INKOTERMS-2000 (ICC 560)

International commercial terms of International Chamber of Commerce

Secretary general International Chamber of Commerce

Maria Livanos Katto

World economy provided to business wider, in comparison with previous years, access to the world markets. Goods are on sale in bigger number of the countries, large volumes and in bigger variety. But in process of increase of amounts and complexity of international sales possibility of disagreements and expensive disputes when purchase and sale agreements are constituted not properly increase.

The Incoterms, official rules of International Chamber of Commerce for interpretation of trade terms, facilitate international trade. The reference to the Incoterms 2000 in the purchase and sale agreement accurately determines the corresponding obligations of the Parties and reduces risk of legal difficulties.

From the moment of creation the Incoterms by International Chamber of Commerce in 1936 they are regularly adjusted not to lag behind development of international trade. The Incoterms 2000 consider distribution of free zones from customs duties, increase in use of electronic communication in commercial transactions and changes in practice of transportations recently. The Incoterms 2000 offer simpler and accurate interpretation of 13 terms, each of which was updated.

The wide work experience of the Commission on the international trade practice under International Chamber of Commerce which members are representatives of all parts of the world and all sectors of trade, is guaranteed that the Incoterms 2000 meet requirements of business around the world.

The International Chamber of Commerce would like to express the gratitude to members of the commission under the chairmanship of professor Fabio Bortolotti (Italy), the Working group on trade terms under the chairmanship of professor Jan Ramberg (Sweden) and project team as a part of professor Charles Debattist (the chairman Great Britain), Robert de Roy (Belgium), Filippa Rapatu (France), Enza Bredou (Germany) and Frank Reynolds (USA).

 

1. Purpose and scope of application Incoterms

The Incoterms is the purpose providing set of the international rules on interpretation of the most widely used trade terms of foreign trade. Thus, it is possible to avoid or, at least, substantially to reduce uncertainty of different interpretation of such terms in the different countries.

Often the parties signing the contract are unfamiliar with different practice of conducting trade in the respective countries. It can serve as the reason of misunderstanding, disagreements and legal proceedings with the following waste of time and money. For permission of all these problems the International Chamber of Commerce published for the first time in 1936 the code of the international rules for exact determination of trade terms. These rules are known as "Incoterms 1936". Amendments and amendments were made later in 1953, 1967, 1976, 1980, 1990 and now in 2000 for reduction of these rules in compliance with modern practice of international trade.

It is necessary to emphasize that the coverage the Incoterms is limited to the questions connected with the rights and obligations of the Parties of the purchase and sale agreement concerning delivery of the sold goods (goods are implied by the word "material goods", excepting "non-material goods", such as the computer software here).

Most often in practice two options of the wrong understanding the Incoterms meet. The first is the wrong understanding the Incoterms as having bigger relation to the transportation agreement, but not to the purchase and sale agreement. The second is sometimes the wrong idea that they shall cover all obligations which the parties would like to include in the agreement.

As always it was emphasized with International Chamber of Commerce, the Incoterms deal only with the relations between sellers and buyers within purchase and sale agreements, moreover, only in certain aspects.

While it is important to exporters and importers to consider the actual relations between the different agreements necessary for implementation of the international transaction of sale - where not only the purchase and sale agreement, but also transportation agreements, insurance and financings the Incoterms is necessary belong only to one of these agreements, namely the purchase and sale agreement.

Nevertheless, the agreement of the parties to use certain term matters also for all other agreements. Let's give some examples: having agreed to conditions of CFR or CIF, the seller cannot execute this agreement any other mode of transport, except sea as on these conditions he shall submit to the buyer the bill of lading or other sea transport document that is just impossible when using other modes of transport. Moreover, the document necessary according to the documentary credit, will surely depend on means of transportation which will be used.

Secondly, the Incoterms deal with some certain obligations of the Parties - such as obligation of the seller to deliver goods in the order of the buyer or to transfer him for transportation or to bring him in destination - and with distribution of risk between the parties in these cases.

