An example analysis of incoterms 2020 edition

        Since the implementation of Incoterms 2010 (hereinafter referred to as Incoterms 2010) in 2010, there have been a large number of cases and difficult problems in practice. Therefore, IN September 2016, THE International Chamber of Commerce (ICC) officially launched the drafting of Incoterms 2020 (hereinafter referred to as the 2020 Edition) in order to remedy and correct the deficiencies of the 2010 Edition.

        The 2020 Edition of the General Rules was officially implemented on January 1, 2020, replacing the 2010 edition of the General Rules, which had been in effect for 10 years. It is urgent to update the knowledge of relevant personnel in import and export transactions, international logistics and bank international settlement, so as to gain advantages and avoid disadvantages in the current import and export transactions.

        Compared with the general Rules of 2010, the General Rules of 2020 are mainly revised in the following three aspects:

        In some trade terms it is stipulated that the buyer and the seller may use their own means of transport to arrange the shipment

        In the general Terms 2010 edition, the goods will be carried by a third party carrier employed by the seller or the buyer for the purpose of carrying the goods according to the interpretation of different incoterms. However, in some cases, goods may be transported from the seller to the buyer without hiring any third party carrier. In response, the 2020 General Rules not only explicitly allow the establishment of transport contracts, but also allow the arrangement of only necessary transport under the group D terms (DAP, DPU, DDP) and FCA terms. When the term FOB was originally applied in the general Rules 2010 edition, it was easy to appear the following cases in which the buyer colluded with the third-party carrier employed to defraud the goods; However, when the term FCA is used under the general Rules 2020 edition and the buyer sends its own means of transport, such situation may be more likely to occur, so the seller should take precautions in advance. In addition, the Buyer shall also ensure the reliability of the take-over/pick-up documents submitted to the Buyer under DAP, DPU and DDP when the Seller uses its own means of transport.

        Case analysis

        In FOB terms, because the booking of shipping space is handled by the buyer, this provides an opportunity for some illegal importers and the ship to collude to defraud goods, China happened a case as follows.

        A domestic export company exports 10,000 tons of cement to South Korea, with a value of 400,000 USD. The FOB terms are concluded. The Buyer from South Korea will hire a Vietnamese cargo ship to transport the whole cargo from Qingdao port to a port in South Korea, and the payment method is sight L/C. Later, due to the shortage of goods in China, we requested the Korean buyer to delay the shipment. The buyer agreed, but the L/C was not extended, and the payment method was “collection against documents”. We did not object to this. In the l/c expires, the buyer of the ship to, we obtained after loading the master bill of lading, issued by the other required documents are attached, send the bank of China, a, south Korean importer to handle “in the collection,” but when documents are sent to South Korea after the issuing bank, because of the bill of lading date later than the date of l/c, documents and the l/c has lost the bank guarantee, The Bank of Korea can only collect payment from the importer on D/P basis. But at this time, the Korean importer refused to pay the redemption order on an excuse, and claimed that the goods had disappeared. According to our investigation, the South Korean importer had already taken the goods from the ship without the bill of lading, and the ship had not docked at the Chinese port since then. Therefore, we could not apply to the court to take remedial measures such as ship detention and auction, which resulted in a significant loss of our payment for goods.

        It can be seen that under FOB export contract, the seller should pay attention to the credit standing of the buyer and also require that the vessel sent by the buyer is of good reputation, preferably if the shipping company has an office or permanent agency in China. In addition, it shall be stipulated in the contract that the buyer shall inform the seller by cable of the name, nationality and company of the vessel before dispatching the vessel, subject to our confirmation. In FOB export contracts, l/C payment should be insisted especially to ensure the bank’s obligation to guarantee payment.

        The DAT and DAP terms have been modified appropriately

        In the general Rules 2010, the only difference between DAT and DAP is that, under the DAT term, the seller delivers when the goods are unloaded from the arriving vehicle to the “terminal of carriage”; In DAP terms, the seller delivers when the goods available for unloading on the arriving vehicle are placed at the disposal of the buyer. For this reason, the 2020 General Rules have made two amendments to DAT and DAP. One is that the order of the two terms presented in the 2020 General Rules has been reversed, and DAP delivered before unloading now appears before DAT. Another is that the name DAT has been changed to DPU (Delivered at Place Unloaded), which underlines the reality that the destination can be anywhere, not just the ‘terminal of transport’.

        The obligation of the seller to insure different minimum risks under CIF and CIP terms is stipulated

        Under both CIF and CIP, the seller is obliged to “obtain at his own expense at least the minimum risk insurance for the goods in accordance with section C of the Institute of London Cargo Insurance Clauses (Lloyd’s Market Institute/Institute of International Insurers of London) or other similar clauses”, according to the general Rules 2010 edition. While the 2020 edition rules on CIF and CIP terms stipulated in the different minimum risks – because the CIF is more likely for shipping the commodity trade, although the parties still free to negotiate a higher insurance risks, so it still will maintain the London insurance institute cargo clauses (C) or other similar risks as the present situation of the implied position; Under CIP, the seller must now obtain coverage in accordance with institute of London Cargo Clauses (A) or other similar risks, although the parties are still free to agree on A lower coverage.

        Case analysis

        In early May 2021, A Chinese export company A signed A business deal with A South Korean import company B. Company A exported A batch of shampoo products to company B. The two parties have been cooperating for a long time. Before that, the term CIF was generally used, and the explanation of the term is subject to the general Rules 2010 edition. For this batch of shampoo and hair products, B Company in South Korea requires CIP term, and the general Rules of 2020 edition shall prevail. Company A thinks that CIP is more applicable than CIF, so it doesn’t care and agrees to the requirements of The Korean company. Company A insured against FPA. Subsequently, the goods suffered damage due to a broken water pipe on the ship during transit. When making a claim to the insurance company, B Company of South Korea found that our company had only insured fPA, and the risk of fresh water and rain involved in the loss of this lot of goods was not covered by fPA. Therefore, they thought that our company had not considered the insurance properly and asked for liquidated damages.

        According to the general Rules of 2020 edition, under CIP, the seller is obliged to insure against higher risks, unless otherwise agreed by the buyer and the seller. Therefore, Chinese Company A shall insure against all risks according to the agreement. In order to avoid loss, our company should consider the selection of relevant trade terms and incoterms in advance.

Article source：Xiao er of customs affairs