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INCOTERMS 2010 What you need to know

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When do INCOTERMS 2010 come into effect?

INCOTERMS 2010 (Eng. Incoterms, International commerce terms) international rules for the interpretation of the most common trade terms used in the sphere of international commerce. International commerce terms are standard terms and conditions of the contract for the international sale of goods, which are defined in advance in an internationally recognized document.

INCOTERMS 2010 were issued on the 27th of September, 2010, with the updated trade rules coming into effect on the 1st of January, 2011.

What to do with the existing contracts?

INCOTERMS 2010 will apply to the existing contracts, even if the execution of the obligations provided for by them is to be effected in 2011. From the 1st of January, 2011, any reference or mention of INCOTERMS will imply a reference to INCOTERMS 2010.

Do you have to worry about INCOTERMS 2010?

It depends on the terms which are usually used in your contract.

GAFTA/FOSFA/Sugar (SAL/RSA) do not use INCOTERMS at all. Thus, you can neglect the changes coming into effect. Standard contracts for petroleum products and the majority of contracts for the sale of coal, ethanol and metals refer to INCOTERMS. In this case, you will need to:

  • Verify the standard contract
  • Make changes in accordance with INCOTERMS 2010
  • Make necessary changes (e.g., change DES with DAP) in the standard contract which will be used for future deals.

What major changes in INCOTERMS 2010 should you be aware of?

  1. 4 terms of delivery were removed (DAF, DES, DEQ and DDU), and 2 new terms were introduced (DAP - Delivered at Place and DAT - Delivered at Terminal).
  2. 2 classes of INCOTERMS were created - (1) rules for any mode or modes of transport and (2) rules for sea and inland waterway transport (INCOTERMS 2000 used to have 4 classes).
  3. The rules which are now working for both international and domestic deliveries.
  4. Introduction of references to the -use of electronic records- in case of mutual agreement between the parties, or when it is commonly used.
  5. The revised insurance coverage, with taking into account the amendments made to the Institute Cargo Clauses (Institute of London Underwriters).
  6. Clear indication of responsibility for the payment for storage on the Terminal.

Details

1. Exclusion of four types from INCOTERMS 2000

The ICC introduces two new terms of -Delivery-:

  • o DAP (Delivered At Place) which will be used instead of DAF, DES and DDU
  • o DAT (Delivered At Terminal) which will be used instead of DEQ.

These conditions can be used independently of the agreement on the mode of transport.

The reason for the decision to reduce the number of terms was due to the fact that the traders were often choosing -wrong- or tangled terms leading to contradictory or unclear contracts.

2. Two categories, instead of four

11 conditions were systematized in two categories:

  • Delivery by any mode of transport (sea, road, air, railway) - EXW, FCA, CPT, CIP, DAP, DAT and DDP. They can be used when there ics no sea transport.
  • Delivery by sea/inland waterway - FAS, FOB, CFR and CIF.

3. Adapted rules

The new INCOTERMS are particularly intended to be used both for international and domestic trade. By the way, this is indicated on the front page of the official edition of INCOTERMS.

For trade organizations and blocs (e.g., the EU), where there are no formal -boundaries-, the new rules and terms became easier to use.

4. Electronic documents (records)

The buyers and the sellers obligations to present the contract documentation now can take the form of electronic documentation. By introducing this point, the ICC reflects its understanding of the growing volume of use of electronic documentation.

5. Institute Cargo Clauses (Institute of London Underwriters)

Where conditions require obtaining insurance, the insurance requirements are changed taking into account the amendments to the London Institute of Underwriters.

6. Security

The issue of security of products, ships etc. is now one of the major issues in peoples mind, in terms of international commerce. Taking into consideration that most countries now have requirements of the highest security checks, the new rules introduce the obligation for both parties to present all necessary information at the request, in cases when the customs import/export clearance is carried out. The previous version of INCOTERMS didnt put forth this kind of co-operation.

7. Expenses for the storage at the Terminal

When the seller has to organize and pay for the delivery of goods to the agreed place (CIP, CPT, CFR, CIF, DAT, DAP and CCP), it can happen that the payment of expenses for the storage at the terminal pass to the buyer as part of the contract price for the goods. However, historically, in some cases, the seller also had to pay the terminal for the storage (double payment).

INCOTERMS 2010 are intended to improve the situation and clarify who is responsible for paying the expenses for the storage at terminal. However, it is yet to reveal whether this will put an end to double payment for those who have already faced it in the past.

Conclusion

We expect that INCOTERMS 2010 will be very well received by commerce. However, as any other changes, they will require further work with trading companies, in order to be sure that they are prepared for these changes and have made necessary amendments to their standard contracts. If this work isnt done, this will be a potential topic for discussion.

