Incoterms are trade terms arising from business practices whose scope is limited to the rights and obligations of sellers and buyers in sales contracts. They are not laws, but rules and recommendations which facilitate international commercial trade.
Incoterms rules were first published in 1936 by the International Chamber of Commerce and in general are reviewed every 10 years. The most recent revision took place in 2010, therefore the purpose of this article is to detail the recommendations brought about as a result of that revision.
There are five revisions worth highlighting
Firstly, of note is the elimination of four terms and the creation of two new terms, bringing the number of Incoterms to eleven. However, the rules allow for their continued use despite their elimination.
The terms eliminated are the following:
- DAF: It is understood that the seller will deliver the goods to the buyer when the goods are delivered at a border, but the seller does not have to unload the merchandise. This term is used regardless of the means of transport used, provided that the goods are delivered at a land border.
- DES: The seller delivers the goods when they are made available to the buyer on board the ship. This term is only used when delivery of the goods is made on board a ship at the port of destination and provided that the transport was by sea, by inland waterway or by multimodal transport.
- DEQ: The seller delivers the goods when they are made available to the buyer on the quay or wharf of the port of destination. This term is used when the carriage is performed by any of the methods mentioned in the previous term.
- DDU: The seller delivers the goods when they are made available to the buyer at the named place, without having been unloaded from their means of transport. This term can be used regardless of the means of transport.
The new terms are
- DAT (delivered at terminal): This term includes the terms DAF, DES and DEQ. It is used when the seller delivers the goods in a transport infrastructure or terminal
- DAP (delivered at place): The seller delivers the goods at a place other than a transport infrastructure or terminal but without unloading them. In this case, the seller bears the costs of unloading the goods.
The second change is that Incoterms 2010 advise and suggest, but do not require, that goods transported in containers use Multipurpose Incoterms rather than Maritime Incoterms.
The third change is in relation to the maritime Incoterms. In Incoterms 2000 the risks passed from the seller to the buyer when the load or the goods passed the ship’s rail. In the new Incoterms the seller passes the risk to the buyer when the merchandise is loaded on to the mode of transportation.
The fourth change is related to security: the rules now explicitly state that the seller is obliged to work with the buyer to get information and manage the relevant documents. This cost is borne by the buyer.
The last change from the old Incoterms, refers to the efforts being made to apply Incoterms to domestic trade. The EU is a geographical area with very significant differences, therefore, to use Incoterms to European trade, except the LDP concept concerning taxes resulting from export operations, seems to be a logical progression. This is due, among other things, to the abolition by the U.S. of RAFTD. The International Chamber of Commerce is now making efforts to ensure that American traders use Incoterms between themselves.
Finally, the following recommendations for the use of Incoterms should be highlighted:
- It is recommended to avoid the use of ex-Works (EXW) as it does not allow for adequate control of transport documentation and could lead to fraud, conflict, and so on. In this case, the exporter may have trouble getting the SAD for exportation submitted to customs by the importer
- It is preferable to indicate precisely the Incoterm used and the place of physical delivery of the goods
- It is advisable to deliver the goods at the place of origin with the FCA term because this information is known
- It is preferable to make the goods available to the buyer in the country of destination before passing customs. In the case of an import, you should use term F, while in the case of an export, use term C
- It is recommended to use D Incoterms only for low-risk countries
- There is always a risk involved in International transportation, therefore, it is recommended to the party assuming the risk to take out an insurance policy
This article is not considered as legal advice