ICC Guide to Incoterms® 2010

Introduction

The evolution of the Incoterms rules from 1936 to 2010
The ICC Model International Sale Contract (ICC Pub. No. 556)
Additional Contracts

Understanding the Incoterms rules

What are the Incoterms rules, and what can they do for you?

Referencing the Incoterms rules in a contact of sale

The differences between the Incoterms 2000 rules and the Incoterms^® 2010 rules

What the Incoterms rules cannot do for you?

·         Transfer of property rights;

·         Unforeseeable and unavoidable events;

·         Breaches of contact;

·         Agreeing on modifications to the standard terms;

·         Summary: limits of the Incoterms rules

The Incoterms rules and contracting practice

·         The need for interpretation of “key words”;

·         The most common practice; The FOB point;

·         Continued use of terms which do not appear in the Incoterms^® 2010 rules;

·         EXW and the seller’s assistance;

·         Containerization: Checking how the goods are handed over for carriage;

·         The seller’s duty to provide substitute goods;

·         Cargo handling costs;

·         Checking availability of documents required under the Incoterms rule

Why are as many as 11 Incoterms rules required?

Which Incoterms rule should be chosen?

·         Terms and business strategies

The Incoterms rules and the contract of carriage

·         Charter parties;

·         Usual, normal and suitable carriage;

·         The bill of lading;

·         Sale of goods in transit

The duties under the Incoterms rules to load and unload the goods

The duties connected to export and import clearance

·         EXW and export formalities;

·         Customs-free regions;

·         Responsibility for charges;

·         Security-related clearance

The Incoterms rules and insurance

·         Insurance when the parties use FOB instead of FCA;

·         Insurance under CIF and CIP;

·         When insurance is excluded;

·         Risks of war and labour disturbance

The Incoterms rules and documentary credits

The Incoterms rules and electronic commerce

·         Early attempts to take account of electronic commerce;

·         Reliability of electronic v. paper systems: BOLERO and others

Variations of the Incoterms rules

·         Additions to EXW;

·         Additions to FOB;

·         Additions to FCA;

·         Additions to the C-terms

The Incoterms rules and other terms in the contract of sale

·         Increase of costs after the contract is concluded;

·         Risk of performance if the goods are lost or damaged;

·         Non-conforming goods;

·         Transfer of risk v. transfer of property rights

The Incoterms rules and dispute resolution

·         The choice of arbitration;

·         Jurisdiction of the arbitral tribunal;

·         Alternatives to arbitration and Litigation;

·         Need for specificity in referencing arbitration

The four categories of the Incoterms rules: main components

Important differences between shipment and arrival contracts

The Abbreviations: E-, F-, C- and D-terms

The term EXW: placing the goods at the disposal of the buyer

F-terms and C-terms: the carriage-related terms

F-terms: main carriage not paid by seller

·         F-terms and pre-carriage;

·         FCA and handing over goods for carriage;

·         Full loads and less-than-full loads;

·         In practice, the seller often contracts for carriage;

·         When the seller declines or the buyer wants to contract for carriage;

·         Buyer’s risk if transport is unavailable;

·         Division of loading costs under FOB

C-terms: main carriage paid by seller

·         Two groups of C-terms;

·         Do not use CFR or CIF for anything other than sea transport

·         C-terms are not equivalent to D-terms;

·         Two “critical points” under C-terms;

·         One of which is included in the contract of carriage;

·         Do not stipulate date of arrival under C-terms;

·         Seller’s insurance obligation under CIF and CIP;

·         Cost of insurance depends on intended transport;

·         The “minimum cover” principle of CIF and CIP;

·         Unsuitability of minimum cover for manufactured goods;

·         Guarding against fraud under CFR and CPT;

·         How to prevent delivery until payment has been made;

·         Payment by using the irrevocable documentary credit

D-terms: delivered terms (DAT, DAP and DDP)

·         Factors determining use of different D-terms;

·         The trend towards choice of delivered terms;

·         The seler’s need to plan and control cargo movements;

