The Incoterms 2020 rules one year on

This first anniversary of the publication of Incoterms 2020 (ICC publication 723) passed on 10 September without any fanfare from ICC.

Behind the scenes, work has been progressing on various official publications, including an update to the ICC guide on transport and the rules.

It is now public knowledge that there have been some sharp disagreements among the co-authors of this book.

One surprising area of disagreement is the meaning of the important word “unloaded”!

A critical case is where one of the “D” rules is used.   The place is specified as a container yard, and the container’s contents are for a single buyer (Full container or FCL.)

To simplify the discussion, let’s assume that import clearance and payment of duty are the buyer’s responsibility, so our choices for the rule are either Delivered At Place DAP or Delivered at Place Unloaded DPU.

At first glance, one might think that the answer is obvious.  For DPU Delivered at Place Unloaded, section A2 of the rules states clearly that the seller delivers the goods “unloaded from the arriving means of transport”.  This is the ship, and the container will be moved from the ship to the container yard, at which point delivery is complete.

However one of the co-authors of the guide argues forcefully that the goods have not been delivered yet!  His reasons are:

• The goods are the contents of the container, and do not include the container itself.   Whilst in the container, the buyer does not have access to them, cannot touch them and so on
• The container is part of the transport system, made temporarily available for the purposes of efficient movement of the goods.

His view is that the correct rule here is Delivered at Place DAP

An implication of this line of reasoning is that a container is a “means of transport”, even though it cannot propel itself independently.  (Or if not a means of transport, perhaps an extension of the container ship.)

But against this view, let’s look at A2 Delivery for DAP

“The seller must deliver the goods by placing them at the disposal of the buyer on the arriving means of transport ready for unloading at the agreed point, if any, at the named place.”

If delivery at the container yard has been agreed, both parties know that the goods cannot be unloaded there!

To date ICC has avoided taking a side on this matter.  The current draft of the new guide states that there are two different understandings of “unloaded”; so that in their contracts the parties should agree on what “unloaded” means.

A pragmatic view might be that in many cases this precaution is unnecessary.  Any set of rules is  based on a set of unstated but widely agreed assumptions – this may be referred to as standard industry practice or “tacit knowledge”.

In the case of FCL delivered to a container yard, both buyer and seller should know that the buyer has no role in the unloading of the container from the ship, and that the container yard is not the place where the contents of the container are removed.  And it is an accepted principle of arbitration that when the parties have not expressed their intentions in the contract, custom and practice can be used to come to a judgement.

Or to put it another way, it would be a strange buyer who complained “The Incoterms rule is DPU, but my supplier has not removed my goods from the container whilst in the container yard”.

Or “The rule is DAP, but they won’t let me unload the container from the ship”

We will report again when we have further news on this and and other issues that the ICC is wrestling with.