Further, they are connected with obligations to clear goods for export and import, packaging of goods, obligation of the buyer to accept delivery, and also obligation to provide confirmation of the fact that the corresponding obligations were properly fulfilled. Though the Incoterms are extremely important for implementation of the purchase and sale agreement, large number of problems which can arise in such agreement, for example, transfer of right of possession, other property rights, violations of the arrangement and effect of such violations, and also discharge in certain situations are not considered at all. It is necessary to emphasize that the Incoterms are not intended for replacement of the terms of the contract necessary for the entire agreement of purchase and sale or by means of inclusion of normative conditions, or individually resolutive conditions.

The Incoterms do not deal with effects of agreement breach and discharge owing to different obstacles at all. These questions shall be resolved by other terms of the contract of kupliprodazha and the relevant laws.

The Incoterms initially always intended for use when goods were on sale for delivery through national borders: thus, it is the international trade terms. However, the Incoterms in practice often join in agreements for sales of goods only within the domestic markets. When the Incoterms the articles A.2 are used thus. and B.2. and any other conditions of other Articles concerning export and import, of course, become superfluous.

 

2. Why the Incoterms are reviewed?

The Incoterms need to adapt them to modern commercial practice was basic reason of consecutive editions. So, in case of review of 1980 the term "Free carrier" (now FCA) for consideration of frequent cases when goods receipt Item in case of sea trade any more was not the traditional Item FOB (passings through vessel hand-rail), and Item on the land before loading aboard the vessel where the goods were laid in container for the subsequent sea shipment or combination of different vehicles (the so-called mixed or multimodal transportations) was entered.

Further, in case of review the Incoterms in 1990 Articles concerning obligation of the seller to provide delivery confirmation, allowed to replace paper documentation of EDI-with messages provided that the parties agreed in advance to perform communication by e-mail. There is no need to say that efforts on enhancement of creation and representation the Incoterms for the purpose of simplification of their practical implementation are constantly made.

 

3. Incoterms 2000

During editing process which took about two years the International Chamber of Commerce tried to attract wide range of the workers of world trade provided by different sectors in national committees through which the International Chamber of Commerce, to the statement of the views and responses to the subsequent projects works. Really it was pleasant to see that this process of editing caused much more responses from users around the world, than any of the previous editions the Incoterms. Were result of this dialogue the Incoterms 2000, in which as can seem, in comparison with the Incoterms 1990 the insignificant number of changes is made. It is clear, however that the Incoterms are acknowledged now around the world and therefore the International Chamber of Commerce decided to fix this recognition and to avoid changes for the sake of changes. On the other hand, considerable efforts for ensuring clear and exact reflection of practice of trade in the formulations used in the Incoterms 2000 were made. Besides, considerable changes were made to two areas:

- customs clearance and implementation of customs payments according to the terms FAS and DEQ;

- obligations on loading and unloading according to the term FCA.

All changes essential and formal, were made on the basis of careful researches among users the Incoterms. Special attention was paid to the requests received since 1990 by the Group of experts the Incoterms organized as additional service for users the Incoterms.

 

4. Inclusion the Incoterms in the purchase and sale agreement

Taking into account the changes from time to time brought in the Incoterms it is important to provide that in each case when the parties intend to include the Incoterms in the purchase and sale agreement, the accurate reference to the option operating now the Incoterms was always made. It cannot attach with ease significance when, for example, reference to earlier option in standard forms of the agreement or in the forms of the order used by dealers is made. Lack of the reference to the current option can then lead to disagreements concerning whether this option or earlier option as constituting their agreements intended to include the parties. Dealers who wish to use the Incoterms 2000 shall specify accurately that they in the purchase and sale agreement are guided "Incoterms 2000".

 

5. Structure Incoterms

In the Incoterms 1990 of condition for simplification of understanding were grouped in four categories differing among themselves in essence: starting with the term according to which the seller only provides goods to the buyer in own territory of the seller ("E" - the term - EX WORKS); further there is the second group according to which the seller shall deliver goods to the carrier appointed the buyer ("F" - the terms FCA, FAS and FOB); further "C" - terms according to which the seller shall sign the transportation contract, but without assuming risk of loss or damage of goods or additional costs owing to the events taking place after shipment and sending (CFR, CIF, CPT and CIP); and, at last, "D" - terms in case of which the seller shall incur all expenses and risks necessary for the goods delivery to the country of destination (DAF, DES, DEQ, DDU and DDP). The following table represents classification of trade terms.

