Incoterms Use for Shipping Terms

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INCOTERMS USE FOR SHIPPING TERMS

Incoterms rules are international trade terms promulgated by the International Chamber of Commerce (ICC). Though used primarily in international trade, they are seeing increasing use in domestic trade. When used, they should specify the specific shipping term, the location, Incoterms, and the edition. An example is “DAT Pier 82 Port of Philadelphia Incoterms® 2010.” Incoterms rules specify the point at which risk of loss occurs, but not, strictly speaking, where title changes. In addition, they specify which party is responsible for freight (or carriage) charges, but not payment terms for the goods themselves. The ICC prefers that “Incoterms” be used as an adjective, not a noun, in prose. The word itself is trademarked and the rules are copyrighted, so at least the last edition, Incoterms® 2010, should include the trademark. The U.S. national council of the ICC is the U.S. Council for International Business (USCIB). The leading U.S. authority is Frank Reynolds, who served on the eight-member committee of the ICC which drafted the Incoterms® 2010 rules. New rules have been published every ten years, and the second latest, Incoterms 2000, is still in widespread use. The rules are brought more up-to-date in their application, and sometimes, old terms are deleted and new terms are added. There has been a tendency to incorporate container shipment provisions, and to place responsibility for export specifics more on the seller and import specifics more on the buyer. The edition of the rules should always be specified, such as “FOB Terminal 86 Port of Seattle Incoterms 2000.” The named place (“delivery” under Incoterms rules) is where risk of loss changes, and usually, but not always, where responsibility for carriage charges changes.

Incoterms rules are not law and are incorporated into the sales contract by explicit reference to them. The sales contract includes additional specifics of the contract, and may modify the Incoterm chosen. However, the International Chamber of Commerce cautions that Sometimes the parties want to alter an Incoterms rule. The Incoterms® 2010 rules do not prohibit such alteration, but there are dangers in so doing. In order to avoid any unwelcome surprises, the parties would need to make the intended effect of such alterations extremely clear in their contract. Thus, for example, if the allocation of costs in the Incoterms 2010® rules is altered in the contract, the parties should also state whether they intend to vary the point at which the risk passes from seller to buyer.

Domestic trade is likely to see increasing use of the ICC’s international commercial terms. The 2000 edition of Incoterms first provided for this, and the subtitle of Incoterms 2010® is actually ICC rules for the use of domestic and international trade terms. “As a result, the Incoterms® 2010 clearly state in a number of places that the obligation to comply with export/import formalities only exists where applicable.” Domestic trade terms from the UCC, even those which use the same letters, are not precisely the same as the international trade terms. FOB, or free on board, is more restricted and precisely defined internationally, and is only used for water transportation, whereas it may be used for any form of transportation domestically. The UCC provisions are rather short and dated compared with the more up-to-date, detailed rules found in Incoterms® 2010.

A total of eleven Incoterms rules are available, down from thirteen in Incoterms 2000. These three-letter terms give responsibilities for, in addition to delivery and shipment charges, documents provision, information availability, and security coordination. EXW—Ex-works. Here the seller merely makes the goods available at its premises and the buyer, or more likely the buyer’s freight carrier, picks them up. The seller does not clear the goods for export. However, the exporter’s government...
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