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INCOTERMS 2010

INCOTERMS 2010

Incoterms rules are trade terms abbreviated by the first three letters, reflecting entrepreneurial practice in contracts for the international sale of goods. Incoterms rules define mainly the obligations, costs and risks involved in the delivery of goods from sellers to buyers.

HOW TO USE INCOTERMS 2010.

1. By incorporating Incoterms® 2010 (Incoterms 2010) into your contract of sale. If you wish to apply Incoterms® 2010 (Incoterms 2010), you must clearly indicate this in your contract as follows: "[selected Incoterms, including named place, in accordance with] Incoterms® 2010" / Incoterms 2010".

2. By choosing an appropriate Incoterm. The chosen Incoterm should be appropriate to the goods, the mode of transportation and, in addition, reflect the extent to which the parties intend to make additional obligations, for example, the seller's or buyer's obligation to arrange transportation or insurance. The explanations for each term provide information useful in making this choice. Whichever term is chosen, the parties should bear in mind that the interpretation of their contract may be affected by the customs of ports or other places.

3. By defining the point or port as precisely as possible. The chosen term Incoterms can only work if the parties have specified a point or port, and even better if the parties have specified such a point or port as precisely as possible.
A good example of such a refinement is the following; "FCA 38 Cours Albert ler, Paris, France Incoterms® 2010".
According to the terms of Incoterms Ex Works (EXW, Free Factory), Free Carrier (FCA, Free Carrier), Delivered at Terminal (DAT, Delivery at the Terminal), Delivered at Place (DAP, Delivery to Destination), Delivered Duty Paid (DDP, Delivery Duty Paid), Free Alongside Ship (FAS) and Free on Board (FOB), the named point represents the place where delivery takes place and the risk passes to the buyer.

According to Incoterms Carriage Paid To (CPT, Carriage Paid To), Carriage and Insurance Paid To (CIP, Carriage and Insurance Paid To), Cost and Freight (CFR, Cost and Freight) and Cost, Insurance and Freight (CIF, Cost, insurance and freight), the named point differs from the place of delivery. According to these four Incoterms, a named place means a place of destination to which carriage is paid. For the avoidance of doubt or dispute, references to such a place as a point or place of destination may be further defined by referring to the exact point at that point or place of destination.

4. It must be remembered that Incoterms do not represent a complete contract of sale
Incoterms rules only indicate which party to the contract of sale must carry out the necessary actions for transportation and insurance when the seller hands over the goods to the buyer, and what costs each party bears. Incoterms rules do not indicate the price to be paid or the method of payment. They also do not regulate the transfer of ownership of the goods or the consequences of a breach of contract. These matters are usually set out in express terms in the contract of sale or in the law applicable to such contract. The parties, however, should be aware that a strictly binding national law (mandatory local law) may take precedence with respect to any aspect of the contract of sale, including the chosen term Incoterms.

MAIN FEATURES OF INCOTERMS 2010

1. Two new Incoterms - DAT (Delivered at Terminal) and DAP (Delivered at Destination) - replaced the following Incoterms 2000: DAF (Delivered at Frontier), DES (Delivered from Ship), DEQ (Delivered from Quay) and DDU (Delivery duty free)
The number of Incoterms has been reduced from 13 to 11. This was made possible by the inclusion of two new terms that can be used regardless of the agreed mode of transport, namely: DAT (Delivered at Terminal) and DAP (Delivered at Destination) instead of Incoterms 2000 DAF (Delivered at Frontier), DES (Delivered Ex Ship), DEQ (Delivered Ex quay) and DDU (Delivered Duty Free).

Under these two new terms, the delivery takes place at the agreed place of destination: under the term DAT (Delivered at the Terminal) by placing the goods at the disposal of the buyer unloaded from the arrived vehicle (as it was previously under the term DEQ (Delivered from Quay); under the term DAP (Delivered at the place of destination) also by placing the goods at the buyer's disposal, but ready for unloading (as was previously the case under the terms DAF (Delivered at Frontier), DES (Delivered from Ship) and DDU (Delivered Duty Free).
These new rules made Incoterms 2000 DES (Delivered from Ship) and DEQ (Delivered from Quay) redundant. The reference to the terminal in the term DAT (Delivered at Terminal) may be in a port, and therefore the term DAT can be safely used where the term Incoterms 2000 DEQ (Delivered from Quay) has been used.

Likewise, the arrived "vehicle" in DAP (Delivered at Destination) could be the ship and the agreed destination the port of destination: therefore DAP (Delivered at Destination) could be safely used where Incoterms were applied. 2000 DES (Delivery Ex Ship). These new rules, like their predecessors, are "delivered terms", i. the seller bears all costs (other than the costs of customs clearance for import, if applicable) and risks associated with the delivery of the goods to the agreed destination.

