Incoterms® 2010 Revision Rationale

ICC Publication No : 715 E

Copies of full version are available from ICC Business Book store

www.iccbooks.com

ByVilas Mahajan

New Revision of Incoterms

International chamber of commerce (ICC) has launched Incoterms® 2010 on 16th September ,2010

The new Incoterms ® 2010 will be in use from 1st January, 2011

On 1st January 2011 a comprehensive revision of ICC's Incoterms ® rules applying to billions of dollars of business transactions will come into effect, a major step in helping international trade professionals ensure legal certainty and save both time and money

The International Chamber of Commerce (ICC)• The world’s business organization, is the global leader in the

development of standards, rules and reference guides for international trade

• ICC operates a global network of national committees and groups in more than 90 countries from its headquarters in Paris.

The worlds business Organization ®

Incoterms® - International Commercial Terms • The Incoterms® rules are an internationally recognized standard

• 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

• Rules help traders avoid costly misunderstandings by clarifying the tasks, costs and risks involved in the delivery of goods from sellers to buyers

• Incoterms® rules are recognized by as UNCITRAL(United Nations Commission on International Trade Law) the global standard for the interpretation of the most common terms in foreign trade

Incoterms® 2010 rules by the ICC : Moving Trade into the 21st Century

• The new revision, the first in a decade, reflects the profound changes that have taken place in global trade since 2000

• These include a) The importance cargo security has taken for many countries since 9/11

b) Revision of the United States Uniform Commercial Code, which resulted in a deletion of the former US shipment and delivery terms

c) The increased use of electronic communications in business transactions.

Global DevelopmentsGlobal Developments

Why Revision ??

The new rules have beendeveloped to take into account changes aswell as other trends in international commercial practices

To keep up with the rapid expansion of world trade and globalization, the Incoterms rules are revised about once a decade

New Revision of Incoterms

The 2010 edition will include 11 terms instead of

the 13 in the previous edition.

The following terms from incoterms 2000 have

been deleted from the list:

Delivered At Frontier (DAF)

Delivered Ex Ship (DES)

Delivered Ex Quay (DEQ)

Delivered Duty Unpaid (DDU)

Two new terms have been added to the list :

Delivery At terminal ( DAT)

Delivery At Place (DAP)

Whilst Incoterms 2000 had four categories, Incoterms 2010

only has two categories.

The Incoterms 2010 are arranged in two categories as

follows:

Rules for Any Mode of Transport (Sea ,Air ,Road ,Rail )

CIP - Carriage and Insurance Paid

CPT - Carriage Paid To

DAP - Delivered At Place

DAT - Delivered At Terminal

DDP - Delivered Duty Paid

EXW - Ex Works

FCA - Free Carrier

Rules for Sea and Inland Waterway Transport Only

CFR - Cost and Freight

CIF - Cost, Insurance and Freight

FAS - Free Alongside Ship

FOB - Free On Board

Incoterms 2010 - 11 Trade Terms

Group E DepartureEXW Ex Works (….named Place)Group F Main carriage Un paidFCA Free Carrier (…named place)FAS Free Alongside Ship(…named port of shipment)FOB Free On Board (…named port of shipment)Group C Main carriage paidCFR Cost and Frieght (…named Port of destination)CIF Cost Insurance and Frieght (…named port of destination)CPT Carriage Paid To (…named place of destination) CIP Carriage and insurance Paid To (….named place of destination)Group D ArrivalDAP Delivered At PlaceDAT Delivered At TerminalDDP Delivered Duty Paid (…named place of destination)

In addition to the 11 rules, Incoterms® 2010 includes

• Extensive guidance notes and illustrative graphics to help users

efficiently choose the right rule for each transaction

• New classifications to help choosing the most suitable rule in relation to the mode of transport

• Advice for the use of electronic procedures

• Information on security-related clearances for shipments

• Advice for the use of Incoterms® 2010 in domestic trade

• Simplification of some of the rules to

make it bit more understandable to

people in a common business activities

• Clarification of some terms and wording

would hope to remove ambiguity to use

more effectively.

• Terms are put into gender neutral as more

female employees enter into this field

• The result is a set of clearer, more precise and more comprehensive rules adapted for the 21st century that offer increased legal certainty in sales transactions between and within countries as well as within customs-free blocks

Update & Consolidate

Reasons for removal of few Incoterms

• In Incoterms 2000 some of terms won’t use very much, were bit redundant

Ex : In Australia following terms

were not relevant in most of activities in trading between importers and exporters

a) Delivered At Frontier b) Delivered Ex ship c) Delivered Ex Quay So drafting committee thought to remove

redundant terms

• To ensure that Incoterms® rules clearly and accurately reflects present-day trade practices. 

Explain & Reflect

• Incoterms is not actually a contract besides

its rules help transfer of goods between buyer and a seller and facilitates as well

• 3 letter trade terms actually reflect what is in contract

• What ever contractually agreed to is need to be reflected by incoterm, its not the other way around,we don’t have to meet the contract to fitted in with incoterm it self

• Incoterms there to serve contractual obligation between borrower and seller

• Incoterms only covers activities dealing with the transfer of goods from seller to buyer

• So these three main areas involved

a) Tasks

b) Costs

c) Risks

Describe three main areas involved in delivery of

goods from seller to buyer

Describe three main areas involved in delivery of

goods from seller to buyer

TasksTasks CostsCosts

Tasks• Responsibility of either seller or buyer, or those

they nominate to under take on behalf

• Tasks are preparing product or cargo, it could be packing ,installing , loading ,unloading, transfer from one transport method to other.

• It could also be lodging paper work with shipping line , airlines, truck companies, freight forwarders.

• It could be lodging paper work with custom authority of exporting and importing country or other government agencies interested in processing of cargo.

• Associated tasks with paper work and physical nature of transfer of goods, things that have to be performed or under taken by buyer or seller

Costs

• For these tasks there is a cost and those costs to be indicated who is going to be responsible in particular incoterm chosen between seller and buyer.

• Also tell what buyer and seller has to do related to cost

Risks

• There is a risk in transporting and transferring goods from seller to buyer , of course they may get damage or lost or destroyed

• Risk is indicated in incoterms , upto cetain point its seller risk byond that its buyers risk.

10 Tips on using Incoterms