 

INCOTERMS 2000

+--------------------------------------------------------------------+
¦                        Группа Е Отправление                        ¦
+--------------------------------------------------------------------¦
¦EXW¦        Франко завод (... название места)                       ¦
+--------------------------------------------------------------------¦
¦              Группа F Основная перевозка не оплачена               ¦
+--------------------------------------------------------------------¦
¦FCA¦   Франко перевозчик (... название места назначения)            ¦
+---+----------------------------------------------------------------¦
¦FAS¦   Франко вдоль борта судна (... название порта отгрузки)       ¦
+---+----------------------------------------------------------------¦
¦FOB¦   Франко борт (... название порта отгрузки)                    ¦
+--------------------------------------------------------------------¦
¦           Группа С Основная перевозка оплачена                     ¦
+--------------------------------------------------------------------¦
¦CFR¦   Стоимость и фрахт (... название порта назначения)            ¦
+---+----------------------------------------------------------------¦
¦CIF¦   Стоимость, страхование и фрахт (... название порта           ¦
¦   ¦   назначения)                                                  ¦
+---+----------------------------------------------------------------¦
¦CPT¦   Фрахт/перевозка оплачены до (... название места назначения)  ¦
+---+----------------------------------------------------------------¦
¦CIP¦   Фрахт/перевозка и страхование оплачены до (... название места¦
¦   ¦   назначения)                                                  ¦
+--------------------------------------------------------------------¦
¦                         Группа D Прибытие                          ¦
+--------------------------------------------------------------------¦
¦DAF¦   Поставка до границы (... название места доставки)            ¦
+---+----------------------------------------------------------------¦
¦DES¦   Поставка с судна (... название порта назначения)             ¦
+---+----------------------------------------------------------------¦
¦DEQ¦   Поставка с пристани (... название порта назначения)          ¦
+---+----------------------------------------------------------------¦
¦DDU¦   Поставка без оплаты пошлины (... название места назначения)  ¦
+---+----------------------------------------------------------------¦
¦DDP¦   Поставка с оплатой пошлины (... название места назначения)   ¦
+--------------------------------------------------------------------+

Further under all terms, as well as in the Incoterms 1990, the corresponding obligations of the Parties are reduced in groups under Articles where each Article from the seller reflects provision of the buyer of the relative matter.

 

6. Terminology

In case of development the Incoterms 2000 considerable efforts for achievement of the greatest possible and desirable coordination concerning the different expressions used in thirteen terms were made. Thus, it was succeeded to avoid use of different formulations for expression of the same value. Besides, the expressions used in the Convention of the UN on agreements on international sales of goods were whenever possible used.

"consignor"

It was in certain cases necessary to use the same term for transfer of two different values just because there was no suitable alternative. Workers of trade are familiar with this difficulty both in relation to purchase and sale agreements, and to transportation agreements. So, for example, the term "consignor" (shipper) means as the person giving goods for transportation, and the person who signs the contract with carrier: however these two "consignors" can be different people, for example, under the contract with the term FOB where the seller reports goods for transportation, and the buyer signs the contract with carrier.

"delivery"

It is especially important to note that the term "delivery" is used in the Incoterms in two different meanings. First, it is used for determination of the moment when the seller fulfilled the obligations on delivery determined in the articles A.4. Incoterms. Secondly, the term "delivery" is also used in relation to obligation of the seller to receive or accept delivery of goods, obligation which is published in the articles B.4. collection Incoterms. When using in this second case the word "delivery" means, first, that the buyer "accepts" the nature of "C" - terms, namely that the seller carries out the obligations on shipment of goods, and, secondly, that the buyer shall accept goods. This last obligation is important to avoid unnecessary payments for storage of goods until as the buyer will take away goods. Thus, according to the terms CFR and CIF the buyer shall accept delivery of goods and accept them from carrier. If the buyer does not fulfill this obligation, he can become obliged to pay damages to the seller who signed the transportation agreement with carrier, or the buyer can be forced to pay idle time in order that the carrier issued it goods. When in this case it is said that the buyer shall "accept delivery", it does not mean that the buyer accepted goods as satisfying to the purchase and sale contract, but only the fact that the seller fulfilled the obligation to transfer goods for transportation according to the transportation agreement which he shall conclude in accordance with the terms of the articles A.3 and) "C" - terms. Thus, if after acceptance of goods in destination the buyer finds out that the goods do not meet terms of the contract of purchase and sale, he will be able to use any measures which are provided to it by the purchase and sale agreement and the relevant law against the seller. As it was already specified, these questions are completely out of the action area the Incoterms.

