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INCO Terms 2010 Set to Go Into Effect in 2011
The International Chamber of Commerce (ICC) has released updated International Commercial Terms or Incoterms 2010, to replace Incoterms 2000 and they are set to enter into force on January 1, 2011.This change should not impact existing transactions as contracts are interpreted by the version of Incoterms referenced in the contract. Therefore, only a contract that refers to Incoterms 2010 will be governed by rules from that version.
To improve and clarify the contracting aspect of international trade, the ICC developed Incoterms, a set of uniform rules for the interpretation of terms defining the costs, risks, and obligations of buyers and sellers in international transactions. First published in 1936, these rules have been periodically revised to account for changing modes of transport, document delivery, and security. While terms of sale in international business sound similar to those used in domestic contracts, they often have different meanings. Confusion over these terms and their application can result in diminished profits or lost sales.
Incoterms 2010 rules incorporate a number of changes from Incoterms 2000. Here are some key items:
1. Incoterms 2000 had 13 rules whereas Incoterms 2010 has 11 rules. For Incoterms 2010, four of the “D” rules: DAF, DES, DEQ, and DDU were dropped, and two new “D” rules were created: DAT and DAP
2. In Incoterms 2000, a number of rules, such as FOB, established that the seller “delivers” the goods when they “pass the ship’s rail.” In Incoterms 2010 these rules require that the goods be delivered “on board the vessel.”
3. Incoterms 2000 established four groups of rules: E: Departure, F: Main Carriage Unpaid, C: Main Carriage Paid, and D: Arrival. Incoterms 2010, however, establishes two classes: 1) rules applicable for all modes of transport, and 2) rules applicable only for sea and inland waterway transport. See the next page for details.
4. Incoterms 2010 gives electronic communications the same status as paper communication so long as the parties agree.
5. Incoterms 2010 rules obligate both seller and buyer to give assistance in securing security clearances.
6. Incoterms 2010 now acknowledges the existence of “string sales,” where goods in transit may be sold multiple times before arrival, by giving the seller the option to “procure goods shipped.”
It is important that a company seeking to use Incoterms in an international transaction fully understand the effect and that they properly incorporate the terms into the transaction. Incoterms are not laws enacted by governments. Rather, they are rules agreed to by parties to a contract. Also, Incoterms are not implied into contracts for the sale of goods. If you desire to use Incoterms, you must specifically include them in your contract. Your contract should expressly refer to a specific version of Incoterms. For example: CIF Richmond, Virginia, USA, Incoterms 2010
Incoterms 2010 may be included in a sales contract if the parties desire the following:
1. To complete a sale of goods.
2. To indicate each contracting party’s costs, risks, and obligations concerning these aspects of delivery:a. When is the delivery completed?b. How does a party ensure that the other party has met the standard of performance?c. Which party must obtain requisite licenses and comply with government-imposed import/export formalities?d. What are the modes and terms of carriage?e. What are the delivery terms?f. When is the risk of loss transferred from the seller to the buyer?g. How will transport and other costs be divided between the parties?h. What notices are the parties required to give to each other regarding the transport and transfer of the goods?
3. To establish basic terms of transport and delivery in a short format.
Incoterms 2010 are not sufficient on their own to express the full intent of the parties. They do not:
1. Apply to contracts for services.
2. Define contractual rights and obligations other than for delivery.
3. Specify details of the transfer, transport, and delivery of the goods.
4. Determine how title to the goods will be transferred.
5. Protect a party from risk of loss.
6. Define the remedies for breach of contract.
CVI operations staff has been receiving training on Incoterms 2010 so that they are fully up-to-speed on all changes. For more information or rates contact your CVI customer service representative or Venetia Huffman at vhuffman@cvinternational.com.