·         DES and DEQ for sea transport (now replaced by DAP and DAT);

·         DES and “Free out” stipulation in charter parties;

·         FIO stipulations in charter parties and contracts of sale;

·         Buyer needs to know time of arrival;

·         Demurrage and dispatch money;

·         Consistency required between charter party and contract of sale;

·         DAT, DAP – for all modes of transport;

·         Avoid “free border” or “franco border”;

·         The trough railway consignment note;

·         Railway cargo consolidation by freight forwarders;

·         DAP and DDP do not include unloading ;

·         Import clearance under D-terms;

·         Seller should avoid DDP if difficulties expected;

·         Choice of DDP with exclusion of duty and/or other charges;

·         DAT or DAP and difficulties of reaching the final destination;

·         Charges and the DDP seller

Seller’s and buyers obligations: an overview

Sections A1, B1: the obligations to exchange goods for money
Section A9: the seller’s packaging obligations
Section B9: pre-shipment inspection
Sections A2, B2: the obligation to clear the goods for export and import

·         Take precautions against the risk of export and import prohibitions;

·         Obtaining assistance to clear customs

Section A2, B2 and A10, B10:

·         Security Measures and the changing role of customs

Resolution of the Customs Co-operation Council on the framework of standards to secure and facilitate global trade

·         The Customs Co-operation Council

Section A3, B3 and A4, B4: division of functions, costs and risks between the parties

·         For economy of transport, do not divide functions;

·         Additional service to the buyer under F-terms;

·         The custom of the port;

·         Caution when using FOB if custom of port not known;

·         Handing over to the carrier under C-terms;

·         Dividing the costs of discharge at destination

Section A8: the seller’s duty to provide proof of delivery and the transport document

·         CFR, CIF and on board documents;

·         Surrender of original bill of lading essential;

·         Non-negotiable transport documents;

·         Payment against sea waybills requires caution;

·         The problems of replacing bills of lading by EDI;

·         The Incoterms rules CFR and CIF and EDI;

·         The “usual transport document” under “CFR and CIF;

·         Transport document as proof of delivery;

·         Documents required to obtain delivery under D-terms;

·         Transport documents for carriage by sea;

·         Delivery orders

Sections A4 and B4: the seller’s obligation to deliver and the buyer’s obligation to take delivery

·         Delivery at the seller’s premises;

·         Delivery at the buyer’s premises;

·         Delivery at the waterfront under DAP and DAT;

·         The buyer’s acceptance of the seller’s handing over for carriage;

·         The buyer’s obligation to receive the goods from the carrier

Sections A5 and B5: the transfer from seller to buyer of the risk of loss of or damage to goods

·         The “price risk”;

·         Premature transfer of risk;

·         Identification of the contract goods;

·         Using force majeure clauses to protect the seller from the “breach of contract risk”

Section A3b: the seller’s insurance obligation

·         Freedom of insurance restricted

Sections A7, B7: notices

·         Conditions for the buyer’s giving notice;

·         Conditions for the seller’s giving notice;

·         Information relating to insurance;

·         Sufficient notice;

·         Failure to give sufficient notice

Sections A6, B6, A3, A10 and B10: division of costs between the parties

·         Main principle of distribution of costs;

·         The four main categories of costs;

·         Costs related to dispatch, carriage and delivery;

·         Costs for export import and security clearance;

·         Costs for services and assistance;

·         Costs of insurance;

·         Cost distribution systems

Going Through the 11 Incoterms rules

Group I

EXW, FCA, CPT, CIP, DAT, DAP and DDP

Group II

FAS, FOB, CFR and CIF

Role of the Incoterms rules in an international contract of sale

1.   Choice of trade terms

2.   The Incoterms rules in conjunction with other terms of the contact sale

3.   The Incoterms rules in conjunction with CISG

4.   Transfer of risk and cost

Annexes

1.   CMI Uniform Rules for Sea Waybills

2.   CMI Uniform Rules for Electronic Bills of Lading