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Incoterms® 2010

31 January 2011

Andrew Shipley

Many businesses that are engaged in international trade will be aware that in the autumn of last year the International Chamber of Commerce published the Incoterms® 2010 Rules.  This blog provides an overview of those rules and how they can be used to help your business.

The ICC has published standard terms and conditions for buying and selling goods in international transactions for many years.  Most businesses will have heard of the phrases "Ex works" "C.I.F" and "F.O.B.".  Some are not aware that those are just three examples of a suite of standard terms that businesses can use to allocate risks, obligations and costs in a contract between a buyer and a seller collectively called the 'Incoterms'.

 

A booklet containing full copies of the terms can be bought from the ICC on their website.  Parties are free to choose whether or not they use them, but if they want to do so, must clearly agree between them that these contractual conditions form part of their contracts.

 

The standard way of doing that is incorporate into the sales document using words to the effect of "FCA 38 Course Albert.1ER, Paris, France Incoterms® 2010 ".

 

Providing that is agreed by both parties then the contract will include all the terms and conditions set out in the FCA (free carrier) Section of the Incoterms® Rules 2010.  In essence it means that the seller will load the goods onto transport at the address in Paris and that from that point onwards all the costs and risk and obligations are on the buyer.  That is of course a paraphrase of a much longer list and is set out in detail in the Incoterms themselves.

 

There are a suite of potential standard terms that you can choose from.  They run from ex-works where almost all of the obligations are on the buyer through to DDP where all the obligations are on the seller.  Moving down the list gradually transfers more of the obligations from the Buyer to the Seller and it is up to you to choose which of the options you want to adopt.  Once you have done so you will be able to price your contract confident in the knowledge that you know what risk and what obligations are yours and what tasks will have to be performed by the other party.

 

It is important to understand that the Incoterms don’t cover all aspects of a contract.  They obviously don’t deal with price, nor do they deal with payment method, passing of ownership, the consequence of a breach and, importantly, which law governs the contract or how you will deal with disputes. 

 

New editions of the Incoterms are published every ten years and in this revision there have been a number of important changes.

 

The ICC say that they are being used more regularly in domestic transactions, rather than just for international sales, and they have been amended to reflect that.

 

There were 13 Incoterms and there are now 11.  2 of the "delivered" terms have been dropped.

 

They have been organised to show which terms are suitable for sea and inland waterway transport and which are suitable for road transport.  A common mistake was to use terms that would only apply to seaborne transport when the carriage of the goods was entirely done by road or rail.

 

This reorganisation and the much better guidance notes that proceed each term should make it easier for businesses to use the Incoterms® 2010 rules than their predecessors.

 

Electronic communications are now the norm and are valid methods of taking steps under all of the terms.

 

The increase in costs relating to providing security for goods are now allowed for in the terms and are specifically allocated either to the buyer or the seller, depending on which term you choose.


Similarly, terminal handling charges are also included given the predominance of containerised shipping that has grown to dominate the market since the last edition.

 

The terms can now be used when "string" sales are contemplated, that is where the buyer decides to sell on his rights and obligations after the contract, between the original buyer and sellers may have been made before the good finally reach their destination.

 

To find out more about the Incoterms® 2010 rules, join us at our ‘Essentials of International Trade’ seminar on Wednesday 16 February at The Olde Barn, Marston, where Andrew will be delivering a presentation on the important changes.


There will also be the opportunity to meet with Andrew on a one to one basis prior to the event to discuss any Incoterms or contractual queries you may have. To book an appointment or a place at the seminar, please contact Elizabeth on 0115 947 1767 or email emita@emd.org.uk

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