International Chamber of Commerce (ICC) Peak representative world business organization Established 1919 Fundamental mission is to promote trade and investment across frontiers and help business corporations meet the challenges and opportunities of globalization. Three main activities: rules-setting, arbitration and policy. Makes rules that govern the conduct of business across borders. Although these rules are voluntary, they are observed in countless thousands of transactions every day and have become part of the fabric of international trade. World headquarters in Paris; Branch Office Hong Kong; Regional Office Singapore
ICC Rule Setting Notable examples: Uniform Customs & Practices for Documentary Credits (UCP) Uniform Rules for Collections (URC) Uniform Rules for Demand Guarantees (URDG) Incoterms
International Commerce: Contract Negotiation Seller and buyer need to decide: - Who will arrange for carriage? - Who will pay for carriage? - Who will bear risk of loss or damage to goods? - etc, etc Who is to be responsible for what? Sharing of tasks, costs and risks -how do they decide...?
International Commerce: Contract Negotiation By negotiation using shorthand contracts incorporating general standard conditions (Trade Terms) By application of a universally recognised standard definition of trade terms used - Incoterms Minimises risk of misinterpretation and possible dispute between seller and buyer
Incoterms Incoterms explains a set of three-letter trade terms reflecting businessto-business practice in contracts for the sale of goods First published by ICC in 1936 and revised in 1953, 1967, 1976, 1980, 1990, 2000 and 2010 to keep abreast of contemporary commercial and transport practice The Incoterms rules describe mainly the tasks, costs and risks involved in the delivery of the goods from sellers to buyers
Scope of Incoterms Obligations dealt with include clearance for export and import, packing of goods, arranging and paying for carriage and insurance, delivering and taking delivery of the goods, packaging, loading and unloading Do not deal with transfer of ownership (title), breaches of contract, exemptions from liability etc
How to use Incoterms rules Choose the most appropriate rule (especially important if payment is under documentary credit - if contract or L/C require other documents they overide Incoterms, eg requiring an on board B/L for an FCA transaction) Incorporate the Incoterms 2010 rules into your contract Specify your place or port as precisely as possible
How to use Incoterms rules Incorporate Incoterms 2010 into contract of sale An express reference is required eg USD1000 CIP Denver Incoterms 2010 or AUD1000 FOB Dampier Incoterms 2010 NOT AUD1000 FOB Dampier
How to use Incoterms rules Specify your place or port as precisely as possible eg FCA 180 Hay Street, East Perth, WA, Australia Incoterms 2010 FCA Qantas Cargo Terminal, Perth International Airport, Incoterms 2010
Incoterms 2010 Came into effect 1 January 2011
Incoterms 2010 Effective from 1 January 2011 2½ years in review Over 2000 recommendations from 130 countries Major changes and revisions World best practice
Main features of the Incoterms 2010 rules Two new Incoterms rules: DAT Delivered at Terminal DAP Delivered at Place have replaced Incoterms 2000 rules DAF, DES, DEQ and DDU Number of rules reduced from 13 to 11
Classification of the 11 Incoterms 2010 rules RULES FOR ANY MODE OR MODES OF TRANSPORT EXW Ex Works FCA Free Carrier CPT Carriage Paid To CIP Carriage and Insurance Paid DAT Delivered At Terminal DAP Delivered At Place DDP Delivered Duty Paid RULES FOR SEA AND INLAND WATERWAY TRANSPORT FAS Free Alongside Ship FOB Free On Board CFR Cost And Freight CIF Cost Insurance and Freight
Other features of the Incoterms 2010 rules Rules for both domestic and international trade terms Ship s Rail concept abandoned On Board Provides for electronic communication and computerised documentation Security related information and clearances String sales includes obligation to procure goods shipped as alternative to ship goods Guidance notes for each rule; clearer, simpler explanations
Key Issue 1: Delivery Incoterms 2010 specify when seller delivers to buyer: in the E, F and C terms, when the seller physically hands over the goods incorrect use of FOB, CFR and CIF for containers moves the delivery point beyond physical handing over by seller only in D terms is delivery in buyer s country
Key Issue 2: Risk Incoterms 2010 specify when risk transfers from seller to buyer -same point as delivery in the E, F and C terms when the seller physically hands over the goods incorrect use of FOB, CFR and CIF for containers means seller s risk extends beyond physical handing over by seller only in D terms is risk transferred in buyer s country
Passing of Risks and Costs Risk passes from seller to buyer when seller has fulfilled his obligation to deliver the goods Responsibility of costs passes from seller to buyer at a point up to which the seller is obliged to pay transport (and insurance) costs
The Golden Rules 1. Explicitly incorporate Incoterms into your sale/purchase contracts 2. Have ready access to a copy of Incoterms 2010 3. Recognize the valid 11 Incoterms and refer to them by their 3 upper case letter abbreviations 4. Distinguish between those Incoterms that should be used exclusively for traditional maritime transport, and those appropriate for all transport modes, including intermodal
The Golden Rules 5. Understand that Incoterms are meant for use in the contract of sale between seller and buyer, not with the related contract of carriage 6. Understand that Incoterms cover transfer of risks and costs between seller and buyer plus certain responsibilities. Other conditions may need to be specified 7. Understand that CPT, CIP, CFR and CIF are not arrival contracts. The point of risk transfer is the same as with the F terms
The Golden Rules 8. Adopt Incoterms 2010 as company policy 9. Your trading partners might not be aware of Incoterms 2010 so help them to become aware 10. Do not jeopardise your company financially and legally by entering into a contract which might be unenforceable
Further Information Ian Whitaker Senior Trade Adviser, International Trade Centre Chamber of Commerce and Industry of Western Australia 180 Hay Street East Perth WA 6004 Tel: +61 8 9365 7684 Mobile: 0419 048 654 Email: ian.whitaker@cciwa.com Website: www.cciwa.com