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Delivering the Incoterms® 2020

15 Oct 2019

Incoterms® provide an established set of trading rules which govern the international delivery of goods. Last month, the International Chamber of Commerce released an updated version, the ‘Incoterms® 2020’, which will come into effect on 1 January 2020 replacing Incoterms® 2010.

So what’s changed?

The Incoterms® 2020 bring the trading rules up to date by:
  • introducing mechanisms to align insurance coverage;
  • allowing the use of electronic documents;
  • creating more flexible ways for parties to agree transportation means; and
  • allowing for security-related requirements within carriage obligations and costs. 

What impact will Brexit have?

Clarity around international trade could not be more topical; with Brexit set for 31 October, now more than ever, you should carefully review how goods are purchased from, or delivered to, countries outside of the UK. What was once tariff-free trade may become subject to tariffs. 
 
Although many businesses are waiting until after Brexit to make business critical decisions, there is no time like the present;  by ensuring your business is trading effectively with both its international customers and supply chain, the costs and risks of such trading will be minimised.  

We know of many UK businesses who have supplied goods to EU partners over a number of years on a DDP (Incoterms® 2010) basis, which means that they are required to deliver goods duty paid. Since there was no duty due, the use of DDP (Incoterms® 2010) was of little consequence. Post-Brexit, if duty does become payable, its payment will fall on these UK businesses - reducing their margins.

What should businesses do next?

Businesses already using Incoterms®  should ensure that any term currently used, still reflects how the business trades in practice under the updated 2020 version. If an Incoterm®  no longer accurately reflects your business’ trading practices, any existing contracts using that term will need to be varied – you will need to check the relevant contract to see how it may be varied.
 
Any businesses which do not already use Incoterms® may wish to clarify their trading practices by citing the Incoterms® 2020 in any business contracts effective from 1 January 2020.
 
No matter what sector your business operates in, if it trades goods internationally (regardless of whether within or outside the EU), the use of the Incoterms® 2020 could help to minimise the risks to your business.
 
Please contact our Commercial team for assistance with international trade contracts.
 

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