Incoterms 2010 – An analysis – Part 1

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The Incoterms® rules are an internationally recognized standard and are used worldwide in international and domestic contracts for the sale of goods. First published in 1936, Incoterms® rules provide internationally accepted definitions and rules of interpretation for most common commercial terms.

The rules have been developed and maintained by experts and practitioners brought together by ICC and have become the standard in international business rules setting. Launched in mid-September 2010, Incoterms® 2010 came into effect on 1 January 2011.

They help traders avoid costly misunderstandings by clarifying the tasks, costs and risks involved in the delivery of goods from sellers to buyers.. Please see below an analysis of the latest set of Incoterms® 2010..

image for long readOwing to the length of the post, i have split it into two parts.. Below is the first part..

This is a guest post written by David Murray, Director of Product Development, WheelSky Logistics, Inc who says

“Incoterms are largely misunderstood by most freight forwarders, as they normally are not involved with them directly. Shippers and Consignees MUST understand Incoterms and avoid just arbitrarily choosing FOB or EXW for shipments for which those Incoterms are not appropriate.

The below article just briefly touches on the definitions of the terms. Books have been written about their interpretation and recommended use. Later, I can provide you with some other articles that focus on one Incoterm at a time.”

The International Chamber of Commerce (ICC) has published revisions to its International Commercial Terms, also known as Incoterms® that took effect on January 1, 2011. Below is a brief synopsis of the Incoterms. It is highly recommended that anyone in the freight business should purchase a full copy of Incoterms® 2010, which offers a much more detailed explanation of each term. No shipper’s library should be without it!

The revised rules replaced Incoterms® 2000 and are designated “Incoterms® 2010”. The new terms contain a series of changes, such as a reduction in the number of terms to 11 from 13.

The DAF, DES, DEQ, and DDU designations have been eliminated, while two new terms, Delivered at Terminal (DAT) and Delivered at Place (DAP), have been added. Incoterms® 2010 also attempt to better take into account the roles cargo security and electronic data interchange now play in international trade.

Note that contracts in existence at the time Incoterms® 2010 to effect continue to be governed by the set of Incoterms® specified in the contract.

Image for Incoterms LogoWhat Incoterms® are – Incoterms® are a set of three-letter standard trade terms most commonly used in international contracts for the sale of goods. First published in 1936, Incoterms® provide internationally accepted definitions and rules of interpretation for most common commercial terms. In the US, Incoterms® are increasingly used in domestic sales contracts rather than UCC shipment and delivery terms.

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 a contract;
  • Define where title to goods 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.

Incoterms® 2010 are grouped into two classes:

1. TERMS FOR ANY TRANSPORT MODE (Ocean, Air, Truck, Rail, Donkey Cart)

• 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 named 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.

wheelsky logo - Incoterms 2010 - An analysis - Part 1

In Part 2 of the analysis, we will cover Incoterms® used for Maritime only and also some IMPORTANT POINTERS.. Those who are subscribed can look forward to this on your emails next week.. Those who are yet to subscribe, please do so – its very simple, just provide your email id in the side bar (under “Follow this blog”)..

Be part of the discussion and share your views about the article here..

10 comments on “Incoterms 2010 – An analysis – Part 1

  1. Anit Pandya says:

    Thanks, for sharing it. It is really very useful.

  2. Stan Odissey says:

    David, thanks for the article
    Awaiting for the next part

  3. Thanks for sharing! Good Infomration!

  4. Claus says:

    For EXW surely the seller also has the obligation of clearing the goods as the exporter?

    1. No, the seller is not obliged to handle the customs clearance. “Where applicable the seller must provide the buyer, at the buyer’s request, risk and expense, assistance in obtaining any export license, or other official authorization necessary for the export of goods.

      FCA/CPT//CIP would be more suitable. The place stated could be the suppliers facilities.

      James @ Heighten / Wan Ling Tea House

  5. Priyantha. says:

    Want to know whether INCOTERMS are legally valid under Law of Contract or Law of Tort?

  6. Priyantha says:

    Thank you so much for recent updates.

    Sincere regards,

    Priyantha.

(Estimated reading time: 6 minutes)
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