Incoterms 2010: what you need to know
Incoterms (short for ‘International Commercial Terms’ ) have been a boon to international trade in goods by simplifying and clarifying which of the buyer and seller carry the risk of loss or damage to the goods, when the risk passes and who will pay for carriage and insurance of the goods as well as customs clearance.
First introduced in 1936, this is the first revision of the Incoterms since 2000. It’s useful to remember that before Incoterms were introduced, different rules and interpretations as to terms used in international contracts applied in different countries. Forum shopping was all the go resulting in unnecessary litigation and costs. Incoterms are now widely accepted as the standard and are used in the vast majority of international trade contracts and have helped simplify an otherwise difficult task.
The aim of the Incoterms 2010 is to adapt to changes in international trade since 2000, changes reflecting new security concerns especially since 9/11 and the growing trend to replace paper documents with electronic documents. It is designed to be more user friendly with an expanded list of explanations to assist users and to more accurately reflect current trading practice.
The most obvious changes are:
- Instead of the four categories of E,F,C and D, Incoterms will now be broken up into two groups reflecting ‘Sea and Inland Waterways’ and ‘Any Mode of Transport’;
- The deletion of Incoterms DDU (delivered duty unpaid), DEQ (delivered ex quay), DES (delivered ex ship) and DAF (delivered at frontier) and the addition of two new terms DAT (Delivered at Terminal) and DAP (Delivered at Place).
- FOB has been amended to now shift a bit of the risk to the seller by clearly providing that risk no longer passes “at the rail of the ship” but when the goods are set down on the ship. In container shipping, it is now recommended that trade terms CPT or CIP be used (where the transfer of risk on surrendering the goods to the carrier).
We’ll all have to buy our own copies of the new Incoterms from the ICC to be fully aware of the breakup of risk, cost and responsibilities between the buyer and seller in the new terms DAT and DAP. So far there have been some master classes in Europe and the USA but, as far as I can ascertain, none yet in Australia.
If you are not conversant with the terms and you are confronted with a contract with Incoterms, whether Incoterms 2000 or Incoterms 2010, it is wise to see a lawyer experienced in international trade.