Professional Documents
Culture Documents
INCOTERMS
Standard terms of contract have been in use for many years, although their precise definition may vary from
country to country. The international chamber of commerce (ICC) set out to overcome the problems of conflicting
national laws by establishing a standard set of trade terms and definition that offers ‘neutral’ rules and practices.
When one party or the other does not want to stick itself to the lines and procedures of the other, a reference to
Incoterms is the answer.
By referring to such terms, both parties can be sure that their legal relations are grounded in a fair and reasonable
international standard based upon the following principles.
ν The terms were drawn from the most current practices of international trade so that they could be adopted by the
greatest possible number of traders.
Where there were major differences in current practices, Incoterms would provide for the minimum liability on
part of the seller, leaving it to the parties to provide for greater liabilities in their contracts if they so desired.
References to the customs of a particular trade or port were kept to a minimum, although it was impossible to
avoid them completely.
The Incoterms first set out in 1936 were subsequently revised in 1953, 1967, 1980, 1990 and 2000.
1990 Revision: The main reason for 1990 revision of INCOTERMS was the desire to adapt terms to the increasing
use of electronic data interchange (EDI). A further reason for the revision arose from changed transportation
techniques, particularly the unitization of cargo in containers, multimodal transport and roll-on/roll-off traffic with
road, vehicles and railway wagon in “short-sea”.
2000 Revision: The Incoterms 2000 take account of the recent spread of customs-free zones, the increased use of
electronic communications in business transactions. The revision ensures that Incoterms 2000 respond to
business needs everywhere.
Incoterms 1990 vis-à-vis Incoterms 2000: Incoterms 2000 when compared with incoterms 1990 may appear to
have effected few changes. However, substantive changes have been made in two areas.
- The customs-clearance and payment of duty obligations under FAS and DEQ and
- The loading and unlading obligations under FCA.
6. Division of costs
The seller must, subject to the provisions of B6, pay - all costs relating to the goods until such time as they have
passed the ship’s rail at the named port of shipment; and - where applicable,30 the costs of customs formalities
necessary for export as well as all duties, taxes and other charges payable upon export.
7. Notice to the buyer
The seller must give the buyer sufficient notice that the goods have been delivered in accordance with A4.
8. Proof of delivery, transport document or equivalent electronic message
The seller must provide the buyer at the seller’s expense with the usual proof of delivery in accordance with A4.
Unless the document referred to in the preceding paragraph is the transport document, the seller must render the
buyer, at the latter’s request, risk and expense, every assistance in obtaining a transport document for the contract
of carriage (for example, a negotiable bill of lading, a non-negotiable sea waybill, an inland waterway document, or
a multimodal transport document).
Where the seller and the buyer have agreed to communicate electronically, the document referred to in the
preceding paragraph may be replaced by an equivalent electronic data interchange (EDI) message.
9. Checking—packaging—marking
The seller must pay the costs of those checking operations (such as checking quality, measuring, weighing,
counting) which are necessary for the purpose of delivering the goods in accordance with A4.
The seller must provide at his own expense packaging (unless it is usual for the particular trade to ship the goods
of the contract description unpacked) which is required for the transport of the goods, to the extent that the
circumstances relating to the transport (for example modalities, destination) are made known to the seller before
the contract of sale is concluded. Packaging is to be marked appropriately.
10. Other obligations
The seller must render the buyer at the latter’s request, risk and expense, every assistance in obtaining any
documents or equivalent electronic messages (other than those mentioned in A8) issued or transmitted in the
country of shipment and/or of origin which the buyer may require for the import of the goods and, where
necessary, for their transit through any country. The seller must provide the buyer, upon request, with the
necessary information for procuring insurance.
- The second type is the FOB contracts “with additional services”. Under this arrangement the shipping and
insurance arrangement are made by the seller, but this is done for the account of the buyer. In this type of FOB
contract the buyer is not under the obligation to nominate a suitable ship but the nomination is done by the seller.
Again, as in the contract of first type, the seller enters into a contract with the carrier by sea, place the goods o
board ship and transfers the bill of lading to the buyer.
- The third type may be described as the FOB contract (buyer contracting with carrier) or “simple” FOB. Here, the
buyer himself enters into a contract of carriage by sea directly or through an agent, e.g. a forwarder. Naturally, the
buyer has nominated the ship, and when it calls at the port of shipment, the seller puts the goods on board. The
bill of lading goes directly to the buyer, usually through an agent of the buyer in the port of shipment, such as a
freight forwarder, and does not pass through the seller’s hands.
Considerable legal differences exist between these three types of FOB contract. They indicate the flexible nature
of this arrangement. Indeed, variations and combinations of these types of FOB contract are met in practice. In
FOB contract of the first and third type the duty to nominate the ship falls on the buyer, but in those of second type
it falls on the seller. In contract of the first and second type the seller is in a contractual relationship with the sea
carrier, and for this reason the second type has been described as a variant of the first type. In contract of the third
type, the contract of carriage by sea is made directly with buyer and the seller is not a party to it.
The three different types of FOB contract are described by Devlin J. in Pyrene Co Ltd V. Scindia Navigation Co Ltd
as follows:
“The FOB contract has become a flexible instrument. In …… the classic type ….. for example in Wimble, sons &
Co Ltd v. Rosenberg & Sons, the buyer’s duty is to nominate the ship, and the seller’s to put the goods on board
for account of the buyer and procure a bill of lading in terns usual in the trade. In such a case the seller is directly a
party to the contract of carriage at least until he takes out the bill of lading in the buyer’s name. Probably the
classic type is based on the assumption that the ship nominated will be willing to load any goods brought down to
the berth or at least those of which she is notified. Under present conditions, when space often hs to be booked
well in advance, the contract of carriage comes into existence at an earlier point of time. Sometimes the seller is
asked to make the necessary arrangements; and the contract may then provide for his taking the bill of lading in
his own name and obtaining payment against the transfer, as in a CIF contract. Sometimes the buyer engages his
on forwarding agent at the port of loading to book space and to procure the bill of lading; if freight has to be paid in
advance this method may be most convenient. In such a case the seller discharges his duty by putting the goods
on board, getting the mate’s receipt and handing it to the forwarding agent to enable him to obtain the bill of
lading.”