Revision to International Commercial Terms: Incoterms® 2020
Introduction
INCOTERMS are a set of rules introduced by the International Chamber of Commerce (ICC) to explain the commercial terms that are widely used in international trade. The purpose of the Incoterms rules is to contribute to and facilitate the safe and swift conduct of international trade. A reference to Incoterms by the parties in a sales contract will minimize the possibility of conflicts in the parties’ interpretation of delivery terms through clearly identifying the parties’ reciprocal rights and obligations.
The Incoterms were first created by the ICC in 1936, and have been developed and renewed many times since that time. Due to the continuous developments in global trade following the introduction of the Incoterms® 2010, the ICC felt the need to revise the Incoterms again, and launched the Incoterms® 2020 on 10 September 2019, with effect from 1 January 2020.
Scope of Incoterms
The Incoterms regulates certain aspects of contracts of sale and, in particular, the parties’ rights and obligations in terms of delivery of the goods, transfer of risk and allocation of costs, as well as insurance and documentation requirements in 11 trade terms, each consisting of a set of ten articles, numbered A1/B1 to A10/B10.
It must be emphasized that the Incoterms rules are not in themselves contracts of sale or their substitutes; therefore, all aspects of a contract of sale are not regulated. The following subjects are not covered by the Incoterms: (i) whether a contract of sale exists; (ii) specifications of the goods sold; (iii) time, place, method or currency of payment of the price; (iv) remedies that may be sought for breach of the contract of sale; (v) consequences of delay and other breaches in the performance of the contractual obligations; (vi) effect of sanctions; (vii) imposition of tariffs; (viii) export or import prohibitions; (ix) force majeure or hardship; (x) intellectual property rights; (xi) applicable law or method and venue of dispute resolution; and (xii) transfer of property/title/ownership of the goods sold.
The Incoterms rules are not designed to reflect trade practices for a particular trade or particular goods. They may be used irrespective of the type or nature of the goods.
Main Revisions in Incoterms® 2020
Purpose of Revision
The main purpose behind the Incoterms® 2020 revision is to make the Rules more affordable, accessible, user-friendly, intuitive and practical. An emphasis has been given by the Drafting Group, which I am glad to be part of, as to how the presentation of the Rules could be enhanced to provide that the users choose the Incoterms rule that best suits their sales contract. For this purpose, the Incoterms® 2020 includes more graphics than before, and a clearer and more detailed general Introduction, as well Explanatory Notes for Users relating to each Incoterms rule. Aside from these structural changes, the Drafting Group put forth great efforts to take into consideration the latest developments in international trade, and obtained views from a broad spectrum of stakeholders and national associations, including those in commodities trading, banking, insurance, transport, customs, freight forwarding, logistics, import/export, compliance, etc.
Structural Changes
- Re-ordering of Articles within each Rule: A re-ordering has been made among the Articles of each Rule, as a result of which delivery and transfer of risks have been given more significance. Delivery and transfer of risks now directly follow general obligations, and then comes the obligations concerning carriage, insurance and delivery/transport documents, followed by the export/import clearances, checking/packaging/marking, allocation of costs, and notices.
- Change in the three-letter initials from DAT to DPU: In the Incoterms® 2010, although DAT referred to ‘Delivery at Terminal’, the Guidance Note acknowledged that the term ‘terminal’ included any place, whether or not covered, such as a quay, warehouse, container yard or road, rail or air cargo terminal. To express that a terminal could be any place, the name of the Rule has been changed so as not to include such word. In addition, the fact that the DPU seller, unlike a DAP seller, delivers the goods once unloaded from the arriving means of transport has been emphasized, as the name now includes the word “unloaded”.
- Placement of DAP before DPU: Incoterms® 2020 places DAP before DPU, as it burdens the seller with less obligations as compared to DPU, where the seller also carries the obligation to unload the goods from the arriving means of transport.
- Explanatory Notes for Users: The previous title of “Guidance Notes” has been replaced with the title “Explanatory Notes for Users” and, the content, as well, has been extended. The Notes now include more detailed explanations to alert the user of all significant issues relating to the relevant Rule, and give wide girth to the graphics that provide a visual explanation in terms of delivery, mode of transport, export/import clearance, etc.
- Horizontal presentation: The Incoterms rules traditionally appeared only in a vertical version, where each Rule listed all Articles from A1/B1 to A10/B10. Now, in addition to that, the Rules include a horizontal presentation, which lists all ten Articles of each Rule, successively, first for the seller, and then for the buyer. This new type of presentation will make it easier for the users to distinguish between different Rules in terms of the chosen subject, e.g. costs, export/import obligations, insurance, etc.
