WHAT ARE INCOTERMS?
INCOTERMS are the International Chamber of Commerce (ICC) rules that define the responsibilities of buyers and sellers for the delivery of goods (apportionment of costs and risks) in domestic and international transactions. They are accepted by businesses, and governments all over the world thus setting the standard for the interpretation of trade terms used in domestic and international trade.They are revised periodically to make it adaptable to technological changes and contemporary commercial practice. The most recent revision took place in 2010 (revised IIncoterms 2000).
A. Major reasons behind the revision: i) The need to adapt trade terms to domestic and international commercial practice; ii) the need to adapt trade terms to developments in national accounting standards (GAAP or IFRS), domestic law in important trading nations such as the USA (Uniform Commercial Code, Sarbanes-Oxley); iii) The desire to increase participation and input from emerging nations that are significant players in global trade such as Brazil and China; iv) Increased importance of multimodal transportation and the need for a broader scope of shipping terms to address land,ocean and air movements.
B. What do Incoterms address? i) Incoterms establish the point of delivery i.e., the passage of risk from the seller to the buyer; ii) Incoterms establish responsibility in terms of cost during the period when merchandise moves from the seller’s warehouse to the port of destination and beyond; iii)Incoterms also determine responsibility for export clearance, transportation, unloading charges, customs clearance at the port of desination etc. iv) Incoterms have implications for sales, transportation and other contracts, insurance (cargo, liability) and letters of credit transactions.
C. What Incoterms donot address: i) Incoterms do not address issues pertaining to transfer of title; ii) Incoterms are not law and donot automatically apply to every sales transaction of tangible goods. It has to be stated in the contract. If this is not explicitly stated, domestic contract law may apply.
D. Major changes undertaken during the revision: i) Trade terms that existed under Incoterms 2000 such as DAF (Delivery at Frontier), DES (Delivery ex-ship),DEQ (Delivery ex-quay) and DDU (Delivery duty unpaid) were deleted. DEQ was replaced by DAT (Delivered at Terminal). DAF, DES, and DDU were replaced by DAP (Delivered at Place); ii) The number of terms was reduced from 13 to 11; iii) Insurance is required only for CIP and CIF terms; iv) It is now a requirement to cooperate in order to ensure cargo security.
VIDEO: INCOTERMS 2011