Dear (s)
The
attraction of Marine is its International character and that it is ever
changing with the times. Come
January 2011, there is going tobe another revision to Incoterms. ICC Incoterms are global rules
that clarify the costs, risks, and responsibilities of both buyers and sellers.
Developed by ICC and used by companies to move goods around the world, ICC
Incoterms® have become the standard in international business rules setting.
Marine
insurance is insurance of goods in transit – mostly from seller to buyer, often
across boundaries of Nations. In
the interests of international trade, it desirable that merchants of different
countries agree on a common interpretation of various terms and abbreviations
they use in their foreign trade contracts. If there is mismatch of the agreement,
one of the parties would suffer beyond his perception and would end up in
litigation. There could be
difficulties arising out of lack of adequate information and lack of uniformity
of interpretation.
These days,
all International contracts of sale contain standard shipping and delivery
terms. However, even the most common terms such as FOB or CIF do not
necessarily have the same meaning in different Ports or centres of Trade or to
those people between whom the contract was concluded
cordially. One could well imagine those olden days, when
International trade had evolved but lacked these clear codified
interpretations.
Incoterms or international
commerce terms are a series of
international sales terms, published by International Chamber of Commerce (ICC)
and widely used in international commercial transactions. These are accepted by
governments, legal authorities and practitioners worldwide for the
interpretation of most commonly used terms in international trade. This reduces or
remove altogether uncertainties arising from different interpretation of such
terms in different countries. Scope of this is limited to matters relating to
right and obligations of the parties to the contract of sale with respect to
the delivery of goods sold. They are used to divide transaction costs and
responsibilities between buyer
and seller and reflect state-of-the-art transportation practices. They closely
correspond to the U.N. Convention on Contracts for the International Sale of
Goods. The purpose
of the Incoterms is to: provide a set of
international rules for the interpretation of the most commonly used trade
terms in foreign trade”
The first version was introduced in 1936 – amendments and additions
were later made in 1953, 1967,
1976, 1980, 1990, and presently the 2000 version in vogue, which is sought to
be amended by the present 2010 version.
Way back
in 1936 when they were first adopted, there were 10 codified terms. They were “1) Ex works 2) FOR 3) FAS
4) FOB 5) C & F 6) CIF 7) Freight or Carriage paid to 8) Free or Free
delivered 9) Ex-ship and 10) Ex-Quay”. Clearly these Incoterms referred to
the relationship between the Seller and buyer and none of the provisions
affect, either directly or indirectly the relationship between the consignor
and carrier as defined in the contract of carriage. In any international
trade, the two parties (buyer and seller) have agree and document a sale
contract aimed at sharing the expenses and risks between them. There are conventions which have a
bearing on contract of sale between the parties.
Going by
the well codification between the Seller and Buyer the following are to be
complied with : “Provision of goods in conformity with the contract, payment of
the price, obtaining
licenses, authorizations and formalities, arranging contract of carriage and
contract of insurance, taking delivery, transfer of risks, division of costs,
providing notice to buyer on movement of goods, providing proof of delivery,
inspection of goods and any other obligation”.
All these aspects of international trade are taken care of by
Incoterms (International Commercial Terms). Incoterms is an acronym meaning
International Commercial terms. These
definitions are published by the International Chamber of Commerce. These in effect regulate : the distribution
of documents, the conditions for delivery of goods, cost of transporting and
insurance & the responsibility of risk in shipping the
goods. Incoterms
would not cover : the conditions of sale, the condition of goods, warranty of
the goods, payment or nonpayment of goods, intangible products such as computer
software.
The 1990 version had 13 terms broadly classified as : E – Departure (ExW); F – Main carriage
unpaid : FCA, FAS, FOB; C
– Main carriage Paid : CFR,
CIF, CPT, CIP and D – Arrival : DAF, DES, DEQ DDU and DDP.
