Preliminary information about Incoterms 2010

The International Chamber of Commerce (ICC) has now published their Publication No. 715E on Incoterms 2010. These rules can be used from 1st January 2011, although there is nothing to stop organizations from using previous Incoterms as long as this is stated in the contracts in the correct manner and all parties in the contract agree to their use.

There have been a number of changes between Incoterms 2000 and Incoterms 2010 although not as dramatic as the changes between Incoterms 1990 and Incoterms 2000 when, amongst other changes, the phrase C & F was supposedly abolished. We mention this, because even today C & F is often used in contracts world wide.

Interestingly enough, the ICC have stated on the front of their publication that these are the ICC rules for the use of domestic and international trade terms. For some time there has been a movement towards Incoterms being used with domestic contracts involving the shipment of goods, as well as international ones, and in fact there is nothing to stop a company using these terms in a domestic context. The proviso being, as usual, that everyone in the contract chain is aware of the meaning of the Incoterm, if used.

Another interesting point is that the ICC have changed the format of presenting the Incoterms, arranging these now in two groupings.

The first grouping consisting of EXW (Ex-Works), FCA (Free Carrier), CPT (Carriage Paid To), CIP (Carriage and Insurance Paid To), DAT (Delivered at Terminal), DAP (Delivered at Place) and DDP (Delivered Duty Paid) can be used for any mode of transport or multi-modal transport contracts.

The second grouping consists of those terms that should only be used for Sea and Inland Waterways Transport. These include FAS (Free Alongside Ship), FOB (Free on Board), CFR (Cost and Freight) and CIF (Cost Insurance and Freight).

We may be throwing a rather controversial spanner into the works here, but if we have a set of incotems which can be used for any form of transport, then do we really need to have additional terms that are used for only seafreight and inland waterways? The real problem here is that some phrases, such as FOB, are so ingrained in International Trade language, that trying to get rid of them might be a step too far. Also, as we have seen with C & F, if there is a market desire to continue using this Incoterm, then it will continue to exist.

There is no legal reason why these familiar terms should not be used, but anyone doing so may be storing up litigation problems for themselves if something should go wrong with the shipment, and the contracts have not been correctly worded.

With regards to FOB, it is with sadness that we announce the demise of the ship’s rail, that generally non existent and invisible point on a vessel (especially container ships) that marked the passing of risk and responsibility from the shipper to the buyer. It has been replaced with on board the vessel, which although more practical, does actually carry its own risks. The advice here is that anyone using the FOB Incoterms should also, separately and clearly in the contract, specify exactly the point at which the shipper and buyer agree the loading of the goods is complete and risk and responsibility has passed from one to the other. As the ICC point out, the Incoterms rules do not give you a complete contract of use.

The main difference between Incoterms 2000 and Incoterms 2010 is that DAT and DAP have replaced DAF, DES, DEQ and DDU. The demise of DAF and DEQ seemed to bother no-one mainly because they appeared to have been rarely used. DAT effectively replaces DES and DAF replaces DDU. The main problem with DDU was the phrase Delivered Duty Unpaid, where the word Duty caused confusion especially when the term was used with domestic contracts.

There have been other developments. One is the acknowledgement that international trade shipments now require more information than ever due to security issues and various laws which have developed worldwide during the last decade. The new Incoterms, therefore, allocate the obligations to supply this necessary information between the seller and the buyer which is useful.

There is also acknowledgement that the use of Incoterms in String sales, a series of contracts where there is one cargo, but a string of buyers and sellers in a chain, also needed clarification. We are also pleased to note that the previous sticky problem of packing (who is responsible for it, and who pays for it, where necessary) has also been clarified.

Maria Narancic from Point to Point Export Services is an independent international trade adviser who assists organisations world wide with their international trade projects, documentation, Documentary Credits and import/export training.  She is based in the United Kingdom.  If you require any further assistance with the matters mentioned above, please do contact us by e-mail on info@point-point.com or check out other useful articles on exporting on the Point to Point Export Services website at www.point-point.com
 

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