3. Incoterms Notes

6 INCOTERMS

INCOTERMS 2010 are often categorised into four groups: E, F, C and D.

The 11 INCOTERMS arrangements are listed by group in the table below:

INCOTERMS are easily researched from the following:

• The International Chamber of Commerce publication ‘INCOTERMS 2010’, in the University library. The ‘Guide to INCOTERMS 2010’, also published by the ICC, is a satisfactory, if lengthier, alternative. If you read this, concentrate on the contents of each of the individual arrangements and do not spend too much time on the commentary. (Note that ICC publications group the arrangements differently from the table above.)

• Publicly available websites. There is a good guide at www.exportvirginia.org, (search for ‘INCOTERMS’ in the search box, then follow the link with ‘Fast Facts’ in its Web address); also the INCOTERMS schedules at www.freightfly.com provide a good summary of which party bears which costs. It is important that you do not use material relating to INCOTERMS 2000, as these have been superseded. Anything referring to INCOTERMS 2000, DES, DEQ, DAF or DDU is out of date.

Research

The International Chamber of Commerce (ICC) in Paris developed Incoterms (International Commercial Terms), a set of uniform rules for the interpretation of terms defining the costs, risks, and obligations of buyers and sellers in international transactions. Whoever has the risk usually makes their own dispositions – insurance.

Contracts are interpreted by the version of Incoterms referred to in the contract. Therefore, only a contract that refers to Incoterms 2010 will be governed by rules from that version.

Incoterms are not laws enacted by governments. Rather, they are rules agreed to by parties to a contract. Also, Incoterms are not implied into contracts for the sale of goods. If you desire to use Incoterms, you must specifically include them in your contract. Your contract should expressly refer to a specific version of Incoterms.

DEFINITIONS

• Delivery—In common usage, "delivery" is the act of delivering something, while the "place of delivery" is often the buyer’s place of business. In Incoterms 2010, however, "delivery" is the point where "the risk of loss or damage passes from the seller to the buyer." This is often the "named port or place" but not necessarily the buyer’s place of business.

• Pre-carriage—The initial transport of goods from the seller’s premises to the main port or place where main carriage begins. Usually by truck, rail, or inland waterway.

• Main carriage—The primary transport of goods, generally for the longest part of the journey and generally from one country to another. Usually by sea vessel or by airplane, but also by truck, rail or inland waterway.

• Onward carriage—Transport from the port, terminal, or place of arrival in the country of destination to the buyer’s premises. Usually by truck, rail, or inland waterway.

• Multimodal—Use of more than one mode of transport (road, rail, sea, air) to transport goods (or people) from origin to final destination.

• Carrier—In common usage, a "carrier" is a firm that transports goods or passengers for hire, rather than simply arranging for such transport. In Incoterms, however, the carrier can be any person or firm who by contract "undertakes to perform or procure" such services. The buyer nominates the "carrier" and the seller need only accept the nomination for the term to work.

• String sale—The sale, and successive resale, of a single shipment of goods while en route from place of shipment to final destination. This is common in the commodity trade, where oil, grain, and ore shipments are sold and resold before the vessel arrives in port. A number of Incoterms now take this practice into account by giving the seller the option to "procure goods already so delivered."

Incoterms 2010 may be included in a sales contract if the parties desire the following:

1. To complete a sale of goods.

2. To indicate each contracting party's costs, risks, and obligations concerning these aspects of delivery:

a. When is the delivery completed?

b. How does a party ensure that the other party has met the standard of performance?

c. Which party must obtain requisite licenses and comply with government-imposed import/export formalities? INCOTERMS distribute between the parties the logistic and administrative charges during the different stages of the process

d. What are the modes and terms of carriage?

e. What are the delivery terms?

f. When is the risk of loss transferred from the seller to the buyer? (accordingly who must underwrite the contract/get insurance re the risk)

g. How will transport and other costs be divided between the parties?

h. What notices are the parties required to give to each other regarding the transport and transfer of the goods?

i. Specify who takes care of the packaging, labeling, handling operations, loading and unloading of goods or stuffing and stripping containers as well as inspection procedures;

3. To establish basic terms of transport and delivery in a short format.

Incoterms 2010 are not sufficient on their own to express the full intent of the parties. They do not:

1. Apply to contracts for services.

2. Define contractual rights and obligations other than for delivery.

3. Specify details of the transfer, transport, and delivery of the goods.

4. Determine how title to the goods will be transferred (ownership is determined by the ‘applicable law’ to the contract).

5. Protect a party from risk of loss.

6. Define the remedies for breach of contract.

‘E’ terms (1)

Abbreviation: EXW

Name: Ex Works/Ex Warehouse

Meaning:

EXW specifies that the seller/exporter/manufacturer merely makes the goods available to the buyer, not cleared for export, at the seller’s "named place of delivery," which is commonly, but not necessarily, the seller’s place of business.

So buyer responsible for carriage, risks and costs throughout.

Note: Documents may be paper or electronic, as customary or as agreed to by the parties to the...

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