- Where costs are listed: Whereas the various costs to be allocated by the Articles have traditionally appeared in different parts of each Rule, in the Incoterms® 2020, A9/B9 now lists all of the costs allocated by each particular Incoterms rule. By virtue of this novelty, users will be able to see all of the costs that they will incur as the seller or the buyer in one place. Therefore, the Incoterms® 2020 provides a one-stop list for all of the costs. It is noteworthy to mention that costs also continue to be mentioned under the relevant Articles.
Changes in terms of Content
- Bills of lading with an on-board notation in the FCA: When the FCA rule is chosen for sea carriage, either sellers or buyers or their banks who have provided a letter of credit might wish to have a bill of lading with an on-board notation. To the contrary, delivery under the FCA rule is completed prior to loading the goods on board the vessel and, therefore, the carrier usually provides an on-board bill of lading only after the goods are actually on board, making it impossible for the seller to obtain an on-board bill of lading from the carrier. As a solution, FCA A6/B6 of the Incoterms® 2020 provides that if the parties have so agreed, the buyer must instruct its carrier to issue to the seller a transport document stating that the goods have been loaded, such as a bill of lading with an on-board notation thereon.
- Different levels of insurance coverage in CIF and CIP: Both Rules previously provided for insurance with minimum coverage as provided by Clauses (C) of the Institute Cargo Clauses (Lloyd's Market Association/International Underwriting Association ‘LMA/IUA’) or any similar clauses. Considering the need for higher coverages, but also taking into account those involved in the maritime trade of commodities, no change has been made to the CIF, which is more frequently used in the maritime commodity trades. On the other hand, in the CIP, coverages have been extended to Institute Cargo Clauses (A), which are known as “all risks,” subject to certain exclusions, in the marketplaces. The parties are free to agree on higher or lower coverages under both Rules.
- Arranging for carriage with seller’s or buyer’s own means of transport in FCA, DAP, DPU and DDP: The previous wording of the Rules have always assumed that a third party would be engaged when the goods had to be carried from the seller to the buyer, as if it were not possible for the seller or the buyer to arrange for carriage through its own means. As this is not the case, the Incoterms® 2020 expressly provides for this opportunity through including in A4/B4 of the terms FCA, DAP, DPU and DDP that the buyer or the seller, as the case may be, must either contract or arrange for the carriage of the goods.
- Inclusion of security-related requirements within carriage obligations and costs: Security in the movement of goods has attracted more and more attention in international trade in recent years. Although the Incoterms® 2010 also included security-related requirements, the Incoterms® 2020 emphasizes such requirements and includes their allocation in A4 and A7 of each Rule, regarding carriage and export/import clearances, respectively.
Conclusion
The Incoterms® 2020, which will take effect as of 1 January 2020, offers a more simple and clearer presentation of all the Rules, enabling users to more easily choose the Incoterms Rule that best suits their sales contract. The horizontal presentation of the Rules, which is included for the first time in the Incoterms, will also assist users in choosing the best Incoterms rule for their commercial requirements, as they will be able to differentiate between each Rule more easily. Changes in terms of contents of the Rules are an outcome of the diligent and extensive work of the ICC and the Drafting Group, which are intended to accurately fit the current needs of traders.
All rights of this article are reserved. This article may not be used, reproduced, copied, published, distributed, or otherwise disseminated without quotation or Erdem & Erdem Law Firm's written consent. Any content created without citing the resource or Erdem & Erdem Law Firm’s written consent is regularly tracked, and legal action will be taken in case of violation.
Other Contents
The Turkish automobile and light commercial vehicle market left the 2000s behind with steadily rising sales figures and the 2010s with high and stable sales figures as well. In this period, the growth of the market was driven not only by high purchase power but also by easy access to credit and product diversity...
Turkish Commercial Code No. 6102 ("TCC") provides the right to exit from the company to the shareholders of limited liability companies and the right to squeeze out the shareholder from the company, unlike the structure of joint stock companies, with the exit and squeeze out institutions specially regulated for...
Turkish Commercial Code No. 6102 (“TCC”) preserves the rule that the board of directors shall manage and represent joint stock companies. The TCC regulates how the power of representation shall be exercised, the registration and announcement of the persons authorized to represent, the transfer of the...
Ordinary partnerships are regulated under Turkish Law between Articles 620 and 645 of the Turkish Code of Obligations No. 6098 (“TCO” or the “Code”). The Law defines an ordinary partnership contract as a contract where two or more persons undertake to combine their labour or property to achieve a common...
Merger and acquisition processes are one of the legal processes that most seriously affect the identities and legal status of companies. After the completion of legal, tax, financial and operational due diligence reports, the parties initiate the negotiation process in case they reach an agreement on proceeding with the...
A popular business model for expanding market reach and brand recognition worldwide is franchising. Despite being less common than distribution agreements in the form of mono-brand store agreements, franchising is another significant method for extending luxury brands' distribution networks. Luxury brands use...
