The new Incoterms 2010 replace and update a number of various features of Incoterms 2000. The new rules took effect on January 1, 2011. The following is a very brief description of some of the most prominent changes.
1. Reduced Number of Incoterms
The number of Incoterms rules has been reduced from 13 to 11. This reduction resulted from replacing four Incoterms 2000 rules with just two (see below).
2. New Incoterm Rules: DAT and DAP
Two new Incoterms rules – DAT and DAP – have replaced the Incoterms 2000 rules DAF, DES, DEQ and DDU
Under both new rules, DAT (Delivered at Terminal) and DAP (Delivered at Place), delivery occurs at a named destination. In DAT, at the buyer’s disposal unloaded from the arriving vehicle (as under the former DEQ rule); in DAP, also at the buyer’s disposal, but ready for unloading (as under the former DAF, DES and DDU rules).
The new rules makes DES and DEQ superfluous. First, the named terminal in DAT may be a port, and, hence, DAT can be used in cases were DEQ once was. Second, the arriving “vehicle” under DAP may be a ship and the named place of designation may be a port. Therefore, DAP can be used in place where DES once was.
These new rules, like their predecessors, are “delivered”, with the seller bearing all the costs (with the exception of import clearance, where applicable) and risks involved in bringing the goods to the named place of destination.
3. New Classification of the Incoterms 2010 rules
The eleven Incoterms 2010 rules are divided into two distinct classes.
a). Rules of Any Mode(s) of Transport
The first class contains rules for any mode or modes of transport. These are:
EXW – EX WORKS
FCA – FREE CARRIER
CPT – CARRIAGE PAID TO
CIP – CARRIAGE AND INSURANCE PAID TO
DAT – DELIVERED AT TERMINAL
DAP – DELIVERED AT PLACE
DDP – DELIVERED DUTY PAID
The first class rules can be used irrespective of the mode of transport selected and irrespective of whether one or more than one mode of transport is employed. They can be used even when there is no maritime transport at all. It is important to remember, however, that these rules can be used in cases where a ship is used for part of the carriage.
b). Rules for Sea and Inland Waterway transport
The second class contains only rules for sea and inland waterway transport. These are:
FAS – FREE ALONGSIDE SHIP
FOB – FREE ON BOARD
CFR – COST AND FREIGHT
CIF – COST INSURANCE AND FREIGHT
In the second class of Incoterms 2010 rules, the point of delivery and the place to which the goods are carried to the buyer are both ports (hence the label “sea and inland waterway” rules). Under the FOB, CFR, and CIF, all mention of the ship’s rail as the point of delivery has been omitted in preference for the goods being delivered when they are “on board” the vessel. This more closely reflects modern commercial reality and avoids the rather dated image of the risk swinging to and fro across an imaginary perpendicular line.
3 Rules for domestic and international trade
Incoterms rules have traditionally been used in international sale contracts where goods pass across national borders. In various areas of the world, however, trade blocs, like the European Union, have made border formalities between different countries less significant. Consequently, the subtitle of the Incoterms 2010 rules formally recognizes that they are available for application to both international and domestic sale contracts. Therefore, the Incoterms 2010 rules clearly state in a number of places that the obligation to comply with export/import formalities exists only where applicable.
4 Guidance Notes
A “Guidance Note”has now been attached to each Incoterms 2010 rule. The Guidance Notes explain the fundamentals of each Incoterms rule, such as when it should be used, when risk passes, and how costs are allocated between seller and buyer. Remember – the Guidance Notes are not part of the actual Incoterms 2010 rules, but are intended to help the user accurately and efficiently steer towards the appropriate Incoterms rule for a particular transaction.
5 Electronic communication
Incoterms 2010 seeks to stand in line with the developments in the international commercial reality. Articles A1/B1 of the Incoterms 2010 rules now give electronic means of communication the same effect as paper communication, as long as the parties so agree or where customary. This formulation facilitates the evolution of new electronic procedures throughout the lifetime of the Incoterms 2010 rules.
The new Incoterms emphasizes the importance of the insurance coverage by moving the relevant provisions of carriage and insurance from more generic articles A10/B10 (Incoterms 2000) to articles A3/B3 (which deal directly with contracts of carriage and insurance). Furthermore, the language in articles A3/B3 relating to insurance has been altered with a view to clarifying the parties’ obligations in this regard.
7 Security-Related Clearances
In the modern world, the security concerns are ubiquitous. Therefore, Incoterms 2010 rules have allocated obligations between the buyer and seller to obtain or to render assistance in obtaining security-related clearances, such as chain-of-custody information, in articles A2/B2 and A10/B10 of various Incoterm rules.
8 Terminal Handling Charges
Under Incoterms rules CPT, CIP, CFR, CIF, DAT, DAP, and DDP, the seller must make arrangements for the carriage of the goods to the agreed destination. Usually, while the freight is nominally paid by the seller, it is actually paid for by the buyer as freight costs are normally included by the seller in the total selling price.
Sometimes, the carriage costs will include the costs of handling and moving the goods within port or container terminal facilities and the carrier or terminal operator may well charge these costs to the buyer who receives the goods. In such cases, the buyer will want to avoid paying for the same service twice: once to the seller as part of the total selling price and once independently to the carrier or the terminal operator. The Incoterms 2010 rules seek to avoid this happening by clearly allocating such costs in articles A6/B6 of the relevant Incoterms rules.
9 String sales
String sales may arise in situation where there is a sale of commodities (as opposed to the sale of manufactured goods). In these cases, the cargo sold several times during transit “down a string”. When this happens, a seller in the middle of the string does not “ship” the goods because these have already been shipped by the first seller in the string. Rather, the seller in the middle of the string performs its obligations towards its buyer by “procuring” goods that have been shipped. Incoterms 2010 rules clarify this situation and specifically state the obligation of the seller to “procure goods shipped” as an alternative to the obligation to ship goods in the relevant Incoterms rules.
Contact Sherayzen Law Office for Legal Help with International Contracts
If you are selling and/or buying goods overseas, you should contact Sherayzen Law Office immediately to get legal help in negotiating and drafting your international contacts. Our experienced international contract firm will guide you every step of the way in the complex process of international trade, including tax consequences of your international business transactions.