Easily missed among the New Year celebrations and with much less fanfare, 1st January saw the coming into force of Incoterms 2020.

Incoterms are a set of standard shipping terms commonly used in international trade.

They allocate responsibility for arranging and paying for freight and insurance to or from an agreed place of delivery, loading and unloading of goods and import and export clearance.

Familiar terms include Ex Works (EKW), Free Carrier (FCA), Free on Board (FOB) and carriage and insurance paid (CIP) but there are a total of 11 standard terms to be chosen from under the new rules.

The new rules replace Incoterms 2010. Although in many cases, the changes made to the rules are unlikely to be significant, there are good reasons for all businesses trading in goods internationally to check and consider the application of the new rules to their contracting arrangements.

Firstly, although Incoterms are widely used, there are not always well understood. Common and potentially costly mistakes include using the wrong or an unsuitable term, doing more than is required under the agreed term (for example loading goods); using a term which is inconsistent with the banking requirements (particularly where a letter of credit is being used) and misunderstandings as to the insurance cover in place.

Secondly, for businesses trading with the EU, while the terms of the trade deal to be not struck (or not struck) this year remain very much to be decided, considering some of the matters addressed by Incoterms as part of a wider review of their trading terms may help the businesses identify useful options to anticipate and mitigate possible effects of the UK leaving the EU.

If you would like further advice on the new Incoterms or on your international trading arrangements generally please contact Julian Milan on 0808 166 8827 or email j.milan@sydneymitchell.co.uk

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