Where it is required, in the Incoterms 2000 expression "is applied make goods available to the buyer" in certain place. This expression has the same value, as well as expression "transfer goods", used in the Convention of the UN on agreements on international sales of goods.

"regular"

The word "regular" appears in several terms, for example, in the term Ex-works concerning delivery time (A.4.) and in the "C" terms concerning documents which the seller shall provide, and the transportation agreement which the seller shall provide (A.8., A.3.). Of course, can be difficult to tell precisely what means the word "regular", however in many cases it is possible to determine precisely what workers of trade usually do, and then this practice can become management. In this sense the word "regular" is more useful, than the word "reasonable" which requires assessment not from the point of view of world practice, and rather more difficult principle of conscientiousness and honesty. In some circumstances can quite be necessary to decide that to mean "reasonable". However, for the given reasons in the Incoterms the word "regular" in most cases is more preferable, than the word "reasonable".

"charges"

Concerning obligation to clear goods for import it is necessary to determine what means under "charges" which shall be paid in case of commodity import. According to the term DDP in the article A.6. The Incoterms 1990 expression "the official fees paid during the exporting and commodity import" was used. According to the term DDP in the article A.6. The Incoterms 2000 the word "official" was lowered for the reason that this word caused uncertainty in case of determination of whether charges were "official" or not. During removal of this word essential change of value was not supposed. "Charges" which shall be paid concern only those charges which are necessary consequence of import as such and which shall be therefore are paid according to the corresponding rules of import. Any additional charges levied by the private parties in connection with import such as the charges for storage which are not connected with obligation of cleaning of goods do not join in these charges. However, some expenses of customs brokers or freight forwarders of loads if the party incurring this obligation does not perform itself this work can quite appear result of accomplishment of this obligation.

"ports", "places", "Items" and "rooms"

Concerning specifying of the place where goods shall be delivered, in the Incoterms different terms are used. In terms, held for use it is exclusive when transporting goods by sea such as FAS, FOB, CFR, CIF, DES and DEQ - expressions "port of shipment" and "port of destination" were used. In all other cases the word "place" was used. In certain cases it is also obviously necessary to specify "Item" in the port or the place as to the seller can be necessary to know not only the fact that the goods shall be delivered to certain area, such as the city, but also where in this city the goods shall be made available to the buyer. In agreements of sales such information often is absent and therefore the Incoterms is provided: if the specific Item in the approved place, and in the presence of several such Items was not stipulated, the seller can select item most of which suits it (see, for example, term FCA the article A.4.). Where delivery point is "place" of the seller, expression of "the room of the seller" was used (the term FCA the article A.4.).

"ship" and "vessel"

In terms, held for use when transporting goods by sea, expressions "vessel" and "ship" are used as synonyms. There is no need to say that the term "vessel" when it is included into the trade term, such as "free along vessel board" (FAS) and "delivery from the vessel" (DES) shall be used. Also taking into account the traditional use of expression "transition for vessel hand-rail" in the term FOB the word "vessel" shall be used in this regard.

"check" and "survey"

In the articles A.9. and B.9. the collection the Incoterms the headings "check packaging and marking" and "survey of goods" were used respectively. Though the words "check" and "survey" almost synonyms, it was provided reasonable to use the first word concerning the obligation of the seller on delivery according to the article A.4. and to leave the second word for specific case when "survey before shipment" as such survey is usually necessary only when the buyer is carried out or authorities of the country of export or import want to be convinced that the goods answer terms of the contract or official conditions before the goods are shipped.

7. Obligations of the seller on delivery

The Incoterms are concentrated on the obligation of the seller on delivery. Exact distribution of functions and expenses in connection with delivery of goods by the seller usually does not cause problems when the parties have long trade relations. At the same time they establish among themselves practice ("the line of trade relations") to which they follow in the subsequent transactions the same as earlier. However, in case of establishment of the new commercial relations or the conclusion of the agreement by means of брокеровчто it is very widespread in case of sales of goods - it is necessary to be guided by terms of this agreement of purchase and sale and in case the Incoterms 2000 join in this agreement, to use the distribution of functions, expenses and risks following from them.