These were further reviewed in 2000 and no. of changes in the
terms of previous versions were made. For
example the customs clearance and payment of duty were codified in FAS &
DEQ – so also in FCA – loading and unloading obligations were specified. In contrast to the
previous four classes, E,F,C and D, Incoterms were separated into 2 groups
:
I Any mode of
Transport :
Group E : ExW
Group F : FCA
Group C: CPT,
CIP,
Group D: DAF,
DDU, DDP
II Maritime and
Inland waterway transport Only :
Group F: FAS,
FOB
Group C: CFR,
CIF
Group D: DES,
DEQ
Now the
eighth revision of Incoterm rules is contemplated. The rules takes care of the growth of
customs free areas. Even
after exemplary codifications, there could still be disputes due to usage of
wrong terms being selected. The
new set stresses the need to use them in accordance with the goods as also to
the chosen mode of transport and whether the parties to contract intend to
impose additional obligations or not.
The new
rules as understood are separated into 2 clauses : : (i) Rules for use in
relation to any mode or modes of transport, which can be used where there is no
maritime transport at all or where maritime transport is used for only part of
the carriage and (ii) Rules for sea and inland
waterway transport, where the point of delivery and the place to which the
goods are carried to the buyer are both ports.
FAS,
FOB, CFR and CIF belong to the second class of Rules. In respect of FOB, CFR
and CIF, reference to the “ship’s rail” has now been deleted and this has been
replaced with the goods being delivered when they are “on board” the vessel.
Though
these are designed for international trade, incoterms traditionally have been
used for local trades as well. As
against the existing 13 sets of terms, now there would be only 11. Two new rules have been introduced
which can be used irrespective of the mode of transport and under both the new
rules, delivery takes place at a named destination.
Thus D
(Delivered) terms under 2000 stands consolidated. The new ones are DAT (Delivered at
Terminal) and DAP
(Delivered at Place).
DAT
(Delivered at Terminal) replaces DEQ (Delivered ex Quay). DAT may be used
irrespective of the mode of transport selected and may also be used where more
than one mode of transport is employed. "Delivered at Terminal”
means that the seller delivers when the goods, having been unloaded from the
arriving means of transport, are placed at the buyer’s disposal at a named
terminal at the named
port or
place of destination. DAT requires the seller to clear the goods for export
where applicable but the seller has no obligation to clear the goods for
import, pay any import duty or carry out any import customs formalities.
It is
thought that DAT would
prove more useful than DEQ in the case of
containers
that might be unloaded and then loaded into a container stack at the terminal,
awaiting shipment. There was previously no term clearly dealing with containers
that were not at the buyer’s premises.
DAP
(Delivered at Place) replaces DAF, DES, DEQ and DDU. The arriving “vehicle”
under DAP could be a ship and the named place of destination could be a port.
Consequently, ICC considers that DAP could safely be used instead of
DES and that it would make the Rules more “user-friendly” if they abolished
terms that were fundamentally the same. Again, a seller under DAP bears all the
costs (other than any import clearance costs) and risks involved in bringing
the goods to the named destination.
Now the
11 terms of Inco 2010 are :
Applicable
for all modes of transport:
EXW : ex
works
FCA : free carrier
CPT : carriage paid to
CIP : carriage and insurance paid to
DAT : delivered at terminal – NEW!
DAP : delivered at place – NEW!
DDP : delivered duty paid
Applicable
for sea and inland waterway transport:
FAS : free
alongside ship
FOB : free on board
CFR : cost and freight
CIF : cost, insurance and freight
Going by
the present rules 2010, DDP means that seller delivers the goods when the goods
are placed at the disposal of the buyer, cleared for import on arriving means
of transport ready for unloading at the named place of destination. The seller bears all the costs and
risks involved in bringing the goods to the place of destination and has an
obligation to clear the goods not only for export but also for import, to pay
any duty for both export and import and to carry out all customs formalities.
Here
lies no. of risks and costs that the Seller might never have anticipated at the
time of inking the contract. There
could be impediments by Govt rules requiring payment of duty only by those
registered in the country. The
most suitable term here would be DAP.
To
conclude, Incoterms are not law but are international rules that are accepted
by governments, legal
authorities and practitioners worldwide for the interpretation of the most
commonly used terms in domestic
and international trade. The
contracting parties are at liberty to chose their own terms also but might lose
out when it is arbitrated on any dispute. There are still international trade
contracts stating C&F which
is no longer an Incoterm after 1990.
Regards