In the decision dated 14.06.2022 and numbered 2019/149 E. 2022/894 K., the Court of Cassation General Assembly (“CCGA”) evaluated the theory of piercing the corporate veil in the context of the relationship between the guarantor and the borrowing company in a dispute arising from a loan agreement...
The European Union continues to be an important investment center for foreign investors. According to data from the European Commission's "Second Annual Report on the monitoring of foreign direct investment in the European Union", the European Union received €117 billion worth of foreign direct investment in...
Transfer of shares is arguably the first legal transaction that comes to mind among the legal transactions regarding the shares of a capital company, and the most common transaction in practice. However, the shares of a capital company may also be subject to various transactions, other than share purchase...
Law No. 6563 on the Regulation of Electronic Commerce (E-commerce Law or Law) has recently undergone a radical change in order to regulate the behavior of the players in the rapidly growing and developing e-commerce sector. The new regulations that came into force as of January 1, 2023 envisage important...
On 11 June 2021, the German Federal Parliament approved the German Supply Chain Due Diligence Act (Lieferkettensorgfaltsgesetz) (“Act”) which affects not only German entities but also their suppliers in foreign countries (including Turkish entities). The main focus of the Act, which entered into force on...
On 21 December 2007, the Federal Council approved the draft revision of the Swiss Code of Obligations, which also includes amendments to company law. On 28 November 2014, the Federal Council referred the draft revision for consultation. Following extensive discussions and a long enactment process, the...
The Turkish Commercial Code No. 6102 ("TCC") regulates maritime trade contracts under the fourth part of the fifth book of the Code. Among the types of contracts regulated in this section, the most frequently used contract in international maritime transport practice is the freight contract regulated under...
Prohibition on hidden income shifting is one of the most important issues that is broadly regulated under Capital Markets Law No. 6362 (“CML”). In conjunction with CML Article 21, which has a broader context than Article 15 of the abrogated Capital Markets Law No. 2499, another significant step has been taken...
As a result of developing commercial activities and large-scale investments, especially concluded in the fields of construction, energy and mining, companies are seeking to participate in these investments by uniting their powers and expertise to take advantage of financial opportunities together. This tendency...
The Turkish Commercial Code (“TCC” or “Law”) has enabled companies to apply different structural models and to implement new legal formations by including spin-off provisions to its Article 159 et seq. In accordance with the provisions of the law, companies may transfer a certain element, or elements, of their...
The International Federation of Consulting Engineers is a professional association established in 1913, known as the FIDIC (Fédération Internationale Des Ingénieurs-Counseils). Its members are duly elected from consultant-engineer associations of various countries, and membership to the association is...
Incoterms are a set of rules introduced by the International Chamber of Commerce (ICC) to explain the commercial terms that are widely used in international trade. The purpose of Incoterms rules is to facilitate and expedite international trade in a safe and secure manner...
The regulation applicable to all Turkish ports prepared by the Ministry of Transport, Maritime Affairs and Communications that entered into force after being published in the official gazette on October 31, 2012 (˝the Regulation˝), consolidates all the bylaws, regulations and instructions in a single Regulation...
As a rule, rights and obligations arising from an agreement have legal consequences only between the creditor and the debtor which are parties to the agreement. This principle is referred to as "privity of contract." In general, contracts for the benefit of third parties, where the fulfillment of an...
The rules of e-commerce, which grow and develop with the digitalizing world, are changing. E-commerce has become the driving force of the digital economy. However, considering the growth rate of e-commerce and the transformation it has undergone in a short time, it is obvious that some...
The dissolution of a company is a specific type of dissolution, which results in the cancellation of the legal personality which was gained by registration at incorporation. The specific proceeding which leads to the dissolution, and thus, the termination of a company upon the constitutive decision...
Companies in which shares or authority to manage is held by members of a family are considered to be “family businesses”. Family members can hold shares that control the company, as well as retain management authority. Having a family business means opportunity, security and income for...
Turkey ratified the Convention on the Contract for International Carriage of Goods by Road (“CMR”) in accordance with Act No. 3939 dated 7 December 1993, and the CMR entered into force in Turkey on 31 October 1995. In accordance with Article 1 / 1 of the CMR, the carriage of goods by road...
Ordinary partnerships are governed by Article 620 et seq. of the Turkish Code of Obligations No. 6098 (“TCO”). An ordinary partnership agreement is defined as an agreement whereby two or more persons undertake to join efforts and/or goods to reach a common goal...
The concept of disguised profit transfer in joint stock companies, in its broadest meaning, covers the transfer of company assets to related parties and may occur in different ways. This concept is regulated in detail under capital markets legislation...
Share subscription agreements, which are commonly encountered in start-up investments, set out the terms and conditions of an investor’s participation in a company as a shareholder by subscribing the new shares issued in a capital increase...
The electronic signature, which has the same legal consequences as wet signatures if it meets certain conditions, has taken its place in many legal systems and has enhanced commercial life. Although there are various types and applications in different legal systems...