Of course, it would be desirable that the Incoterms could as it is possible to determine in more detail obligations of the Parties in connection with the goods delivery. In comparison with the Incoterms 1990, further efforts in some specific situations were in this respect made (see for example, the term FCA the article A.4.). But it was impossible to avoid references to customs in trade in the articles A.4. the terms FAS and FOB ("according to customs of port"). The fact that in trade in piece good the exact delivery mode of goods for transportation in agreements according to the terms FAS or FOB is different in different seaports is the reason of it.

 

8. Transition of the risks and expenses connected with goods

The risk of loss or damage of goods, and also the obligation to incur the expenses connected with goods passes from the seller to the buyer when the seller fulfilled the obligations of delivery of goods. As the buyer has no right to postpone transition of risks and costs, all conditions provide that transition of risks and costs can take place even before delivery if the buyer does not accept delivery according to the arrangement or does not give such instructions (concerning time of shipment and/or the place of delivery) which can be required by the seller for accomplishment of the obligations on delivery of goods. Necessary condition for the advancing transition of risks and costs is determination of goods as identified for the buyer or as it is provided in conditions, definitely isolated for it (compliance to the agreement).

This requirement is especially important according to the term EXW as under all other conditions the goods are usually determined as identified for the buyer when measures for shipment or sending goods (terms "F" and "C") or the goods deliveries to the destination (terms "D") were taken. However in exceptional cases the goods can be sent from the seller unpacked without exact determination of quantity for each buyer. In that case transfer of risk and costs will not take place before the goods are not identified in earlier specified way (compare also to Item 69.3 of the Convention of the UN 1980 "About agreements of international sales of goods").

 

9. Terms

9.1

"E" - the term assigns the minimum obligations to the seller: the seller shall make only goods available to the buyer in the approved place - usually in own room of the seller. On the other hand, as often really occurs in practice, the seller often helps the buyer to ship goods on the vehicle provided by the buyer. Though the term EXW would reflect better it if obligations of the seller were expanded and included loading, the decision to keep the traditional principle of the minimum obligations of the seller in accordance with the terms of the term EXW that they could be used for cases when the seller does not want to assume any obligations concerning loading of goods was made. If the buyer wants that the seller did more, it shall be stipulated in the purchase and sale contract.

9.2

"F" - terms provide that the seller delivered goods for transportation according to instructions of the buyer. The Item in which the parties assume to perform delivery according to the term FCA, caused difficulties because of wide variety of circumstances which can occur in the agreements signed with this term. So, the goods can be submersed on the vehicle sent by the buyer to take away goods from rooms of the seller; in other case the goods can need unloading from the vehicle sent by the seller for the goods delivery to the terminal called by the buyer. The Incoterms 2000 is considered by these options, stipulating that in case the place called in the agreement as delivery location is the room of the seller, delivery is complete when the goods are submersed on the vehicle of the buyer, and in other cases delivery is complete when the goods are made available to the buyer without unloading from the vehicle of the seller. The options mentioned for different types of transport in the term FCA the article A.4. The Incoterms 1990, do not repeat in the Incoterms 2000.

The delivery point according to the term FOB which matches with delivery point according to the terms CFR and CIF was left without changes in the Incoterms 2000, despite considerable disputes. Though concept according to the term FOB "deliver goods for vessel hand-rail" now can seem improper in many cases, it nevertheless is understood by dealers and applied taking into account goods and the available loading facilities. There was feeling that change of delivery point according to the term FOB can create unnecessary confusion, especially concerning sales of goods, transported by sea usually by charter-parties.

Unfortunately, the word FOB is used by some dealers just for designation of any delivery point - for example "FOB factory", "FOB plant", "FOB from the plant of the seller" or other internal Items. At the same time neglect value of abbreviation: F.O.B. The situation when such use of "FOB" tends to create confusion remains, and it should be avoided.

Important change takes place in the term FAS concerning obligation to clear goods for export as it is most widely accepted to assign these obligations to the seller, but not to the buyer. To provide due attention to this change, it was allocated with capital letters in the preface to the term FAS.

