Legal Briefing

New Incoterms: Incoterms® 2010 rules A brief look at the principal changes

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The Netherlands | 01 April 2011

The International Chamber of Commerce (ICC) sets standardised international commercial terms, the so-called Incoterms® rules, to facilitate international trade. The Incoterms are frequently referred to, for instance, in general terms and conditions, as well as in sales agreements governed by Dutch law. The former Incoterms were drawn up in 2000 and now a new version has been published: the Incoterms® 2010 rules. These new rules took effect on 1 January 2011. There are now 11 Incoterms rules (there used to be 13); four have been added and two removed. Every Incoterms® 2010 rule determines the risk transfer and contractual obligations applicable to the delivery of goods by sellers to buyers. They are therefore contractual arrangements about when a seller delivers goods to a buyer, who bears the transport risks, who pays the transport costs, and who is responsible for any customs and clearance formalities required. If reference is made to an Incoterms® 2010 rule, clarity is provided regarding each party’s responsibilities, which reduces the risk of legal issues. Important reasons for updating the Incoterms included the repeal of part of the US Commercial Code (UCC) and increased willingness in the US to use the Incoterms® 2010 rules.

The new Incoterms 2010® rules take account of the recent spread of customs-free zones, growing concerns about the security of freight transport, and increased use of electronic communications in both domestic and international business transactions. They also attempt to present the rules more simply, more clearly and more practically.

The Incoterms® 2010 rules do not regulate issues such as payment, breach of contract, ownership transfer, disputes settlement and applicable law. These are matters that contracting parties must deal with themselves.

WHAT HAS CHANGED?

Every Incoterms® 2010 rule is preceded by a short guidance note that explains its fundamentals. This is different from the more general introduction given in previous versions of the Incoterms. The new Incoterms® 2010 are more accessible to non-lawyers as well. There is greater coherency between the various Incoterms® 2010 rules, which makes it a lot easier to decide on the right one than it used to be. Although the guidance notes encapsulate the fundamentals of every Incoterms 2010® rule, they are not part of the actual Incoterms® 2010 rules.

New Incoterms® 2010 rules: DAT (delivered at terminal) and DAP (delivered at place)

The two new Incoterms® 2010 rules are DAT and DAP. These apply to every mode of transport and replace the four obsolete Incoterms. These were DEQ (delivered ex quay), DAF (delivered at frontier), DES (delivered ex ship) and DDU (delivered duty unpaid).

Classification

A new classification has also been added, creating a distinction between the modes of transport, specifically the rules for every mode of transport (EXW (ex works), FCA (free carrier), CPT (carriage paid to), CIP (carriage and insurance paid to), DAT, DAP and DDP (delivered duty paid)), and those for transport by sea and inland waterways (FAS (free alongside ship), FOB (free on board), CFR (cost and freight) and CIF (cost insurance and freight)).

International and national contracts

The subtitle of the Incoterms® 2010 rules confirms explicitly that the rules can apply to international, as well as domestic, sale contracts. It appeared that there was a considerable need to make the Incoterms available for application to domestic contracts (particularly in the US, because of the repeal of the UCC’s shipment and delivery terms).

String sales

The new Incoterms® 2010 rules also take account of string sales, for which bills of lading are issued rather than goods being delivered.

OBLIGATIONS OF THE SELLER (A CLAUSES) AND BUYER (B CLAUSES)

Each Incoterms® 2010 rule contains ten clauses that give a detailed account of the obligations of both the seller (A clauses) and the buyer (B clauses). The following clauses differ from the precursor to the Incoterms® 2010 rules, the Incoterms 2000 rules.

General obligations (A1/B1)

Clauses A1 (general obligations of the seller) and B1 (general obligations of the buyer) of the Incoterms® 2010 rules make electronic documents functionally equivalent to paper documents. Clause A1 of all Incoterms® 2010 rules contains the following addition:

‘Every document referred to in A1-A10 may consist of an equivalent electronic file or procedure, as long as the parties so agree or where customary.’

The formulation of the remaining part of this clause has also been amended. Equally, clause B1 of all Incoterms® 2010 rules contains the following addition: ‘Every document… may consist of an equivalent electronic file or procedure.’ The wording is thus tighter than that of the Incoterms 2000, which merely makes mention of a ‘commercial invoice or equivalent electronic message’. The Incoterms® 2010 rules do, however, make an exception for bills of lading, which, after all, provide entitlement to the issue of goods. This does not apply to an e-bill of lading (ie electronic bill of lading).

Chain of custody

The various clauses of the Incoterms® 2010 rules include provisions to safeguard clear responsibility for security-related information, such as the chain of custody between buyer and seller (clauses A2 and B2 (licenses, authorisations, security clearances and other formalities), and A10 and B10 (assistance with information and related costs)).

Contracts of carriage and insurance (A3/B3)

Insurance coverage has been amended in accordance with the revised version of the Institute Cargo Clauses. Thus, clauses A3 and B3 (contracts of carriage and insurance) of the Incoterms® 2010 rules now impose the obligation to provide information relating to insurance. The parties’ obligations are also specified more clearly, ie which party must make a contract of carriage and which party must make a contract of insurance. It should be noted that, just as under the Incoterms 2000, neither party has to make a contract of insurance to cover the other party, except in the case of CIF and CIP.

Division of costs (A6/B6)

Clauses A6 and B6 (division of costs) contain clear rules as to the allocation of terminal handling charges. This is intended to prevent the buyer from having to pay twice for the same service, as frequently occurred in the past. The buyer would pay the seller charges as part of the total purchase price and would subsequently also have to pay the carrier or the terminal operator the same charges. Clauses A6 and B6 have been amended to preclude this situation.

Delivery document (A8)/proof of delivery (B8)/delivery (A4)/taking delivery (B4)

The rule covering the delivery of goods (transferring the risk of damage to or loss of the goods from the seller to the buyer; A4 and B4) has remained virtually the same. The substance of clause A8 (delivery document) has, however, been substantially amended. Previously, it was headed ‘Proof of delivery, transport document or equivalent electronic message’.

Inspection of goods (B9)/checking – packaging – marking (A9)

The clause stipulating which party is responsible for the costs of inspections prior to transport is also new in the Incoterms 2010® rules. This clause is of particular relevance to air transport, which increasingly entails compulsory security checks.

Under all Incoterms the seller is, in principle, obliged to package the goods. How the goods are to be packaged depends on the mode of transport.

RECOMMENDATIONS

Reference to the Incoterms® 2010 rules

To ensure that the new Incoterms® 2010 rules are applicable, existing documents (and in particular the general terms and conditions of sale and delivery and general purchasing conditions used) must be checked without delay and must, where necessary, be amended. Even if reference is made to the ‘most recent version of the Incoterms’, the Incoterms® 2010 rules may nevertheless differ from previous rules and it must be checked whether the chosen rule is still in line with the intentions of the referring party/parties. It may be risky to refer to an Incoterm that no longer exists!

Exact indication

The Incoterms® 2010 rule that is declared applicable to the sale contract must also be laid down in clear terms, eg in the sale contract itself or in general terms and conditions. The location must at all times be indicated as precisely as possible. The exact indication is of particular importance to Incoterms® 2010 rules CPT, CIP, CIF and CFR because in these rules the agreed location differs from the location for delivery, and the risk and costs are therefore transferred at different locations.

By Lisette Bieleveld, partner and Alexandra Weidner, lawyer, Boekel De Nerée.

E-mail: lisette.bieleveld@boekeldeneree.com; alexandra.weidner@boekeldeneree.com.