News

Fri, 22 Oct 2010

Incoterms 2010 - Review of International Trade Rules

The International Chamber of Commerce (ICC) launched the latest revision of its trade terms, Incoterms 2010 in September and they will come into effect on 1 January 2011.

Incoterms is short for "International Commercial Terms" and they were first created by the ICC in 1936 to clarify the costs, risk and responsibility of buyers and sellers in the delivery of goods.

The ICC press release states that they "take into account developments in global trade since they were last revised in 2000".

In brief, the major changes are as follows.

Firstly, there is the introduction of two new rules Delivered at Terminal (DAT) and Delivered at Place (DAP). In turn, four of the 2000 rules have been abolished – Delivered at Frontier (DAF), Delivered ex Ship (DES), Delivered ex Quay (DEQ) and Delivered Duty Unpaid (DDU).

So, overall, therefore, there has been a reduction in rules from 13 to 11.

DAT simply reflects the increase prevalence of container traffic.

A more practical benefit to those involved in trade is that the rules now clearly designate whether a term should be used for carriage by sea or inland waterway only, or whether they are suitable for any mode of transport.

The reference to the "ship's rail" as being the point of delivery in FOB, CFR, CIF rules have been deleted. The point of delivery is now "on board" the vessel. It is simply a reflection of modern commercial practice. The days of goods hanging on a hook crossing the ships’ rail have gone

There is an acceptance of electronic trade. Electronic forms of documents are now given the same effect as paper documents, so long as the parties agreed or it's customary. The definition of a document is left deliberately wide to allow further developments in this area.

In these days of heightened security, the new rules now contain express obligations on the parties to obtain or render assistance in and about security clearances.

There is a change in emphasis with regard to terminal handling charges. There had been concern by some buyers that they were being charged twice for these. Firstly, they were included in the seller's invoice. But then they found they were later being charged for these by the carrier or terminal operator. The new rules clearly allocate these costs.

So far as insurance is concerned, new rules take into account revised Institute Cargo Clauses. Where the seller must obtain insurance cover eg CIF, the only requirement is the minimum cover provided by ICC (C). But where required to do so by the buyer, the seller should obtain additional and more extensive cover such as ICC (A) or (B).

There has also been an attempt by the ICC to extend Incoterms from their traditional international environment. This is in recognition of the existence of trading blocks such as within the United States of America and Europe. The new rules formally recognise that they can be used for domestic transactions as well as international.

As ever, to apply, the Incoterms have to be specifically incorporated into the sales/purchase contract. Where there are various versions, the latest version will only apply if specifically incorporated. There should, therefore, be a specific reference to the incorporation of "Incoterms 2010".

Those involved in international trade should start to review their trading documents and practices in the light of these changes.

Lastly, it is important to remember that the rules only cover certain aspects of your typical sales/purchase contract. They do not amount to a complete contract. The rules don't contain warranties as to quality and neither do they deal with the price and payment, title in the goods or govern law and jurisdiction.

This is just a brief overview.

For more information contact John Habergham at john.habergham@mytonlaw.co.uk or 00 44 1482 382083.