The International Chamber of Commerce (ICC) has revised the International Commercial Terms, known as Incoterms. The new Incoterms 2010 will come into effect from January 1, 2011. Exporters and importers must familiarise themselves with the changes and learn to use the revised terms.
Incoterms, a series of international sales terms, published by ICC, are rules developed by experts and practitioners through consultative processes and so are accepted by governments, legal authorities and practitioners worldwide for the interpretation of most commonly used terms in international trade. The rules reduce or remove uncertainties arising from different interpretation of commercial terms by specifying the obligations of seller and buyer besides indicating who bears what costs, when and how the property passes and when the risk passes from seller to buyer.
The Incoterms, first introduced by ICC in 1936, are revised periodically. The eighth edition of 2010 replaces Incoterms 2000 and responds to changes in global practices such as significant advancements and widespread use of electronic communication and documentation, changes in transportation practices and cargo security requirements that put new obligations on traders and emergence of more customs unions.
The new rules reduce the number of Incoterms from 13 to 11 by eliminating four old terms — Delivery Duty Unpaid (DDU), Delivery Ex-Quay (DEQ), Delivery Ex-Ship (DES), and Delivery Across Frontier (DAF) — and by bringing in two new terms — Delivery at Place (DAP) and Delivery at Terminal (DAT).
The current 2000 rules have four groupings — Four ‘Main Carriage Paid’ (C) terms where the seller contracts for carriage without assuming the risk of damage or loss or costs after shipment or despatch, five ‘Arrival’(D) terms where the seller bears all risks and costs till the goods are delivered at destination, one ‘Departure’ (E) term where the seller makes goods available to buyer at his own premises and three ‘Main Carriage Unpaid’ (F) terms where the seller delivers goods to carrier appointed by the buyer. The new 2010 rules do away with four of the five ‘Arrival’ terms and put two new terms in their place.
The new rules include extensive guidance notes and illustrative graphics to help users efficiently choose the right rule for each transaction, new classification to help choosing the most suitable rule in relation to the mode of transport, advice for the use of electronic procedures, information on security-related clearances for shipments and advice for the use of Incoterms 2010 in domestic trade.
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Incoterms 2010 are arranged into seven terms [CIP- Carriage Insurance Paid, CPT- Carriage Paid to, DAP- Delivered at Place, DAT-Delivered at Terminal, DDP-Deliver Duty Paid, Ex-W- Ex-Works and FCA-Free Carrier] that can be used for all modes of transportation (i.e. by sea, air, road or rail) and four terms [CFR – Cost and Freight, CIF-Cost, Insurance and Freight, FAS-Free Alongside Ship, FOB- Free On Board] that can be used only for sea and inland waterways.
The new Incoterms 2010 are so drafted that they can be used in domestic transactions also. In fact, the subtitle to Incoterms 2010 calls them ‘ICC Rules for the use of domestic and international trade terms’.
So, the new rules have much wider application and even those not dealing with imports and exports but essentially within the country or within a customs union will also benefit by getting familiar with Incoterms 2010 and by using them.
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