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
ICC Rule Setting
Notable examples:• Uniform Customs & Practices for Documentary Credits (UCP)
• Uniform Rules for Collections (URC)
• Uniform Rules for Demand Guarantees (URDG)
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?
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 misinterpretationand possible dispute between seller and buyer
Incoterms
®
• Incoterms® explains a set of three-letter trade terms reflecting
business-to-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
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
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
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
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
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
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
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
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
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
