Incoterms® – International Commercial Terms
Incoterms are a series of sales terms published by the International Chamber of Commerce (ICC) for use in international commercial transactions. The first edition was published in 1936, Incoterms are reviewed approximately every ten years to ensure they reflect current world trade practices,
Goods move across international borders as a result of a sale involving a buyer and a seller. The contract of sale should define the responsibilities of both parties in respect of both the physical nature of the goods and the movement of the consignment. The buyers and sellers have various options open to them.
Incoterms are used to identify the obligations placed on the parties to the contracts in terms of responsibilities relating to the costs and their division when shipping the goods, the distribution of risks associated with the movement of the goods and where these risks transfer to another party.
Goods move across international borders as a result of a sale involving a buyer and a seller. The contract of sale should define the responsibilities of both parties in respect of both the physical nature of the goods and the movement of the consignment. The buyers and sellers have various options open to them.
Incoterms are used to identify the obligations placed on the parties to the contracts in terms of responsibilities relating to the costs and their division when shipping the goods, the distribution of risks associated with the movement of the goods and where these risks transfer to another party.
Below are short descriptions of the 11 rules from the Incoterms® 2010 edition.
RULES FOR ANY MODE OR MODES OF TRANSPORT
‘The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. The buyer should note that under CIP the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.”
RULES FOR SEA AND INLAND WATERWAY TRANSPORT
‘The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. The buyer should note that under CIF the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.”
RULES FOR ANY MODE OR MODES OF TRANSPORT
- EXW (Ex Works)
- FCA (Free Carrier)
- CPT (Carriage Paid To)
- CIP (Carriage And Insurance Paid To)
‘The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. The buyer should note that under CIP the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.”
- DAT (Delivered At Terminal)
- DAP (Delivered At Place)
- DDP (Delivered Duty Paid)
RULES FOR SEA AND INLAND WATERWAY TRANSPORT
- FAS (Free Alongside Ship)
- FOB (Free On Board)
- CFR (Cost and Freight)
- CIF (Cost, Insurance and Freight)
‘The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. The buyer should note that under CIF the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.”
TERMS FOR ANY MODE OF TRANSPORT
CIP – Carriage and insurance paid to
DAT – Delivered at terminal DAP – Delivered at place |
DDP – Delivery duty paid
EXW – Ex works FCA – Free carrier |
Using Incoterms 2000 Terminology
There is nothing that would prevent you from for example using DDU, as long as you and the seller agree that the shipment is DDU [location], Incoterms 2000. The agreement between you and the seller prevails, and if you both agree, there is no reason to not use it. Incoterms 2000 should appear on the contract between Buyer and Seller.
Incoterms rules are not law, that is, they are not mandatory. They are a set of guidelines designed by the International Chamber of Commerce for companies involved in international trade, but no one is mandated to use them. It's just much more convenient to use them than to negotiate international terms of trade for each shipment.
The issue with the use of an "old" Incoterm is that, should a dispute arise between the two of you, then the ICC may decline to arbitrate the dispute. I am not sure how long the ICC will still be willing to arbitrate a problem arising under the DDU shipment (or any other 2000 Incoterm rule), but I don't think that they would stop on January 1, 2011. Even if they actually did, you should have no problem finding an arbitrator familiar with DDU to settle the issue.'
N.B. Please note that transfer of the freight costs obligation and transfer of risk do not occur at the same time.
Incoterms rules are not law, that is, they are not mandatory. They are a set of guidelines designed by the International Chamber of Commerce for companies involved in international trade, but no one is mandated to use them. It's just much more convenient to use them than to negotiate international terms of trade for each shipment.
The issue with the use of an "old" Incoterm is that, should a dispute arise between the two of you, then the ICC may decline to arbitrate the dispute. I am not sure how long the ICC will still be willing to arbitrate a problem arising under the DDU shipment (or any other 2000 Incoterm rule), but I don't think that they would stop on January 1, 2011. Even if they actually did, you should have no problem finding an arbitrator familiar with DDU to settle the issue.'
N.B. Please note that transfer of the freight costs obligation and transfer of risk do not occur at the same time.
More information available at http://www.iccwbo.org/copyright-and-trademarks/