Incoterms are an internationally recognized set of rules,
published by the International Chamber of Commerce (the
"ICC"), designed to allocate the risks,
costs and tasks involved in business-to-business contracts for the
sale of goods, and to settle on the place of legal delivery of such
On September 27, 2010 the ICC published its new Incoterms 2010
which will come into effect on January 1, 2011. The new
Incoterms 2010 contain noteworthy changes for international and
domestic contracts for the business-to-business sale of
Further, the application of Canada's GST/HST, Quebec's
QST and the remaining provincial retail sales taxes to purchases
and imports of tangible property each depend upon the place of
legal delivery of such property, and any changes to the Incoterms
should be reviewed with the application of such taxes in
mind. This is particularly true since the introduction of the
new Place of Supply Rules for GST/HST and QST purposes, effective
July 1, 2010, which work to determine which of these taxes must be
collected and at which rate.
The following are the most significant changes in the Incoterms
New Terms (DAT and DAP)
The most significant change to the Incoterms 2010 is the
adoption of two new terms: "Delivered at Terminal"
("DAT") and "Delivered at
Place" ("DAP"). DAT and DAP
will replace the terms "Delivered at Frontier"
("DAF"), "Delivered Ex
Shipping" ("DES"), "Delivered
Duty Unpaid" ("DDU") and
"Delivered Ex Quay"
("DEQ"). As such, DAF, DES, DDU
and DEQ will no longer be relevant or applicable as Incoterms after
January 1, 2011.
DAT and DAP are significant because up to the point of delivery,
the seller bears all risk related to the goods. Delivery DAT
is satisfied once the goods are put at the buyer's disposal and
unloaded at the specified terminal. Delivery DAP is satisfied
once the goods are put at the buyer's disposal and are ready
for unloading at the specified place of delivery.
The new Incoterms 2010 are split into two classifications.
There are rules for use with all modes of transport (EXW, FCA, CPT,
CIP, DAT, DAP, DDP) and rules for use with sea and inland waterway
modes of transport (FAS, FOB, CFR, CIF). In order for the
Incoterms to be properly applied, the rule specified in the
contract of sale must be consistent with the mode of
Rules for Domestic and International Trade
Traditionally, Incoterms were only applicable to international
sales contracts; however, the new rules can also be applied to
domestic sales contracts.
Transfer of Risk
The new Incoterms 2010 include subtle changes regarding when
risk will transfer from the seller to the buyer under the rules
FOB, CIF and CFR. For example, under the old FOB rules, risk
transferred from seller to buyer when goods passed over the
ship's rail at the port of shipment. Under the new FOB
rules, risk will transfer once the goods are actually on board the
Terminal Handling Charges
Under the old Incoterms 2000, some buyers were at risk of being
double charged for terminal handling as freight costs were often
included in the sale price of the goods, but buyers were also being
charged carriage costs within the port or terminal
facilities. The new Incoterms 2010 attempt to clearly
allocate costs to avoid double charging the buyer.
The new Incoterms 2010 reflect the most recent updates to the
Institute Cargo Clauses. The Incoterms 2010 also attempt to
clarify the parties' obligations under contracts of carriage
Security-related clearances and required information
In recognition of increasing security concerns with the movement
of goods, the Incoterms 2010 have allocated obligations of the
buyer and seller to obtain, or assist in obtaining, certain
security-related information. The new Incoterms 2010 also
impose a level of collaboration between buyers and sellers that was
not previously required
Where it is customary or where the parties so agree, the new
Incoterms 2010 give electronic records and procedures the same
effect as paper communication. The new rules regarding
electronic communication are intended to provide for greater
incorporation of electronic procedures in the future.
In the sale of commodities, goods are typically sold multiple
times during transit in a "string" of sales
contracts. Because the goods have already been shipped by the
first seller in the string, sellers in the middle of the string do
not "ship" goods within the meaning of the
Incoterms. A seller in the middle of the string
"procures" the goods. As such, the new Incoterms
2010 include rules addressing the procurement of goods.
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