UK: New Incoterms Rules to ‘Set Sail’ on 1 January 2011

The International Chamber of Commerce (ICC) launched the new Incoterms 2010 rules in Paris on 16 September 2010. Taking effect from 1 January 2011, the new rules reflect the changes in international trade since the last version of the rules was published in 2000 and are relevant for anyone involved in the buying or selling of goods, and services relating to the movement of goods.

The Incoterms rules are a series of internationally recognised standardised trade terms published by the ICC and widely used in international sales. They govern the costs, risks and practical arrangements of the sale of goods. There are significant changes in the 2010 rules: four Incoterms rules have been removed and two new ones have been developed. Also there are changes to deal with cargo security and insurance, and the rules have been generally updated to make them more user friendly and mirror the modern language of international trade. These changes are taken in turn and discussed further below.

1. Removal of Terms and Creation of Categories

Delivered at Frontier (DAF), Delivered Ex Ship (DES), Delivered Ex Quay (DEQ) and Delivered Duty Unpaid (DDU) are abolished to be replaced by Delivered at Terminal (DAT) and Delivered at Place (DAP). Delivered Duty Paid (DDP) remains unchanged. In addition, the rules are now to be categorised under two categories as opposed to four, these being deliveries by sea/inland waterway, and deliveries by any mode of transport (sea, road, air, rail).

Within the 2010 rules, delivery under DAT takes place when the seller puts the goods at the disposal of the buyer unloaded at the named terminal. Under DAP delivery takes place when the seller puts the goods at the disposal of the buyer at a named place, on a vehicle that is ready for unloading. DAT and DAP can be used regardless of the mode of transport; they are not just limited to maritime transport. Wherever DAF, DES and DDU were used under the Incoterms 2000 rules, DAP should now be used. Where DEQ was used under the Incoterms 2000 rules, DAT should now be used.

2. Security

Since 9/11 the issue of security has become much more important. Many countries have now introduced security checks such as the scanning of containers. The new rules have not altered these checks which have become a mandatory requirement for any export/import. However, one change that has been made is that the new rules now require both sellers and buyers to provide information to the other party as and when needed so that export/import clearance can be obtained to allow international carriers to transport. There was previously no requirement for such collaboration.

3. Insurance

Incoterm rules which require either the buyer or the seller to obtain insurance have been altered to allow for the recent updates to the Institute Cargo clauses.

4. Terminal Handling Charges

The new rules have sought to state more clearly who is responsible for terminal costs. This is an attempt to avoid the 'double charging' which would sometimes occur when the costs of unloading and loading at the import port/terminal may have been passed on to the buyer by the seller as part of the costs of the goods, but then would be charged again by the port or terminal.

5. Electronic Documentation

The buyer's and seller's obligations to provide contractual documentation may now be by 'electronic record if agreed between the parties, or customary'. The ICC have recognised the increased importance of contractual certainty (due to the speed of transfer) which electronic communication can provide.

6. String Sales

When commodities are bought and sold it is often the case that a cargo is sold-on a number of times during transit. In such situations, sellers in the middle of the string do not ship the goods as the goods have already been shipped by the seller at the top of the string. Because of this, the obligation on sellers in the middle of the string is to procure goods that have been shipped. The new Incoterms clarify this by including an obligation to 'procure goods shipped' as an alternative to the obligation to ship goods.

7. Adapted Rules

The new Incoterms are expressly stated to be for 'both domestic and international trade'. This is achieved by statements within the rules that the obligation to comply with export/import formalities only exist where applicable.

Which Rules Will Apply?

The new rules come into force on 1 January 2011. For contracts entered into pre-September 2010, Incoterms 2000 will continue to apply even if performance of the contracts will be made in 2011. For contracts entered into between 16 September 2010 and 31 December 2011, the parties should expressly state which set of Incoterms is to apply. From 1 January 2011 it will be assumed that any reference to Incoterms in new contracts is a reference to Incoterms 2010.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.