F Terms - seller delivers goods for carriage as instructed by the buyer 7
C Terms – Departure contracts 8
D Terms – arrival contracts 10
Focus of Incoterms 2000 12
Using Incoterms 2000 13
Benefits of Incoterms 13
The bill of lading and electronic commerce 15
Non-negotiable transport documents instead of bill of lading 16
The right to give instructions to the carrier 16
Alternative dispute resolution 16
The Incoterms 17
E Terms - Departure group 17
F Terms – Main carriage unpaid 18
FCA (...named place) 19
FAS (...named port of shipment) 19
FOB (...named port of shipment) 20
Types of FOB Clauses 23
FOB contracts and risk 25
FOB contracts and passing of property 26
FOB contracts and examination of the goods 26
FOB contracts and loading 26
FOB contracts and nomination of a suitable ship 27
FOB contract and failure to nominate a suitable ship 28
FOB contract and a substitute ship 29
FOB contract and export licences 29
C Terms – Main carriage paid group 29
CFR (...named port of destination) 29
CIF (...named port of destination) 30
CIF contract, rights of rejection of documents or goods 31
CIF contract and payment of price 32
CIF contract and loss of goods 33
Variants of the CIF contract 33
Arrival or delivery Ex-ship (Name port of arrival) 34
CPT (...named place of destination) 34
CIP (...named place of destination) 35
D Terms – Arrival group 35
DAF (...named place) 36
DES (...named port of destination) 36
DEQ (...named port of destination) 37
DDU (...named place of destination) 37
DDP (...named place of destination) 38
There are no international agreements for adoption of Incoterms 2000.
Incoterms are ‘short form’ private contractual terms incorporated into an international contract for the sale of goods which have a known meaning consisting of defined rights and obligations of the seller and buyer.
To avoid confusion use the current version of Incoterms, referred to as Incoterms 2000, as some previously used terms have been discontinued, have different meanings or application. Incorrect use of Incoterms leads to confusion and uncertainty in international trade.
Incoterms 2000 includes a number of changes to the previous 1990 version. Reference should be made to ICC publication 560 which sets out Incoterms 2000 in full, together with explanatory notes.
Incoterms were first published in 1936 with subsequent revisions and additions made in 1953, 1967, 1980, 1990 and most recently in 2000. The Incoterms 2000 edition is set out in ICC Brochure No 560 (International Chamber of Commerce, Incoterms 2000 released September 1999 and entered into force on 1 January 2000. The brochure is available from the ICC Australian Council in Canberra or through the local State Chamber of Commerce), and contains a number of changes from the 1990 version. This paper deals only with Incoterms 2000 which I refer to as Incoterms.
Incoterms are widely used in international commercial sales contracts for goods, are terms which can be incorporated into sales contracts, and complement the United Nations Convention on Contracts for the International Sale of Goods. Their advantage is that when they are used they have an accepted meaning which reduces the potential for misunderstanding in international trade. The scope of Incoterms is limited to the rights and obligations of the parties with respect to the delivery of tangible goods sold, and are not concerned with intangibles such as computer software.
Incoterms are the result of a consultative process and survey by the ICC which resulted in some 13 new Incoterms reflecting common commercial practice and introducing a global standard for the interpretation of trade terms.
The authoritative text for Incoterms is the English language version, although it has been published in the six official UN languages. And in the event of a discrepancy between the various texts, the English language version is the original with the others being translations only.
The legal status of Incoterms varies in international trade. In Australia and most countries Incoterms are not part of the domestic law, but there are some exceptions such as where Incoterms are recognised as a custom of trade, for example France and Germany. Whilst in many other countries, national bodies have recommended the use of Incoterms.
In 1992, the ICC requested the United Nations Commission on International Trade Law (UNCITRAL) to endorse the previous Incoterms for world-wide use, and at its 25th Session UNCITRAL agreed that those Incoterms succeeded in providing a modern set of international rules for the interpretation of the most commonly used trade terms in international trade, and commended their use. On 28 February 2000 the ICC Secretary General wrote to UNCITRAL requesting an endorsement of Incoterms 2000. It might be expected that UNCITRAL will again commend their widespread use.
The advantage of using Incoterms is that they provide a short form of contractual term which incorporates a known meaning. In addition, Incoterms have been the subject of extensive refinement as they have been simplified and standardised since their introduction in 1936. Put simply, they have the advantage of bringing consistency and certainty to international transactions.
There are two substantive changes from the previous Incoterms:
FAS and DEQ customs clearance and payment of duty
FCA loading and unloading obligations
The purpose of Incoterms is to:
...provide a set of international rules for the interpretation of the most commonly used trade terms in foreign trade. Thus the uncertainties of different interpretations of such terms in different countries can be avoided or at least reduced to a considerable degree... Frequently parties to a contract are unaware of the different trading practices in their respective countries. This can give rise to misunderstandings, disputes and litigation with all the waste of time and money that this entails... Amendments and additions were ... made ... in 2000 in order to bring the rules in line with current international trade practices. Frequently, parties to a contract are unaware of the different trading practices in their respective countries. This can give rise to misunderstandings, disputes and litigation, with all the waste of time and money that this entails. In order to remedy these problems, the International Chamber of Commerce first published in 1936 a set of international rules for the interpretation of trade terms. These rules were known as "Incoterms 1936" Amendments and additions were later made in 1953. 1967, 1976, 1980, 1990 and presently in 2000 in order to bring the rules in line with current international trade practices. It should be stressed that the scope of Incoterms is limited to matters relating to the rights and obligations of the parties to the contract of sale with respect to the delivery of goods sold-(inthe sense of "tangibles", not including "intangibles" such as computer software).
(see ICC 560)
There are two misconceptions about Incoterms:
1 They are misunderstood as applying to the contract of carriage, when in fact they only apply to the contract for sale. The other common contracts involving carriage, finance and marine insurance are not affected;
2 They are wrongly assumed to provide for all the duties which the parties may wish to include in the contract for sale, whereas they are only concerned with particular aspects, such as:
clear goods for export and import
buyer’s obligation to take delivery
each party to to provide proof they have completed their respective obligations
Incoterms do not deal with issues such as transfer of ownership and other property rights, breaches of contract, and the consequences flowing from those breaches, and exemptions from liability.
Incoterms 2000 are intended to be used as international commercial terms where there is an international sale of goods (ie across national boundaries), although they are also used for sales within domestic markets, in which case the A2 and B2 clauses and other terms concerned with export and import are redundant.
An important feature of Incoterms 2000 is recognition of future developments in Electronic Data Interchange (EDI) in relation to transport documents (first introduced in Incoterms 1990): see UCP Art 18 and ICC Publication 560.