Incoterms 2010 Revision Rationale

ICC Publication No : 715 E Copies of full version are available from ICC Business Book store www.iccbooks.com

By Vilas 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 worlds 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.

Why Revision ??
Global Developments

The new rules have been developed to take into account changes as well 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 Departure EXW Ex Works (.named Place) Group F Main carriage Un paid FCA Free Carrier (named place) FAS Free Alongside Ship(named port of shipment) FOB Free On Board (named port of shipment) Group C Main carriage paid CFR 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 Arrival DAP Delivered At Place DAT Delivered At Terminal DDP 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

Update & Consolidate

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

Reasons for removal of few Incoterms

In Incoterms 2000 some of terms wont 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 dont have to meet the contract to fitted in with incoterm it self Incoterms there to serve contractual obligation between borrower and seller

Describe three main areas involved in delivery of goods from seller to buyer

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

Tasks

Costs

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