Insider thoughts: Some FAQs on Incoterms® 2020 with Bob Ronai

In this article, Bob Ronai, a member of the Incoterms® Drafting Group for Incoterms® 2020, answers some of the frequently asked questions (FAQs) on the new Incoterms® Rules.

Mr Ronai is also a social media influencer and  actively moderates the LinkedIn Incoterms® Group. The community boasts of more than 20,000 members from all around the world, in industries including trading, forwarding and logistics, banking and legal.

Mr Ronai says, “Questions will always arise with any set of rules as they cannot cover all eventualities. The latest version of the International Chamber of Commerce’s (ICC) Incoterms®2020, which came into effect on 1 January this year, is no different.”

In this piece, Mr Ronai covers some of the interesting bits adapted from questions asked by the Incoterms® community members:

Q: With delays due to COVID-19, who is supposed to pay for demurrage and storage in the import port in Delivered at Place (DAP)?

A: In Delivered at Place (DAP), Incoterms® 2020 B9d applies: if the buyer fails to fulfill its obligations in B7 to import and clear the goods, they must reimburse the seller for any additional costs incurred. In Incoterms® 2010, it is B5a.

It is also a matter of checking if the contract just stated “DAP” with or without reference to any version of Incoterms® rules. Just “DAP” on its own gives no guidance or obligations.

This will also depend on the agreed place of delivery – is it at a terminal or somewhere beyond the terminal?

  • If at a terminal, then the buyer or their agent, who tries to collect the container, will be charged for demurrage and detention.
  • If delivery is beyond the terminal, then the seller’s agent will be charged, they will charge their client (the seller) and the buyer must reimburse the seller.

If the goods have arrived by air or as *Less than Container Load (LCL), then DAP terminal does not work. The correct rule would be Delivered at Place Unloaded (DPU) Incoterms® 2020 or Delivered at Terminal (DAT) Incoterms® 2010. (This is not explained in any of the D rules because, at times, abstract contract matters are dealt with rather than real-life logistics matters). Use the D rules at your peril!

Q: Regardless of the Incoterms® 2020 rule chosen, what do you understand by “duty unpaid” and “duty paid”?

A: “Duty” refers to import customs duty and taxes. All rules, except Delivery Duty Paid (DDP), are “duty unpaid.” This means that the seller’s price to the buyer does NOT include import duties and it is the buyer’s responsibility to import clear. In DDP, the seller must import clear which usually has many difficulties.

Q: Under Free on Board (FOB), buyer contracts for carriage. Does the seller have a right to refuse to load on the ship nominated by the buyer? If so, under what circumstances?  

A: It depends! Why did the seller refuse to load? Mostly it will be a matter of contract law rather than the Incoterms® 2020 Rules.

Q: Incoterms® 2020: In the Cost Insurance and Freight (CIF) rule, seller is obliged, at its own cost, to obtain cargo insurance for the buyer’s risk in accordance with the minimum insurance cover of Institute Cargo Clauses (C).  In the Carriage and Insurance Paid to (CIP) rule, the cargo insurance is the maximum cover of Institute Cargo Clauses (A).
Why the difference?

A: The 2020 Drafting Group is of the view that CIP is typically used for air, land and sea (container) shipments of manufactured goods. Hence, the minimum cover for them should include more risks than the minimal ones in Institute Cargo Clauses (C) as in the previous rules.

Institute Cargo Clauses (A), often referred to as “all risks” cover, is more appropriate. Institute Cargo Clauses (C) covers only certain defined risks, essentially dealing with loss or damage to the goods due to something happening to the carrying vessel and is more appropriate to bulk goods and commodities.

It needs to be noted that these insurance requirements provide default levels of cover, if nothing is mentioned about them in the contract of sale. However, the seller and buyer are free to agree on whatever level of insurance they would like in their contract of sale.

Q: If the agreed rule is Incoterms® 2020 Free Carrier (FCA) Seller’s premises, as a buyer, once the delivery of goods is taken, it’s the buyer’s risk. Does this mean that the buyer can book the goods financially into his/her goods in transit account?

A: The Incoterms® Rules do not deal with accounting conventions. At first glance, the answer would be “yes”, as the buyer has taken delivery.

Q: In an FCA Seller’s premises Incoterms® 2020 contract, the *Verified Gross Mass (VGM) declaration should be arranged by the seller or the buyer?

A: VGM is completely unrelated to the Incoterms® 2020 rules and was therefore deliberately not dealt with. It needs to noted that FCA does not mention the ‘mode of transport’ because the seller has no obligation to the buyer and the buyer has no obligation to the seller, regarding any particular mode.

VGM does not apply to air, road, rail, and *LCL until consolidated into a *Full Container Load (FCL). The VGM declaration would be made by whoever packed the FCL, which might be a third party, such as a supplier or a carrier and not the seller. It is advised to read the SOLAS regulations for a particular transaction to determine who is responsible for it.

* Reference:
LCL: Less than Container Load, meaning a smaller shipment which is consolidated into a mixed goods container by a consolidator so that it goes as an FCL (Full Container Load); largely because containers are virtually the only way to ship non-bulk goods these days.

VGM: Verified Gross Mass, a requirement of the SOLAS (International Convention for the Safety of Life at Sea) regulations pertaining to containers submitted for loading onto ships. 

About the author
This is the 2nd guest post from Bob Ronai, first Australian and only the second non-lawyer to be invited by the ICC to be a member of their Incoterms® Drafting Group to draft the new Incoterms® 2020.

Please note this is an opinion piece and Mr Ronai’s views do not necessarily represent the views of ICC or the ICC Academy. For any clarification regarding the rules we recommend you take the official Incoterms® 2020 Certificate or purchase the Incoterms® 2020 Publication from the ICC. If you have any comments on this article, please feel free to reach out to Mr Ronai