specific guidance for individuals participating in import and export trade. The terms also define when the risk for those goods transfers from the seller to the buyer.
As the authoritative rules for determining how costs and risks are allocated to the parties, Incoterms® rules are regularly incorporated into contracts for the sale of goods worldwide and have become part of the daily language of trade. Incoterms® 2020 cover the parties’ obligations to arrange for the carriage and insurance of the goods. They determine the point at which the goods are delivered, the point at which the risk for loss or damage is transferred from seller to buyer and the various costs associated with transporting the goods. As they significantly reduce the scope for misunderstanding, conflict and expensive litigation, their use is encouraged by trade councils, banks and lawyers.
Incoterms® 2020 came into effect on 1 January 2020 and replaced Incoterms® 2010. Taking into account the latest developments in commercial practice, the rules for the 11 trade terms defined by Incoterms® have been updated to make them more accessible and easier to use. Incoterms® 2020 is expected to be the standard for the next decade (through to December 2029).
Incoterms® 2020 rules provide for different levels of insurance coverage in the Cost Insurance and Freight (CIF) rule and Carriage and Insurance Paid To (CIP) rule.
CIF and CIP identify which party must purchase insurance for at least part of the export journey and in both cases that responsibility falls on the seller. Incoterms® 2010 specified that, under both these terms, the seller was responsible for obtaining the minimum level of coverage identified by Clause C of the Institute Cargo Clauses.
- CIF Incoterms® rule (reserved for use in maritime trade and commodity trading) – the Institute Cargo Clauses (C) remains the default level of coverage, giving parties the option to agree to a higher level of insurance cover.
- CIP Incoterms® rule – the seller is now responsible for purchasing a higher level of insurance coverage, at least 110% of the value of the goods, as detailed in Institute Cargo Clauses (A) or similar clauses.
At EBM we recommend the incorporation of appropriate Incoterms® into our client’s contracts and we advise those using the rules to update their documentation, contracts and processes to reflect Incoterms® 2020. Speak to EBM’s Marine Risks team about Incoterms® 2020 and other insurance covers for your international freight.
Incoterms® is a trademark of the International Chamber of Commerce (ICC). The Incoterms® Rules are protected by copyright owned by ICC. Further information on the Incoterm® Rules may be obtained from the ICC website https://iccwbo.org/. The use of the trademark does not imply association with, approval of or sponsorship by ICC unless specifically stated above.
Image source: https://internationalcommercialterms.guru/. For reference only, EBM and ICC cannot verify image accuracy.