The global economy has given businesses broader access than ever before to markets all over the world. Goods are sold in more countries, in larger quantities, and in greater variety. But as the volume and complexity of global sales increase, so do possibilities for misunderstandings and costly disputes when sale contracts are not adequately drafted.
Since the creation of the Incoterms (International Commercial Terms) rules by International Chamber of Commerce (ICC) in 1936, this globally accepted contractual standard has been regularly updated to keep pace with the development of international trade (in 1953, 1967, 1976, 1980, 1990, 2000 and 2010).
The purpose of “Incoterms” is to provide a set of international rules for the interpretation of the most commonly used trade terms in foreign trade. Thus, the uncertainties of different interpretations of such terms in different countries can be avoided or at least reduced to a considerable degree.
The Incoterms rules are the world`s best-known import/export tool. They are a common, basic element in every import or export contract for goods. That means that the Incoterms are used in countless commercial transactions every day, in every country.
The latest revision of Incoterms rules (the Incoterms 2010 ®) take account of the continued spread of customs-free zones, the increased use of electronic communications in business transactions, heightened concern about in the movement of goods and changes in transport practices.
Incoterms 2010 ® updates and consolidates the “delivered” rules (group D – arrival), reducing the total number of rules from 13 to 11, and offers a simpler and clearer presentation of all the rules.
The classification of the Incoterms 2010 ® rules is as follows:
- Rules for any mode or modes of transport
EXW EX Works
FCA Free Carrier
CPT Carriage paid to
CIP Carriage and Insurance paid to
DAT Delivered at Terminal
DAP Delivered at Place
DDP Delivered Duty paid
- Rules for sea and inland waterway transport
FAS Free alongside Ship
FOB Free on Board
CFR Cost and Freight
CIF Cost, Insurance and Freight
The first category includes the seven Incoterms 2010 ® rules that can be used irrespective of the mode of transport selected and irrespective of whether one or more than one mode of transport is employed. The can be used even when there is no maritime transport at all. It is important to remember, however, that these rules can be used in cases where a ship is used for part of the carriage.
In the second category of Incoterms 2010 ® rules, the point of delivery and the place to which the goods are carried to the buyer are both ports, hence the label “sea and inland waterway” rules. Under the last three Incoterms rules (FOB, CFR and CIF), all mention of the ship`s rail as the point of delivery has been omitted in preference for the goods being delivered when they are “on board” the vessel. This more closely reflects modern commercial reality and avoids the rather dated image of the risk swinging to and fro across an imaginary perpendicular line.
It also should be noted that Incoterms rules have traditionally been used in international sale contracts where goods pass across national borders. In various areas of the world, however, trade blocs, like European Union, NAFTA, CAFTA, etc., have made border formalities between different countries less significant. Consequently, the subtitle of the Incoterms 2010 ® rules formally recognizes that they are available for application to both international and domestic sale contracts. As a result, the Incoterms 2010 ® rules clearly state in a number of places that the obligation to comply with export/import formalities exists only where applicable.
Generally speaking, the Incoterms rules – are they purely contractual terms, standard trade usages and customs, and/or the “international law of merchants” (lex mercatoria).
We offer a full consultancy in following:
- making the right choice of delivery basis, adequate to other conditions of sale/purchase contract;
- making the right preliminary export or import cost calculation;
- making the right choice of mode(s) of transport, adequate to established delivery basis;
- making the right estimation of the risk under the given delivery basis.