Date:

New Incoterms in force 1st January 2011

The eighth revision of the Incoterms was published on 27 September 2010 and came into force on 1 January 2011. We have a look at the key differences between the Incoterms 2000 and the Incoterms 2010.

What are Incoterms?

“Incoterms” are the International Chamber of Commerce commercial terms for a contract of sale (usually used in relation to international trade agreements, however occasionally used in domestic contexts, particularly across countries governed by differing federal laws, such as in the USA) and are commonly used to govern international trade arrangements.

Incoterms provide for some fundamental elements of international trade contracts, including the carriage of goods from seller to buyer, delivery, insurance, import and export clearance and the division of some costs and risks between the parties. Incoterms are not a comprehensive set of rules appropriate for a contract of sale and it is important that parties recognise this. They do not contain provisions for issues such as price, method of payment, transfer of title (ownership) in the goods, warranties, liability, termination, force majeure, law and jurisdiction or the consequences of breach of contract. 

However, as Incoterms generally have international application, where they are used, they can eliminate some uncertainties and variations in the interpretation of contracts arising from different jurisdictional interpretations of national laws. Consequently, Incoterms are incorporated into many international contracts of sale. It should be noted, however, that Incoterms may be overruled by local mandatory laws.  

The eighth revision of the Incoterms was published on 27 September 2010 and came into force on 1 January 2011. We have a look at the key differences between Incoterms 2000 and Incoterms 2010.

Old Incoterms 2000

The Incoterms 2000 are comprised of 13 rules, each given a three letter abbreviation (see below). The rules provide a choice for the parties in allocating the scale and scope of each party’s obligations. Incoterms 2000 is broken into 4 categories of rules:

  • Group E ("EXW") deals with departure.
  • Group F ("FCO", "FAS" and "FOB") main carriage not paid by the seller.
  • Group C: ("CFR", "CIF" "CPT" and "CIP") main carriage paid by seller.
  • Group D: ("DAF", "DES", "DEQ" "DDU" and "DDP") deals with arrival.

New Incoterms 2010

Key revisions in the Incoterms 2010 are as follows:

  • The number of rules has been reduced from 13 to 11; "DAF", "DES", "DEQ" and "DDU" are out and "DAT" and "DAP" are in.  
  • The Incoterms 2010 can be used in both domestic and international agreements. This is expressly recognised by the foreword to the new Incoterms and provided for in each rule where obligations to pay import or export taxes are expressed to be only where applicable.
  • The Incoterms 2010 have now been split into:
  1. contracts applicable to all forms of transport; and
  2. contracts applicable only to sea and inland waterway transport.
  • The Incoterms 2010 place a greater emphasis on security and allocate responsibility to obtain or provide assistance in relation to security related clearances.
  • The rules have been amended to allow for greater emphasis on electronic communication.
  • The Incoterms 2000 provided that the seller had to pay for the carriage of the goods to the agreed destination; however often these charges were passed to the buyer as part of the total sale price. In some circumstances, however, the buyer would also have to pay for the costs of handling the goods within the port or container terminal facilities. The Incoterms 2010 tries to prevent this “double charging” by clearly allocating the costs between the parties.
  • The rules have been amended to provide for circumstances where cargo is sold several times during transit. Often sellers in the middle of the chain do not actually ship the goods; therefore the amended rules provide for the seller merely to procure that the goods have been shipped.

Transition from Incoterms 2000 to Incoterms 2010

It is worthwhile noting that unless expressly stated otherwise:

  • For existing contracts, the Incoterms 2000 will continue to govern performance of contracts, even where performance occurs after 1 January 2011.
  • As from 1 January 2011, it is understood that any reference in a contract to “Incoterms”, is to the Incoterms 2010.

Our Recommendations

  • If you decide Incoterms are appropriate for your deal, make sure they are properly incorporated into your contract by using clear wording to that effect and make sure you specify which Incoterms edition you are using.
  • Make sure you fully understand the rules and what they mean before making your choice.
  • Make sure your rule choice is appropriate to the method of transport and nature of the goods.
  • Be as specific as possible when using the rules, e.g. fully name the delivery location.
  • Make sure there is a contract which contract deals with the aspects that Incoterms do not address e.g. price, method of payment, transfer of title (ownership) in the goods, warranties, liability, termination, force majeure, law and jurisdiction or the consequences of breach of contract. 
  • Recognise that using Incoterms is not a substitute for a carefully drafted contract which deals with all aspects of the transaction fully.
This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.