9.3

"C" - terms assign obligation to the seller to sign the transportation agreement on usual conditions for the own account. Therefore the Item to which it shall pay transportation expenses shall be specified after corresponding to "C" - the term. According to the terms CIF and CIP the seller shall insure goods and incur expenses on insurance. As the split-off point of expenses is fixed in the country of destination, "C" - terms often mistakenly are considered as agreements of arrival in case of which the seller bears all risks and costs until the goods arrived actually to the agreed item. However it is necessary to emphasize that the "C" terms have the same nature, as "F" terms in the respect that the seller carries out the agreement in the country of shipment or sending. Thus, purchase and sale agreements according to "C" - terms, like agreements on "F" - terms, get to shipment agreement category.

In the nature of agreements of shipment it is pledged that while regular transportation expenses for transportation of goods along regular route and regular method to the approved place shall be paid by the seller, the buyer bears risks of loss or damage of goods, and also the additional expenses arising owing to the events taking place after the goods were properly delivered for transportation. Thus, "C" - terms differ from all other terms in the fact that they contain two "critical" points. One specifies point to which the seller shall organize transport and incur expenses according to the transportation agreement, and another serves for transition of risks. For this reason the maximum care shall be observed in case of addition to the seller of obligations which are assigned to it after transition of risk out of limits of the above-stated "critical" point. Essence of "C" - terms is release of the seller from any further risks and expenses after he properly executed the purchase and sale agreement, having signed the transportation agreement, having transferred goods to carrier and having provided insurance according to the terms CIF and CIP.

The essence of "C" - terms as agreements of shipment can be also illustrated with widespread use of the documentary credits as the preferred payment method used in such conditions. In cases when agreement parties of purchase and sale agreed that the seller will receive payment in case of submission to bank of the approved loading documents on the documentary credit, completely would contradict main goal of the documentary credit if the seller bore further risks and expenses after the moment of receipt of payment on the documentary credits or after shipment and sending goods. Of course, the seller should incur all agreement expenses of transportation irrespective of whether the load is paid previously, after shipment or it shall be paid in the destination (the freight is subject to payment by the consignee in the port of destination); however, additional expenses which can result from the events taking place after shipment and sending are surely paid at the expense of the buyer.

If the seller provide the transportation agreement which includes payment of fees, taxes and other charges, such expenses, of course, are assigned to the seller, in that degree in what they are attributed to it according to the agreement. Now it is accurately formulated in the article A.6. in total "C" - terms.

If several transportation agreements connected with goods overload in intermediate points for achievement of the approved destination are usually signed, the seller shall pay all these expenses, including any arising expenses in case of goods overload from one vehicle on another. However, if the carrier used the rights according to the transportation agreement - to avoid unexpected obstacles (for example, ice, strikes, labor violations, governmental decrees, war or military operations), then all additional expenses following from this will be charged to the buyer as the obligation of the seller is limited to providing the regular transportation agreement.

Often it happens that agreement parties of purchase and sale are wished to be determined accurately to what degree the seller shall provide the transportation agreement, including unloading expenses. As similar expenses are usually covered by the freight when the goods are transported on regular shipping lines, the purchase and sale agreement often provides that the goods were transported thus or at least according to "conditions of transportation of goods by trip courts". In other cases after the terms CFR and CIF the words "including unloading" are added. Nevertheless, it is not recommended to add abbreviation after "C" - terms if in the respective sphere of trade value of abbreviation is not understood accurately and is not accepted by contracting parties, or in case of the relevant law or custom of trade.

In particular, does not follow the seller - and he could not - without changing the nature of "C" - terms to undertake any obligations concerning arrival of goods in the destination as the risk of delay during transportation is born by the buyer. Thus, any obligation concerning time shall belong surely to the place of shipment or sending, for example "shipment (sending) not later...". Agreement, for example, "CFR Hamburg not later..." is actually wrong and thus can cause various interpretation. It is possible to assume that the parties were meant or that the goods shall arrive to Hamburg in certain day, and in this case the agreement is not the agreement of shipment, but the agreement of arrival, or, in other case that the seller shall send goods to such time that the goods arrived to Hamburg before certain date, except as specified transportation delays owing to unexpected events.

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