2. Classification of 11 Incoterms 2010 terms.
The eleven Incoterms 2010 terms can be divided into two separate groups:

REGULATIONS FOR ANY TYPE OR MODES OF TRANSPORT
EXW	Ex Works	Franco factory
FCA	Free carrier	Free carrier
SRT	Carriage Paid to	Freight paid up to
CIP	Carriage and Insurance Paid to	Freight and insurance paid up to
DAT	Delivered at Terminal	Delivery at the terminal
DAP	Delivered at Place	Delivery at destination
DDP	Delivered Duty Paid	Delivery Duty Paid
REGULATIONS FOR MARITIME AND INLAND WATER TRANSPORT
FAS	Free Alongside Ship	Free along the side of the ship
FOB	Free on Board	Free on board
CFR	Cost and Freight	Cost and freight
CIF	Cost Insurance and Freight	Cost, insurance and freight

The first group includes seven terms that can be used regardless of the mode of transportation chosen and regardless of whether one or more modes of transport are used. This group includes the terms EXW (Ex works), FCA (Free Carrier), CPT (Carriage Paid To), CIP (Carriage and Insurance Paid To), DAT (Delivered at Terminal), DAP (Delivered at Destination) and DDP ( Delivery Duty Paid). They can be used even if there is no sea transportation at all. However, it is important to remember that these terms can be applied when a vessel is partially used for transportation.

In the second group of Incoterms 2010 terms, both the point of delivery and the place to which the goods are transported by the buyer are ports, and therefore these terms are referred to as "marine and inland water regulations". This group includes the terms FAS (Free Alongside Ship), FOB (Free on Board), CFR (Cost and Freight) and CIF (Cost, Insurance and Freight). In the last three terms, any reference to the ship's rail as the point of delivery is omitted, since the goods are considered delivered when they are "on board" the ship. This more accurately reflects today's commercial reality and eliminates the notion that risk moves back and forth about an imaginary perpendicular line.

3. Rules for domestic and international trade Incoterms have traditionally been used in international sales contracts when the goods crossed the border. In various parts of the world, the creation of trade unions, such as the European Union, has made it less important to have visible control over goods as they pass through the borders of the respective parties. Therefore, in the subheadings of the Incoterms 2010 rules, it is explicitly stated that these rules can be used both in contracts for the international sale of goods and in domestic contracts for the sale. As a result, the Incoterms 2010 rules in a number of paragraphs clearly emphasize that the obligation to carry out export-import formalities exists only when applicable.

Two developments convinced the ICC that it was timely to move in this direction. First, merchants make extensive use of Incoterms rules in domestic sales contracts. Secondly, there is a growing desire in the US to use Incoterms in domestic trade instead of the shipping and delivery terms previously enshrined in the US Uniform Commercial Code.

4. Explanations
Before each term Incoterms 2010 you will find explanations. They highlight the main points for each Incoterm term, for example: when they should be applied, when the risk passes, how the costs are distributed between the seller and the buyer. These clarifications do not form part of the current Incoterms 2010 rules, but are intended to assist the user in the careful and efficient selection of the appropriate international trade term for a particular transaction.

5. Electronic communications
Previous versions of the Incoterms rules defined documents that could be replaced by electronic messages (EDI messages). In Articles A1/B1 of Incoterms 2010, electronic means of communication are recognized to have the same effect as paper communications, if the parties so agree or if this is accepted. This formula facilitates the evolution to new electronic procedures during the period of validity of Incoterms 2010.

6. Insurance coverage
The Incoterms 2010 Rules represent the first version of Incoterms since the revision of the London Cargo Clauses (the Institute Cargo Clauses) and take into account the changes made to these Rules. In Incoterms 2010, information relating to insurance obligations is placed in articles A3/B3, which deal with contracts of carriage and insurance. These provisions have been moved from articles A10 / B10 of Incoterms 2000, which were of a general nature. The wording of the AZ/BZ articles on insurance has also been amended to clarify the obligations of the parties in this regard.

7. Security control and information required for this
Currently, there is increasing concern for the safety of the movement of goods, requiring verification that the goods do not pose a threat to people's lives or their property for reasons not related to its natural properties. Therefore, in articles A2 / B2 and A10 / B10 of Incoterms 2010, the seller and the buyer are assigned responsibilities for implementing or facilitating the implementation of formalities related to security control, such as, for example, a seizure information system.

8. Terminal processing costs
Under the terms of Incoterms CPT, CIP, CFR, CIF, DAT, DAP and DDP, the seller is obliged to take all necessary measures to ensure that the goods are transported to the agreed destination.
When the freight is paid by the seller, it is essentially paid by the buyer, since the freight charges are usually included in the total price of the goods by the seller. Freight costs sometimes include the costs of handling and moving the goods at the port or container terminal, and the carrier or terminal operator may charge these costs to the buyer receiving the goods. In such circumstances, the buyer is interested in avoiding double payment for the same service - once to the seller as part of the total price of the goods and the second time separately to the carrier or terminal operator. Incoterms 2010 managed to avoid this by clearly allocating such costs in articles Ab/Bb of the respective terms.

