Incoterms 2010

From Supply Chain Management Encyclopedia

Revision as of 00:00, 23 July 2011

Short History

The Incoterms® 2010 rules^[1] are the International Chamber of Commerce (ICC) rules for the use of domestic and international trade terms. Historically, beginning from 1936, different editions and revisions of Incoterms have been carried out to update the rules in accordance with current international trade practices and technological changes (namely, Incoterms versions of 1953, 1967, 1976, 1980, 1990, and 2000 were in use before the current version - Incoterms® 2010.The latest 8th revision, - the Incoterms® 2010 rules, - take account of contemporary changes in transport practice, together with the spread of customs-free zones, increased use of electronic communication and security issues became more important due to the international terrorism development. Controlling source document is written in British English and is to be translated into 35+ languages over 2011. Incoterm Variants are generally used to further clarify the responsibilities of the exporter and of the importer in a given transaction.E.g., variant “EXW loaded” clarifies that the exporter agrees to load the goods on the vehicle provided by the importer, when the official Incoterm is silent on that specific point.

Incoterms Defined

Incoterms are a collection of international rules (coded in three-letter acronyms: from EXW till DDP), with voluntary character for parts, that set the range of commercial clauses included in international sale and purchase contract; easy to understand for both contract parties as well as for a third party (e.g., case of arbitration).Incoterms are internationally accepted commercial terms defining the respective roles of the buyer and seller in the arrangement of transportation and other responsibilities and clarify when the transfer of ownership of the merchandise takes place; are used in conjunction with a sales agreement or other method of transacting the sale. In other words Incoterms are formalized convenient terms of trade regulated by the International Chamber of Commerce (ICC) which specify and split the responsibilities of the exporter and the responsibilities of the importer in an international transaction. Therefore, in accordance with the rule of Incoterms selected it should be clear:

• Which tasks will be performed by the seller/exporter

• Which tasks will be performed by the buyer/importer

• Which activities will be paid by the seller/exporter

• Which activities will be paid by the buyer/importer

• When the transfer of risk for the goods will take place

Incoterms® 2010 Classified

The number of terms in is decreased from 13 (as in Incoterms 2000) to 11 due to integrating DAF (Delivered at land Frontier), DES (Delivered Ex Ship), and DDU (Delivered Duty Unpaid) as DAP (Delivered At Place).

Full List of Incoterms® 2010 Rules

Rules for Any Modes of Transport (EXW, FCA, CPT, CIP, DAT, DAP, DDP)

• EXW (Ex Works) – EXW (insert named place of delivery)

• FCA (Free Carrier) – FCA (insert named place of delivery)

• CPT (Carriage Paid To) – CPT (insert named place of destination)

• CIP (Carriage And Insurance Paid To) – CIP (insert named place of destination)

• DAT (Delivered At Terminal) – DAT (insert named terminal at port or place of destination)

• DAP (Delivered At Place) – DAP (insert named place of destination)

• DDP (Delivered Duty Paid) – DDP (insert named place of destination)

Rules for Sea and Inland Waterway Transport (FAS, FOB, CFR, CIF)

• FAS (Free Alongside Ship) – FAS (insert named port of shipment)

• FOB (Free On Board) – FOB (insert named port of shipment)

• CFR (Cost And Freight) – CFR (insert named port of destination)

• CIF (Cost, Insurance, And Freight) – CIF (insert named port of destination)

Some Terms in the Incoterms® 2010 Context

The rules of Incoterms® 2010 are aplicable for international transactions as well as for domestic ones. Some of frequently used terms are explained below depending on domestic and international application, respectively.

• Carrier — any person or firm who by contract "undertakes to perform or procure" transportation services. The buyer nominates the "carrier" and the seller need only accept the nomination for the term to work. However,in common usage, a "carrier" is a firm that transports goods or passengers for hire, rather than simply arranging for such transport.
• Delivery is used to indicate where the risk of loss of or damage to the goods passes from the seller to the buyer. This is often the "named port or place" but not necessarily the buyer’s place of business. However, in common usage, "delivery" is the act of delivering something, while the "place of delivery" is often the buyer’s place of business.
• Pre-carriage: inland transportation on the seller’s side - Domestic: from the place where the shipment starts to any subsequent transportation carriage. International: from the place where the shipment starts to the departure point on the seller’s side.

• Main Carriage - Domestic: subsequent transportation beyond pre-carriage. International: transportation from the point of departure on the seller’s side to the arrival point on the buyer’s side.
• On-carriage - Domestic: subsequent transportation beyond main carriage. International: transportation from the arrival point on the buyer’s side. Also, onward carriage.
• Door – to – Door - Contract of carriage that includes pre-carriage, main-carriage and on-carriage by the same carrier
• Door – to – (Air) Port - Contract of carriage including pre-carriage and main-carriage to airport or ocean port or truck terminal port or rail port.
• (Air) On-carriage - (Air) Port – to – Door
• Omni-modal - Used with terms that use all modes of transportation (truck, airplane, vessel, train…) Also, multimodal.
• Marine-restricted - Terms that only apply to carriage by vessel.
• Shipment Contract - Sales/purchase contract where the seller’s responsibility ends when goods are handed over to the first carrier.
• Arrival Contract - Sales/purchase contract where seller’s responsibility ends when goods have arrived at agreed place.

Incoterms® 2010 as Tasks/Payments Allocation Tool

Incoterms® 2010 is a convinient tool to define who, - seller or buyer, - has to...

1. Furnish the goods;
2. Arrange and pay for country-specific documentation (e.g., consular invoices, inspection reports, licenses);
3. Package the goods in a manner suitable for shipment (export);
4. Arrange for export clearance in the seller’s country (if applicable);
5. Insure the shipment;
6. Move the goods from the seller’s factory to a port, airport, or border crossing in the seller’s country;
7. Arrange for main carriage (international transportation) from the departure port to the arrival port;
8. Pay for main carriage;
9. Arrange for import clearance;
10. Pay import duties; and
11. Arrange and pay for on-carriage from the arrival port to the delivery destination.

Checklist to Choose a Reasonable Rule of Incoterms

1. What method of transport is to be used?
2. What are the rules of Incoterms currently used? Who choose these?
3. Are there any company policies on which rules of Incoterms should be used and how much responsibility should be taken?
4. Are there any restrictions on the rule of Incoterms to be used imposed by the country of importation?
5. Are there any commercial norms in the country with which you are dealing?
6. Discuss the rules of Incoterms to be used with your trading partner - it is important to take their point of view into account.
7. Ensure that both parties understand and can carry out their obligations.
8. Ensure that you are able to obtain enough information to give a quote for a certain Incoterm.
9. Read Incoterms 2010. The introduction gives good advice and can clarify certain issues and the individual rules of Incoterms themselves are accurately described.
10. Ensure all staff (especially those involved in sales and marketing) are properly trained in order to understand the basic principles of Incoterms and in particular the details of the individual rules of Incoterms 2010.
11. Incorporate the rules of Incoterms decided into all relevant commercial paperwork such as invoices, quotations, terms and conditions of sale.
12. Review the rules of Incoterms periodically and change them if necessary.

References

1. ↑ Incoterms® 2010: ICC rules for the use of domestic and international trade terms – ICC Publication No 715E