INCOTERMS 2010 VS INCOTERMS 2000
WHAT INCOTERMS DO
INCOTERMS inform the sales contract by defining the respective obligations, costs and risks involved in the delivery of goods from the Seller to the Buyer.
WHAT INCOTERMS DO NOT DO
INCOTERMS by themselves DO NOT:
Constitute a contract;
Supersede the law governing the contract;
Define where title transfers; nor,
Address the price payable, currency or credit terms.
These items are defined by the express terms in the sales contract and by the governing law.
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. This is because even today C & F is often used in contracts worldwide.
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 provison being, as usual, that everyone in the contract chain is aware of the meaning of the Incoterm, if used.
Although Incoterms are extremely important for the implementation of a contract of sale, a great number of problems which may occur in such a contract are not dealt with at all, like transfer of ownership and other property rights, breaches of contract and the consequences following from such breaches as well as exemptions from liability and certain situations. It should be stressed that Incoterms are not intended to replace such contract terms that are needed for a complete contract of sale either by the incorporation of standard terms or by individually negotiated terms.
In particular, it should be remembered that the Incoterms do not deal with passage of title. Just because a seller, for example, has an obligation to deliver goods at a certain port or place does not necessarily mean that title to those goods transfers at that place. Passage of title is an issue that is dealt with elsewhere in contracts of sale. This is one of the most common misconceptions about the Incoterms.
One of the principal concerns with regard to the Incoterms has been that often the wrong term is selected for use by the parties. The introduction to the new 2010 Rules stresses the need to use the term appropriate to the goods, to the chosen means of transport and to whether or not the parties intend to impose additional obligations on the seller or buyer. In addition, there are Guidance Notes (and a diagram) at the front of each Incoterms Rule containing information to assist in making a choice on which Rule to use.
Below are the principal differences of Incoterms 2010 to the 2000 version
Reclassification of Rules
The new Rules have been separated into two classes:
(i) Rules for use in relation to any mode or modes of transport, which can be used where there is no maritime transport at all or where maritime transport is used for only part of the carriage and
(ii) Rules for sea and inland waterway transport, where the
point of delivery and the place to which the goods are carried to the buyer are both ports.
Terms for any transport mode
EXW - EX WORKS (... named place of delivery)
The Seller's only responsibility is to make the goods available at the Seller's
premises. The Buyer bears full costs and risks of moving the goods from there to
destination.
FCA - FREE CARRIER (... named place of delivery)
The Seller delivers the goods, cleared for export, to the carrier selected by the
Buyer. The Seller loads the goods if the carrier pickup is at the Seller's premises.
From that point, the Buyer bears the costs and risks of moving the goods to
destination.
CPT - CARRIAGE PAID TO (... named place of destination)
The Seller pays for moving the goods to destination. From the time the goods are
transferred to the first carrier, the Buyer bears the risks of loss or damage.
CIP - CARRIAGE AND INSURANCE PAID TO (... named place of destination)
The Seller pays for moving the goods to destination. From the time the goods are
transferred to the first carrier, the Buyer bears the risks of loss or damage.
The Seller, however, purchases the cargo insurance.
DAT - DELIVERED AT TERMINAL (... named terminal at port or place of Destination)
The Seller delivers when the goods, once unloaded from the arriving means of
transport, are placed at the Buyer's disposal at a named terminal at the named port
or place of destination. "Terminal" includes any place, whether covered or not,
such as a quay, warehouse, container yard or road, rail or air cargo terminal.
The Seller bears all risks involved in bringing the goods to and unloading them at
the terminal at the named port or place of destination.
DAP - DELIVERED AT PLACE (... named place of destination)
The Seller delivers when the goods are placed at the Buyer's disposal on the
arriving means of transport ready for unloading at the names place of destination.
The Seller bears all risks involved in bringing the goods to the named place.
DDP - DELIVERED DUTY PAID (... named place)
The Seller delivers the goods -cleared for import - to the Buyer at destination.
The Seller bears all costs and risks of moving the goods to destination, including
the payment of Customs duties and taxes.
Maritime only terms
FAS - FREE ALONGSIDE SHIP (... named port of shipment)
The Seller delivers the goods to the origin port. From that point, the Buyer bears
all costs and risks of loss or damage.
FOB - FREE ON BOARD (... named port of shipment)
The Seller delivers the goods on board the ship and clears the goods for export.
From that point, the Buyer bears all costs and risks of loss or damage.
CFR - COST AND FREIGHT (... named port of destination)
The Seller clears the goods for export and pays the costs of moving the goods to
destination. The Buyer bears all risks of loss or damage.
CIF - COST INSURANCE AND FREIGHT (... named port of destination)
The Seller clears the goods for export and pays the costs of moving the goods to
the port of destination. The Buyer bears all risks of loss or damage. The Seller,
however, purchases the cargo insurance.
Two new terms replace four current terms
DAT and DAP - that have replaced four of the Incoterms 2000 rules: DAF (Delivered at
Frontier), DES (Delivered Ex Ship), DEQ (Delivered Ex Quay) and DDU (Delivered Duty
Unpaid). This has reduced the total number of Incoterms rules from 13 to 11.
The new Incoterms 2010 rule DAT means “Delivered At Terminal.” This rule applies for any mode of transport and specifies that the goods are placed at the buyer’s disposal unloaded from the arriving vehicle. Under this rule a “terminal” is any place where the goods may be deposited; for example, a wharf, a container yard, or an air cargo terminal. The parties to the contract of sale should be careful to specify as clearly as possible the specific terminal and point within the terminal where the goods are to be unloaded. This is because the risk of loss will stay with the seller until such delivery and it is important there will be no confusion about the point at which the risk of loss passes to the buyer.
The other new Incoterm, DAP, means “Delivered At Place.” The DAP term differs from the DAT term in that, when the goods are delivered to the place specified, the seller’s obligation is to place them at the disposal of the buyer on the arriving means of transport ready for unloading.
Whereas in the DAT term, the seller is responsible for unloading the goods, under the DAP term,it is the buyer’s responsibility to unload the goods. If the seller wishes to use the DAP term, it should make sure that its transportation contract matches its obligations. Otherwise, the seller could be charged for unloading costs by the carrier and not be able to recover them from the buyer. Also under the DAP term, the seller is responsible for clearing goods for export but the buyer is responsible