Incoterms 2010: Key Issues

Peppe Santoro Venture Legal Services

23 February 2011

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What are Incoterms?

• International Commerce Terms

• Developed by the International Chamber of Commerce (headquartered in Paris, France)

• Introduced in 1936 and updated several times up to 2000

• Most recent (eighth) edition is Incoterms 2010, effective from 1 January 2011

• A set of rules governing key terms applicable to international trade

• A well-established shorthand to describe those terms

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How are Incoterms used?

• Incorporated in sale/purchase contracts by direct reference

• Examples of correct use: - “FCA Port of Cork Incoterms 2010” - “DDP Servisair Warehouse Cork Airport Cargo Terminal Incoterms 2010”

• Standardised approach to a number of detailed and potentially difficult commercial issues

• Significant guidance available from ICC and experienced professionals

What issues do Incoterms 2010 address?

• Transfer of risk

• Export clearance

• Transport costs

• Insurance

• Use of carriers/forwarders

• Import clearance

• Security-related clearances

• Electronic freight documentation

• They do not deal with transfer of title and

this must be agreed separately

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What are the 2010 Incoterms?

EXW Ex Works (named place)

FCA Free Carrier (named places)

FAS Free Alongside Ship (named loading port)

FOB Free on board (named loading port)

CFR Cost and Freight (named destination port)

CIF Cost, Insurance & Freight (named destination port)

CPT Carriage Paid To (named place of destination)

CIP Carriage & Insurance Paid (to) (named place of destination)

DAT Delivered At Terminal (named terminal)

DAP Delivered At Place (named destination place)

DDP Delivered Duty Paid (named destination place)

EXW is least and DDP is most onerous for seller.

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How are Incoterms 2010 arranged?

• Incoterms 2010 arranged them into two groups: (a) those suitable only for sea/inland waterway transport, and (b) those suitable for all modes of transport.

• FOB, FAS, CIF and CFR are suitable only for waterborne transport.

• Incoterms 2000 grouped them into four groups (E, C, F and D) where: - Group E is EXW (the most pro-seller term) - Group F terms make buyer liable for main carriage - Group C terms make seller liable for main carriage - Group D terms make the seller liable for arrival

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Key Exporter Obligations

• The EXW term is most favourable for sellers/exporters but does not

oblige buyer to provide any export information (which the seller

may need)

• By contrast the DDP term is most favourable for buyers/importers

and obliges the seller to pay all transportation costs (but not

insurance) and duties and to bear all risk in the goods until they are

delivered

• The remaining terms represent a spectrum of risk and

responsibility between EXW and DDP.

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Advantages of Incoterms

• Speed of negotiation

• Common understanding

• Well designed mechanism

• Substantial caselaw applying various circumstances

• Comprehensive

• Efficient and effective shorthand

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Disadvantages of Incoterms

• Can be misapplied/misunderstood by users

• Require active consideration of some potentially tricky issues

• Other than the above, none that we have yet come across (but we’re still looking)!

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Other important terms

• Variations from Incoterms should be clearly and unequivocally stated.

• Warranties/disclaimers as to quality, fitness for purpose and otherwise should be clear and specifically agreed.

• Governing law and jurisdiction clauses (specifying appropriate governing law and place to resolve disputes)

• Language clauses (specifying English as language of contract and disputes)

• Alternative dispute resolution (ADR) (principally arbitration and mediation)

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Other resources

• Professional advice available both for specific queries and disputes

Venture Legal Services

• Article on IEA website: Incoterms Explained

• Wikipedia (useful summary/primer)

• International Chamber of Commerce website

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Incoterms 2010: Key Issues

Peppe Santoro

Venture Legal Services

77 Sir John Rogerson’s Quay

Dublin 2

www.venturelaw.ie

@VentureLawIE