The New 2010 Incoterms What has changed?

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Incoterms 2010

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Incoterms: What are they?

Incoterms 2010 International Commerce Terminology. Effective January 1, 2011! Developed by the International Chamber of Commerce (ICC) in 1936. Subsequent additions and revisions in 1953, 1967, 1976, 1980, 1990, and 2000. Purpose was to provide international rules for the interpretation of commonly used trade terms. They are limited to matters relating to the rights and obligations of the parties to a contract of sale with respect to the delivery of the goods, not to a contract of carriage.
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Incoterms
The Incoterms are not law!
However, they are recognized by international judicial bodies under contract law as a meeting of the minds.

They do not determine transfer of title (ownership)!!

Common misconception! The transfer of title may take place anywhere along the chain and should be specifically identified in the contract.

They do not determine when revenue may be recognized!

GAAP, SEC, and other regulations determine that.

The Incoterms do not apply to the contract of carriage, but to the delivery of goods under a sales contract. They do not enumerate all of the duties and responsibilities.
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Incoterms 2010

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Structure of an Incoterm
The terms alone are insufficient a location must always be named and the version of the Incoterms should be included.
Examples:

ExW Harrisburg, PA, Incoterms 2010 FCA Kennedy Intl Airport, Incoterms 2010

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2010 Incoterms
11 terms now instead of 13 Terms Eliminated:

DAF - Delivered at Frontier DES - Delivered Ex-Ship DEQ - Delivered Ex-Quay DDU - Delivered Duty Unpaid

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2010 Incoterms

Addition of two new terms:

DAT - Delivered at Terminal

DAP - Delivered at Place

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2010 Incoterms

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2010 Incoterms
Key point!! It is important to understand the term "delivery" - this term has not changed, but was NOT previously defined.
Definition of Delivery 2010 Delivery where the risk of loss or damage to the goods transfers from Seller to Buyer.
Example: CIF Rotterdam, Incoterms 2010 Delivery occurs when the Seller turns the goods over to the international carrier at the port of export! However the Seller is still responsible for paying the freight to Rotterdam and obtaining insurance in the name of the Buyer.

So do not confuse " delivery" with freight destination costs.

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2010 Incoterms

Eliminated
Ships Rail FOB, CFR, and CIF
(Marine only terms).

Now On Board Seller is responsible for goods until they are on board vessel.

** Under CFR & CIF, Seller pays for international transportation, but Seller "delivers" when on board on vessel. Risk of loss passes to Buyer at that point. (Same as Incoterms 2000)**

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2010 Incoterms
DAT - Delivered at Terminal
Omnimodal term, for all methods of transport.
Must be a terminal on buyer's side air, truck, rail, etc.

Seller is responsible for export clearance, deliver of the goods packed to destination terminal, all transport costs to named terminal and unloading (only term to include unloading). Buyer is responsible for import clearance and on carriage (foreign inland freight). No insurance obligation by either party.
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2010 Incoterms
DAP Delivered at Place (heir to DDU, DAF, DES, DEQ)
Seller is responsible for export clearance, deliver the goods appropriately packed at named destination and pay all transport costs to named destination (no unloading).
Buyer is responsible for unloading, import clearance, on carriage (foreign inland freight).

No insurance obligation by either party.

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2010 Incoterms

Cargo Security
ICC recognized the need to include cargo security measures, but there are different obligations in different countries. Therefore, it has stated the obligation is on both parties.

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Pros & Cons of DDP

Pros Pros of DDP Transactions Cons of DDP Transactions DDP Transactions
The sale price for the merchandise includes all costs, including transportation and customs duty. There is no effect on the buyers inventory until the goods are received at its Distribution Center DDP simplifies supply chain management.

Lack of visibility while shipment is in transit. Loss of ability to control social corporate responsibility by producer, which could result in negative publicity for the buyer. C-TPAT and Importer Security Filing concerns regarding incomplete security in supply chain.

Buyer/consignee is not directly responsible for customs clearance and import trade compliance.

Possible delays in release of merchandise if IOR is not eligible for expedited release.
If merchandise bears buyers labels, the buyer will still be associated with any negative import issues. Buyer has no control over product integrity (i.e., compliance with Lacey Act, CPSIA, etc.).

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UPDATE - 2010 Incoterms

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2010 Incoterms

Resources
http://www.iccwbo.org/incoterms/id3045/index.html http://www.strtrade.com http://www.wtcdw.com

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QUESTIONS?
Donna L. Bade SANDLER, TRAVIS & ROSENBERG, P.A. 312.641.0000 dbade@strtrade.com
Or

Dennis L. Wright Sandler & Travis Trade Advisory Services, Inc. 248.474.7200 dwright@strtrade.com
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