9. Follow-up sales
In the commodity trade, unlike in the finished goods trade, the goods are often sold several times consecutively during the transit period. If this is the case, the seller in the middle of the chain "does not ship" the item because the item has already been shipped by the first seller in the chain. Therefore, the seller in the middle of the chain fulfills his obligations towards the buyer, not by shipping the goods, but by providing the shipped goods. For the purpose of clarification, the obligation to "deliver goods shipped" has been included in the relevant Incoterms 2010 as an alternative to the obligation to ship goods in the relevant Incoterms.

CHANGES TO INCOTERMS

Sometimes the parties wish to supplement any Incoterms rule. Incoterms 2010 does not prohibit such an addition, but there is a danger regarding this. To avoid unwanted surprises, it is advisable for the parties in their contract to provide as accurately as possible the effect expected from such additions. For example, if the contract changes the distribution of costs compared to Incoterms 2010 rules, the parties need to make it clear whether they intend to change the point at which the risk passes from the seller to the buyer.

EXPLANATION OF TERMS USED IN INCOTERMS 2010

As in Incoterms 2000, the obligations of the seller and the buyer are mirrored, column A contains the obligations of the seller, and column B contains the obligations of the buyer. These obligations may be performed directly by the seller or buyer, or sometimes, in accordance with the terms of the contract or under applicable law, through intermediaries such as carriers, freight forwarders, or other persons nominated by the seller or buyer for a specific purpose.

The text of Incoterms 2010 is self-sufficient. However, to assist users, the contents of the symbols used throughout the text are given below.
Carrier: For the purposes of Incoterms 2010, the carrier is the party with whom the contract of carriage is concluded.
Customs formalities: requirements that must be completed in accordance with applicable customs regulations and may include obligations regarding documents, security, information, or actual inspection of the goods.

Delivery: This concept is multifaceted in commercial law and practice, but Incoterms 2010 uses it to indicate the moment when the risk of loss or damage to the goods passes from the seller to the buyer.

Shipping documents: this concept is used in the heading of paragraph A8. It means a document confirming the delivery (transfer) of goods. For many Incoterms 2010 terms, a shipping document is a transport document or a corresponding electronic record. However, according to the terms EXW, FCA, FAS and FOB, a receipt can also be a shipping document. The shipping document may also have other functions, such as being part of the payment mechanism.

Electronic record or procedure: A set of information consisting of one or more electronic messages and, when applicable, functionally performing the same function as a paper document.

Packaging: this concept is used for several purposes:
1. The packaging of the goods must comply with the requirements of the sales contract
2. The packaging of the goods means that the goods are suitable for transportation.
3. Storage of packaged goods in a container or other means of transport.
In Incoterms 2010, the concept of packaging includes both the first and second specified meaning. Incoterms 2010 does not regulate the obligations of the parties to stow the goods in a container, and, moreover, if necessary, it is advisable for the parties to provide for this in the sales contract.

A comment:
INCOTERMS are not an international treaty. But in the case of a reference to the basis of the delivery of INCOTERMS in the contract, various state bodies, primarily customs, as well as state courts considering foreign economic disputes, are required to take into account the provisions of INCOTERMS. In some countries, INCOTERMS has the force of law, and this is especially important when concluding supply contracts with residents of these countries, in terms of determining the applicable law to the transaction. For example, when concluding a contract for the supply of goods between a Russian company and a Ukrainian company, when determining the applicable law - the law of Ukraine, then INCOTERMS are subject to mandatory application even if this is not specifically stipulated in the contract. Therefore, having concluded a deal with partners from these countries and not wanting to be guided by INCOTERMS, this circumstance should be specifically stipulated. In our country, INCOTERMS is advisory in nature, and only the provisions of the contract that have a link to ICOTERMS are legally binding. But, if the contract refers to the delivery basis according to INCOTERMS, but other clauses of the contract contradict the terms of delivery used according to INCOTERMS, then the relevant clauses of the contract, and not INCOTERMS, should be applied: it is considered that the parties have established certain exceptions from INCOTERMS in the interpretation of individual delivery bases.

When choosing one or another basis of delivery, it is necessary to strictly adhere to the terminology of INCOTERMS. It is better to indicate the specific term in English (as in INCOTERMS). When using one or another term, it is necessary to indicate a specific geographical location (and sometimes the exact place, as, for example, in the case of delivery under the ExWorks basis), in which the seller is considered to have fulfilled his obligations to transport the goods, bear the risk of accidental loss or damage to the goods, etc.
Be sure to refer to the edition of INCOTERMS.

When concluding a foreign economic contract, it is necessary to clearly define the details of the basic terms of delivery. That is, before specifying the delivery basis in the contract, for example FOB ..., it is necessary to carefully study the customs of the port indicated in the basis, the charter agreement, in order to accurately allocate costs between the buyer and the seller.
All delivery bases that require the seller to provide insurance in the event of insured events are covered by insurers on minimum terms (goods cost + 10%).