Incoterms 2010

Category E - Departure

EXW Ex works (... named place) Ex works" means that the seller delivers when he places the goods at the disposal of the buyer at the sellers premises or another named place (i.e. works factory, warehouse, etc.) Not cleared for export and not loaded on any collecting vehicle. This term thus represents the minimum obligation for the seller, and the buyer has to bear all costs and risks involved in taking the goods from the sellers premises. However, if the parties wish the seller to be responsible for the loading of the goods on departure and to bear the risks and all the costs of such loading, this should be made clear by adding explicit wording to this effect in the contract of sale. This term should not be used when the buyer cannot carry out the export formalities directly or indirectly. In such circumstances, the FCA term should be used, provided the seller agrees that he will load at his cost and risk. Any modes of transport

Category F Main carriage unpaid

FCA Free carrier (... named place) "Free Carrier" means that the seller delivers the goods, cleared for export, to the carrier nominated by the buyer at the named place. It should be noted that the chosen place of delivery has an impact on the obligations of loading and unloading the goods at that place. If delivery occurs at the sellers premises, the seller is responsible for loading. If delivery occurs at any other place, the seller is not responsible for unloading. This term may be used irrespective of the mode of transport, including multimodal transport. "Carrier" means any person who, in a contract of carriage, undertakes to perform or to procure the performance of transport by rail, road, air, sea, inland waterway or by a combination of such modes. If the buyer nominates a person other than a carrier to receive the goods, the seller is deemed to have fulfilled his obligation to deliver the goods when they are delivered to that person. Any modes of transport
FAS Free alongside ship (... named port of shipment) Free Alongside Ship" means that the seller delivers when the goods are placed alongside the vessel at the named port of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that moment. The FAS term requires the seller to clear the goods for export. However, if the parties wish the buyer to clear the goods for export, this should be made clear by adding explicit wording to this effect in the contract of sale1. This term can be used only for sea or inland waterway transport. Sea or inland waterway transport
FOB Free on board (... named port of shipment) Free on Board" means that the seller delivers when the goods pass the ship's rail at the named port of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that point. The FOB term requires the seller to clear the goods for export. This term can be used only for sea or inland waterway transport. If the parties do not intend to deliver the goods across the ships rail, the FCA term should be used Sea or inland waterway transport

Category C Main carriage paid

CFR Cost and freight (... named port of destination) "Cost and Freight" means that the seller delivers when the goods pass the ships rail in the port of shipment. The seller must pay the costs and freight necessary to bring the goods to the named port of destination but the risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller to the buyer. The CFR term requires the seller to clear the goods for export. This term can be used only for sea and inland waterway transport. If the parties do not intend to deliver the goods across the ships rail, the CPT term should be used. Sea or inland waterway transport
CIF Cost, insurance and freight (... named port of destination) Cost, Insurance and Freight" means that the seller delivers when the goods pass the ships rail in the port of shipment. The seller must pay the costs and freight necessary to bring the goods to the named port of destination BUT the risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller to the buyer. However, in CIF the seller also has to procure marine insurance against the buyers risk of loss of or damage to the goods during the carriage. Consequently, the seller contracts for insurance and pays the insurance premium. The buyer should note that under the CIF term the seller is required to obtain insurance only on minimum cover1. Should the buyer wish to have the protection of greater cover, he would either need to agree as much expressly with the seller or to make his own extra insurance arrangements. The CIF term requires the seller to clear the goods for export . This term can be used only for sea and inland waterway transport. If the parties do not intend to deliver the goods across the ships rail, the CIP term should be used. Sea or inland waterway transport
CPT Carriage paid to (... named place of destination) Carriage paid to..." means that the seller delivers the goods to the carrier nominated by him but the seller must in addition pay the cost of carriage necessary to bring the goods to the named destination. This means that the buyer bears all risks and any other costs occurring after the goods have been so delivered. "Carrier" means any person who, in a contract of carriage, undertakes to perform or to procure the performance of transport, by rail, road, air, sea, inland waterway or by a combination of such modes. If subsequent carriers are used for the carriage to the agreed destination, the risk passes when the goods have been delivered to the first carrier. The CPT term requires the seller to clear the goods for export. Any modes of transport
CIP Carriage and insurance paid to (... named place of destination) Carriage and Insurance paid to..." means that the seller delivers the goods to the carrier nominated by him but the seller must in addition pay the cost of carriage necessary to bring the goods to the named destination. This means that the buyer bears all risks and any additional costs occurring after the goods have been so delivered. However, in CIP the seller also has to procure insurance against the buyers risk of loss of or damage to the goods during the carriage. Consequently, the seller contracts for insurance and pays the insurance premium. The buyer should note that under the CIP term the seller is required to obtain insurance only on minimum cover1. Should the buyer wish to have the protection of greater cover, he would either need to agree as much expressly with the seller or to make his own extra insurance arrangements. "Carrier" means any person who, in a contract of carriage, undertakes to perform or to procure the performance of transport, by rail, road, air, sea, inland waterway or by a combination of such modes. If subsequent carriers are used for the carriage to the agreed destination, the risk passes when the goods have been delivered to the first carrier. The CIP term requires the seller to clear the goods for export. Any modes of transport

Category D - Arrival

DAP Delivered at place (... named place) This term is used instead of DAF, DES and DDU (INCOTERMS 2000). Any modes of transport
DAT Delivered at terminal (... named terminal) This term is used instead of DEQ (INCOTERMS 2000). Any modes of transport
DDP Delivered duty paid (... named place of destination) Any modes of transport
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Don Logistic LLC freight forwarding company. Address: Vladivostok, Sipyagina str., 20b, office 212
Phone/fax number: +7 (423) 249 75 87
Phone numbers: +7 (423) 249 75 87
E-mail: office@donlogistic.ru
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