ARTICLE
21 October 2010
On 1 January 2011, the ICC’s Incoterms 2010 come into force. These are the eighth revision of the Incoterm Rules, with the last revision dating back to 2000.
United Kingdom International Law
To print this article, all you need is to be registered or login on Mondaq.com.
Introduction
On 1 January 2011, the ICC's Incoterms 2010 come into force.These are the eighth revision of the Incoterm Rules, with the lastrevision dating back to 2000. The new Rules have been revised totake into account developments in international trade over the pastten years as the volume and complexity of global sales hasincreased, to address security issues arising in recent times andto provide for the ongoing changes in electronic communication. Thenew Rules also recognise the growth of customs-free areas.
One of the principal concerns with regard to the Incoterms hasbeen that often the wrong term is selected for use by the parties.The introduction to the new 2010 Rules stresses the need to use theterm appropriate to the goods, to the chosen means of transport andto whether or not the parties intend to impose additionalobligations on the seller or buyer. In addition, there are GuidanceNotes (and a diagram) at the front of each Incoterms Rulecontaining information to assist in making a choice on which Ruleto use.
We summarise below the principal changes to the 2000version.
Reclassification of Rules
The new Rules have been separated into two classes: (i) Rulesfor use in relation to any mode or modes of transport, which can beused where there is no maritime transport at all or where maritimetransport is used for only part of the carriage and (ii) Rules forsea and inland waterway transport, where the point of delivery andthe place to which the goods are carried to the buyer are bothports.
FAS, FOB, CFR and CIF belong to the second class of Rules. Inrespect of FOB, CFR and CIF, reference to the "ship'srail" has now been deleted and this has been replaced with thegoods being delivered when they are "on board" thevessel.
Rules Apply to Domestic as well as International Trade
The Incoterms have traditionally been used for internationalsale contracts even though some trade blocs, such as the EuropeanUnion, have minimised the significance of border formalities. Thenew Rules now recognize that they can also be used for domesticsale contracts and reference is made in a number of the Rules thatexport and import formalities will only need to be complied withwhere applicable. It is anticipated that this change may encouragegreater use of the Rules in the USA in place of the former USUniform Commercial Code.
Two New Terms Replace Four Current Terms
Incoterms 2000 contained 13 Rules, which have been reduced to 11terms in Incoterms 2010. This has been achieved by introducing twonew Rules to replace five current Rules. The two new Rules may beused irrespective of the mode of transport selected and under bothnew Rules, delivery takes place at a named destination. In essence,the "D" (Delivered) terms under the 2000 Rules have beenconsolidated to reduce the number of terms that were considered tohave little real difference between them.
DAT (Delivered at Terminal) replaces DEQ (Delivered ex Quay).DAT may be used irrespective of the mode of transport selected andmay also be used where more than one mode of transport is employed."Delivered at Terminal" means that the seller deliverswhen the goods, having been unloaded from the arriving means oftransport, are placed at the buyer's disposal at a namedterminal at the named port or place of destination. DAT requiresthe seller to clear the goods for export where applicable but theseller has no obligation to clear the goods for import, pay anyimport duty or carry out any import customs formalities. It wasconsidered that DAT would prove more useful than DEQ in the case ofcontainers that might be unloaded and then loaded into a containerstack at the terminal, awaiting shipment. There was previously noterm clearly dealing with containers that were not at thebuyer's premises.
DAP (Delivered at Place) replaces DAF, DES, DEQ and DDU. Thearriving "vehicle" under DAP could be a ship and thenamed place of destination could be a port. Consequently, the ICCconsidered that DAP could safely be used instead of DES and that itwould make the Rules more "user-friendly" if theyabolished terms that were fundamentally the same. Again, a sellerunder DAP bears all the costs (other than any import clearancecosts) and risks involved in bringing the goods to the nameddestination.
String Sales
Commodities are often sold several times over during transitthrough a string of sale contracts. There will therefore be morethan one seller and only the first seller will have beenresponsible for shipping the goods. The new Rules have been amendedto reflect this. For example, CIF and CFR now refer to anobligation to "contract or procure a contract for the carriageof the goods..."
Terminal Handling Charges
Under certain Incoterms 2000 Rules (e.g. CIF/CFR), the buyerpotentially faced paying for the same service twice. The seller wasincluding freight costs as part of the sale price, yet the buyerwas sometimes expected by the carrier or terminal operator to paythe costs of handling and moving the goods within the port orcontainer terminal facilities. Incoterms 2010 seek to avoid thispotential double exposure by clearly allocating such costs underthe relevant Rules.
Insurance Cover and Security Related Clearances
The new Rules take into account the 2009 revision of theInstitute Cargo Clauses and expressly provide for informationduties relating to insurance. They also allocate obligationsbetween the buyer and seller in respect of obtaining or assistingin obtaining security-related clearances for the goods inquestion.
Electronic Communication
The previous Rules provided for the use of Electronic datainterchange (EDI) messages, where the parties had agreed to usethem. Given the evolution of new electronic procedures and thelikelihood that such procedures will continue to evolve, Incoterms2010 provide instead for the use of paper communications or"equivalent electronic record or procedure" where agreedor customary.
Application of Incoterms 2010
As with the previous versions of Incoterms, if parties wish theIncoterms 2010 to apply to their sale contract, they shouldexpressly provide for this in the contract. "Incoterms2010" rather than just "Incoterms" should bereferred to in the sale contract if it is the intention toincorporate the latest version, so as to avoid any subsequentdispute as to which set of Rules applies. If the parties wish toincorporate a specific Rule from Incoterms 2000, or all ofIncoterms 2000, again they should make specific reference to thisin the contractual document.
The content of this article is intended to provide a generalguide to the subject matter. Specialist advice should be soughtabout your specific circ*mstances.
