Anyone involved in international trade is undoubtably familiar with Incoterms, the acronym for International Commercial Terms. But familia- rity does not necessary imply in-depth understanding and appreciation. When respondents are pressed to name any of these, two tend to receive regular mention, namely ‘free on board’, or FOB, and ‘cost, insurance and freight’, and this is in part explained by their application in customs valuation.

The FOB Incoterm is said to have been the first to be created, and its origin can be traced to more than two centuries ago. Incoterms were first created by the International Chamber of Commerce (ICC) in 1936, with revisions introduced in 1953, 1967 and 1976 and, since 1980, at the turn of every decade – 1990, 2000 and 2010. On January 1, 2020, Incoterms®2020 will be introduced. Incidentally, 2019 is the ICC’s centenary year and will see the launch of Incoterms®2020 over, or shortly after, Easter before their introduction next year.

The ICC’s drafting process of the Incoterms rules is steeped in secrecy. Incoterms rules provide internationally accepted definitions and rules of interpretation for most common commercial terms used in contracts for the sale of goods. These rules have been developed under the auspices of the ICC and are maintained by experts and practitioners. Incoterms help traders (buyers and sellers) avoid costly misunderstandings and dis- agreements by clarifying the tasks, costs and risks involved in the delivery of goods. Importantly, Incoterms rules are recognised by the United Nations Commission on International Trade Law as the global standard for the interpretation of the most common terms in foreign trade.

With the ICC keeping everyone in suspense and those in the know not saying anything, there has been much speculation about how Incoterms®2020 will look. I certainly do not know, but, having reviewed many resources, I will briefly touch on the main changes that are reportedly under deliberation.

Three Incoterms, ‘ex works’ (EXW), ‘delivered duty paid’ (DDP) and ‘free alongside ship’ (FAS) are likely to be eliminated. The main reasons for their possible demise are that both EXW and DDP tend to be considered to be applicable to domestic trade and appear to be in conflict with the European Union (EU) Union Customs Code (UCC). The FAS, in turn, tends to be seldom used and is quite similar to ‘free carrier’ (FCA), which allows for goods to be delivered at the dock.

The DDP is likely to disappear, owing to inconsistencies with payments of customs expenses, and to be split into two Incoterms: ‘delivered at terminal paid’ (DTP) and DDP. Apparently, under the DDP, the seller is responsible for all transport-related costs, including customs duties when goods are delivered to a terminal (port, airport, transport, and so on) at destination. Under the DDP, apparently the seller is responsible for all transport-related costs, including customs duties when goods are delivered to any other places that is not a transport terminal.

In the instance of the FCA, it is generally acknowledged that the FCA is one of the most versatile Incoterms, which is in large part due to its flexibility with the delivery location. This could quite possibly change, with the FCA splitting into two, one for land transport and the other for sea transport.

Arguably the most exciting change, from a structural Incoterm perspective, is the addition of a new Incoterm, ‘cost and insurance’ (CNI), which is likely to fill the gap separating the FCA Incoterm and the ‘cost and freight’ (CFR) and CIF Incoterms. Supposedly, like all other ‘C’ Incoterms, the CNI will be an ‘arrival’ Incoterm. This simply means that risks and responsibilities are transferred from seller to buyer at the departure port. However, the CNI will allow the exporter to bear responsibility for cargo insurance, while the buyer takes charge of the risk of transportation.

Another exciting development related to the Incoterms®2020 drafting process is that, in addition to the fact that the ICC’s drafting committee brings together 150 countries, for the first time, the People’s Republic of China and Australia are part of this process. There are sure to be more to follow on the Incoterms®2020 release and launch. In the meanwhile, if you are contemplating concluding long-term international trade contracts, do make provision for possible changes to the current Incoterms®2010.