Incoterms

Posted on 15 January 2015

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‘Incoterms 2010’, is a familiar term in an international trade contract. Thus, as a corporate counsel, I have to familiar the usage of this.

What is Incoterms?

Incoterms, which is short for ‘international commercial terms’, were established in 1936 by International Chamber of Commerce. Since then, the terms have been revised for eight times and the current version is published in 2010.

Incoterms has been widely used in international commercial transactions and procurement processes. It uses a series of three-letter trade terms, e.g. ‘EXW’, ‘CIP’, ‘DAP’, ‘FOB’ and etc, to indicate the tasks, costs and risks associated with the seller and buyer in the transportation and delivery of goods.

However, it is just an international standard. It is not a regulatory regime that dictates the trade practice. But I see no reason why one should deviate for Incoterms as Incoterms 2010 has almost address the solution in all kind of international trade.

Incoterms 2010

In 2010 edition, there are 11 terms. However, the following four terms I have used mostly during the drafting or reviewing an international trade contract.

  • EXW (Ex Works) – Seller is responsible for making the goods available in the seller’s premises. The buyer bears the full risk from there to the destination.
  • DAT (Delivered At Terminal) – Seller delivers the goods unloaded at a specified place inside the agreed terminal (seaport or airport). Risk is transferred as soon as the goods have been unloaded.
  • DDP (Delivered Duty Paid) – Seller is responsible for bringing the goods to the destination (seaport or airport), pay any duty and making the goods available to the buyer. Risk is transferred as soon as the buyer has access to the goods ready for unloading at the agreed destination (seaport or airport).
  • FOB (Free On Board) – Seller is responsible for delivery of the goods loaded on board the ship. Risk is transferred as soon as the goods have been set down inside the ship.

Incoterms 2010 vs 2000

I came across certain company or corporate counsel remains to apply 2000 edition, instead of 2010 edition, in their international trade contracts.

Well, as Incoterms is not a legal regime, which the 2010 edition is unable to ‘supersede’ and ‘overrule’ the previous edition. All the editions remain valid, and the parties need to specify which edition they are applying in their contracts.

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Posted in: Contract Law