Are Incoterms Perfect?

Also see our Incoterms-2010 blog for debates just on Incoterms 2010.

It is interesting to consider the point that the Incoterms ® Rules are not intrinsically perfect despite the many revisions that have taken place since 1936. They are certainly a brave and robust attempt to provide an international trade language to define where delivery takes place legally in supply contracts. That is not to say that in the wide and complicated world of international trade there are not some inconsistencies and disagreements as to the interpretation of some elements of individual terms.

The ICC publication ‘The Incoterms 2000 Forum of Experts’ (Publication No. 617) is a transcript of the international forum held in Paris in September 1999 to launch the latest version. It illuminated some of the difficulties of interpretation but in the overview to the publication it stresses that Rules are the perfect illustration of a global standard, elaborated by business to respond to the need of business to provide flexible rules for governing its activity. We hope to receive a similar overview to the new 2010 set.

Terms that businesses appear to struggle with when trying to put them into practical use are ExWorks, FCA, the 4 remaining sea freight terms (FAS, FOB, CFR, CIF)and Group C in general. Why isn't Exworks suitable for international trade? If it isn't suitable why didn't the ICC take it out of the new Incoterms 2010 set? Why must a seller not only be responsible for export customs clearance but also have to pay for it under FCA Seller's Premises? And, how in practice, does a seller pay for export customs clearance when using air express operators such as UPS, TNT, DHL and Fedex who do not split down the costs? Why can't I have goods moving in a sea freight container delivered on board the ship under FOB - why must it be FCA port of departure? Moving away from FOB increases the costs and risks of the buyer?

We could go on. It appears to some that in the new set of Incoterms the ICC are hoping to shape the way international trade uses delivery terms rather than following what the international trading companies actually do. Incoterms Training is essentials and it must be done for the business as a whole not just a couple of logistics people. Incoterms in sales contracts and the use of Incoterms in purchasing departments should be given a higher profile than it appears to have in the majority of businesses.

Incoterms 2010

As you will be aware the ICC has up-dated Incoterms - the international delivery terms. The old version - Incoterms 2000 - was updated in 2010 and from 1 January 2011 Incoterms 2010 came into force. Two new terms have been added - DAT and DAP - while the terms DAF, DES, DEQ and DDU have been removed. The ICC Incoterms 2010 are now suitable for domestic contracts. A lot of the other changes are, what we would call, "tweaks" but there are significant "tweaks" within each of the 4 Incoterms Groups - Group E, Group F, Group C and Group D. ExWorks is recommended for domestic use only. FAS, FOB, CFR and CIF is recommended for non-containerised freight only and, for FOB, CFR and CIF, the risk passes once the goods are loaded on board not when they cross the ship's rail at loading. The diffferences between the transfer of risk and the costs within Group C (Incoterms CPT, CIP, CFR, CIF) has been clarified.

While you are here, look at our Incoterms 2010 blog

For further information on Strong & Herd Incoterms services, including Incoterms 2010 books, Incoterms 2010 charts and Incoterms training visit: www.strongandherd.co.uk/incoterms-2010/