An Understanding of INCOTERMS® 2010

3 November 2016
Agenda for today
 Introduction – what is Incoterms

 What has been changed from the Incoterms 2000

 Why Incoterms is important

 Most common Incoterms

 Common questions

 Take-home messages

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What is Incoterms
 Short for “International Commercial Terms”

 A series of three-letter trade terms related to common contractual sales

practices, the Incoterms rules are intended primarily to clearly communicate the
tasks, costs, and risks associated with the transportation and delivery of goods.

 First Published in 1936

 Revised from Time to Time, most familiar with its 2000 version

 Latest Edition (8th) (Incoterms® 2010) came into force on January 1, 2011

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International Chamber of Commerce (ICC), Paris

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What has been changed from the Incoterms 2000

 Incoterms 2010 defines 11 rules, down from the 13 rules defined by Incoterms

2000.[3] Four rules of the 2000 version ("Delivered at Frontier", DAF; "Delivered
Ex Ship", DES; "Delivered Ex Quay", DEQ; "Delivered Duty Unpaid", DDU)[4] are
replaced by two new rules ("Delivered at Terminal", DAT; "Delivered at Place",
DAP) in the 2010 rules.

 In Incoterms 2000, we used to have the “passing rail” concept, i.e. seller’s risks
passed to the buyer when the goods pass the ship's rail in the port of shipment.

 In Incoterms 2010, superseded by the new concept of “loaded on board”, i.e. risk
transfers to buyer only when the goods have been loaded on board the ship.

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Why Incoterms is important?
The Incoterms rules are accepted by governments, legal authorities, and
practitioners worldwide for the interpretation of most commonly used terms in
international trade. They are intended to reduce or remove altogether
uncertainties arising from different interpretation of the rules in different
countries.

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Why Incoterms is important?

For accountant and auditor, we want to know

when the risks and rewards are transferred!
(Revenue recognition point)

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Why Incoterms is important?

 Example) • In March 2011, tsunami wrecked the Sendai container terminal in

Japan damaging hundreds of containers awaiting dispatch.

 Many had delivery term of “FOB Port of Sendai”.

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Why Incoterms is important?

 So what was wrong? Goods are containerized and left at the terminal.
 Who is in control of the containers then? The carrier.
 So could the exporters avoided the risk?
Yes! If they had used a different Incoterms! Now let us look at what
definitions and differences of commonly used Incoterms are.
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Incoterms 2010
Can be used with any mode of
transportation
1. EXW (Ex Works)
2. FCA (Free Carrier)
3. CPT (Carriage Paid To)
4. CIP (Carriage and Insurance Paid To)
5. DAT (Delivered At Terminal)
6. DAP (Delivered At Place)
7. DDP (Delivered Duty Paid)
Can be used with only water
transportation
8. FAS (Free Alongside Ship)
9. FOB (Free on Board)
10. CFR (Cost and Freight)
11. CIF (Cost Insurance and Freight)
Note: Generally the “transport by sea or
inland waterway only” rules should only
be used for bulk cargos (e.g. oil, coal
etc.) and non-containerized goods, where
the exporter can load the goods directly
onto the vessel.
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Most common Incoterms

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Most common Incoterms

Most commonly used when importing from the EU.

Example: EXW Seller’s warehouse, Incoterms 2010

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Most common Incoterms

Practical difficulties:
1. The exporter may still need to be involved in export reporting and
clearance processes. Otherwise, the exporter may become liable for
violating the export control law of the exporting country without
knowing. E.g., “dual use” goods.
2. The seller may need evidence that the goods are to be exported – for
example, in relation to value added tax (VAT) or sales tax.
Consider FCA (Free Carrier) [seller’s premises] instead …
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Most common Incoterms

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Most common Incoterms

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Most common Incoterms

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Most common Incoterms

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Most common Incoterms

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Most common Incoterms

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Most common Incoterms

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Most common Incoterms

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Common Questions
 Are the Incoterms rules law?
– NO

 Why are they applicable?

– Because most international trades incorporate them into the contract
– Ex) “FOB Singapore Incoterms 2010”

 Would they apply if the words “Incoterms 2010?” are omitted

– Mostly likely for international commercial transactions because they are considered
the evidence of the established practices in the trade community.
– Not necessarily, however, if there is another law that is applicable. For example, the
Uniform Commercial Code has a different definition of “FOB.” Therefore, the
applicability depends on the parties’ choice of law.

 Can I still use the Incoterms 2000?

– According to the International Chamber of Commerce, all contracts made under
Incoterms® 2000 or any earlier version remain valid even after 2011.
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Take home messages
 Short for “International Commercial Terms”

 Latest version of Incoterms is 2010

 Incoterms are NOT law

 all contracts made under Incoterms® 2000 or any earlier version remain valid
even after 2011

 No more concept of “passing rail”, new concept of “loaded on board”

 Based on Incoterms, timing of “delivery” = timing of risk transfer

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Any question?

Thank you very much!

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