Businesses around the world engage in billions of dollars worth of trade annually, and the terms of trade for goods sold internationally is generally done under one of the INCOTERMS agreed by Chambers of Commerce the world over.
The following is an extract taken from the Vero Marine Insurance newsletter explaining changes to INCOTERMS with effect from 1 January 2011.
Incoterms are International Chamber of Commerce terms that can be incorporated into a contract for the sale of physical goods. They stipulate which party (i.e. seller or buyer) has the obligation to make carriage or insurance arrangements, when the seller delivers the goods to the buyer, and the allocation of costs between each party. Incoterms are only part of the transactional clauses between the parties: other terms negotiated determine price, method of payment, and transfer of ownership.
They are usually revised in ten-year cycles to keep pace with developments in the environment of international trade. The 2010 terms take notice of the continued spread of customs-free zones, the increased use of electronic business transactions, heightened security requirements concerning the movement of goods internationally, and changes in transport practices.
The 2010 Incoterms are:
Any mode(s) 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
Sea and inland waterway only
FAS Free Alongside Ship
FOB Free On Board
CFR Cost and Freight
CIF Cost Insurance and Freight
The 2010 Incoterms include the following major changes:
Instead of being categorised as C, D, E, F groups of clauses, they are now split by mode of transport, i.e. clauses covering any mode(s) of transport vs clauses covering only sea and inland waterway transits.
Four of the "D" clauses have been replaced by two new "D" clauses. What used to be DAF, DDU, DES and DEQ are now replaced by DAT and DAP (see our in-depth article on the Vero Marine website for more information on these new clauses).
The point at which risk passes from seller to buyer has changed for the four sea and inland waterway only clauses. Previously the transfer of the risk of loss of or damage to the goods passed "from the time they have passed the ship's rail at the named port of shipment". Now, under FOB and CIF risk transfers once the seller has delivered the goods on board the vessel at the named port of shipment.
Note that FAS, FOB, CFR and CIF are not recommended for use where containers are used. This is because the practicalities of container handling are not suitable for the chosen risk transfer point. For example, the ICC recommends that FCA be used instead of FOB for goods in a container, as the container is handed over the carrier at a terminal, at an earlier time before the container is loaded on board the vessel. Instead of CIF, the ICC recommends CIP for containerised goods.
To view the International Chamber of Commerce INCOTERMS Home page for additional information, please click here