New Incoterms Entered Into Force on 1 January 2011

Date 21 mar. 2011

 

Incoterms, an abbreviation of International Commerce Terms, is a well known and frequently applied set of standard clauses developed by the International Chamber of Commerce (ICC).

 

The first set of Incoterms was drafted back in 1936, and the overall aim was to reduce the risk that differences in the interpretation principles and traditions of different jurisdictions would lead to disputes in international trade relationships.


Basically, the Incoterms determine where and whether or not the seller is to bear the transportation risks and costs, and from which date and place the buyer is to take on these risks and costs. The clauses only include transportation and cost risks, and any associated risks, but not other key contractual issues such as transfer of property rights.


Since the content of the Incoterms is based on applied and recognised trade patterns, and since such trading patterns continually change, it is necessary to update the content on an ongoing basis. This ensures that the clauses constantly reflect the trading patterns followed by the international market.


By 1 January 2011, the most recent Incoterms, Incoterms 2000, are replaced by a revised set of standard clauses called Incoterms 2010.

 

General changes

The revision of Incoterms 2000 is implemented with the purpose of updating and adjusting the clauses in the light of the changes in international trading patterns which have occurred since 2000, thus making sure that the Incoterms reflect the trading patterns which are followed in 2010. The revision also serves to make the rules more simple and clear.

 

Incoterms 2010 contain 11 transport clauses while Incoterms 2000 contained 13 clauses. This means that two of the previously applied transport clauses are entirely removed in the revision. In addition, the clauses are now divided into two main groups instead of four main groups. Of the 11 recommended transportation clauses, seven of the clauses regulate all methods of transport, and the remaining four specifically regulate shipping, i.e. transportation from port to port.


The first main group, consisting of seven transportation clauses, may be applied regardless of the chosen method of transport and regardless of whether one or more methods of transport are used. These clauses may also be used when there is no carriage by ship at all. This group consists of the clauses EXV, FCA, CPT, CIP, DAT, DAP and DDP.

 

The second main group, consisting of four transportation clauses, is applied in transport by sea and domestic waterways. The clauses hence include shipping. This group consists of clauses FAS, FOB, CFR and CIF.


This means that the first seven clauses may be used in any method of transport, including shipping, while the latter four clauses are specially adapted to shipping.


Insofar as shipping, the new clauses omit any reference to "the ship's rail". Instead, the product is considered delivered when it is "on board" the vessel.

 

New Incoterms

With Incoterms 2010, two new standard clauses are introduced – DAT (Delivered At Terminal) and DAP (Delivered At Place) - to replace the formerly applied standard clauses DAF, DES, DEQ and DDU.


The two new clauses are, like their predecessors, "Delivered" rules under which the seller bears all costs and risks of delivering the product to the designated destination. However, costs associated with import and license are exempted and held by the buyer.


The clause DAT (Delivered At Terminal) may now be applied if the parties have agreed that delivery is made when the goods are unloaded from the incoming vessel and are available to the buyer at an indicated terminal. This corresponds to the former DEQ clause.


The clause DAP (Delivered At Place) may now be applied if the parties have agreed that delivery is considered made when the goods are available to the buyer at the incoming vessel and are ready for unloading. This corresponds to the contents of the previous clauses DAF, DES and DDU.

 

The two new clauses make the Incoterms 2000 rules DES and DEQ redundant. The terminal indicated in DAT may very well be a port and therefore, DAT may be applied in situations in which DEQ was previously used. Correspondingly, the incoming vessel in DAP may be a ship, and the specified destination may be a port. Therefore, DAP is applied in situations in which DES was previously used.

 

The previously applied Incoterms clauses DAF and DDU are completely removed from the Incoterms system. However, it is possible to contain these clauses under the new DAT and DAP clauses which are therefore prospectively applicable.

 

Review

As the quantity and complexity of international trade increase, so does the risk of inconsistencies and conflicts. Incoterms 2010 seek to address this by reducing the number of clauses and by providing an update of the clauses, so that they continue to reflect the applied and appropriate trade patterns used in international trade.

 

With regard to shipping, the change of delivery time from "the ship's rail" to "on board" the vessel seems to be especially appropriate since this delivery time is more consistent with the commercial realities and avoids the idea that the risk might swing back and forth over the ship’s rail.


It is important to note that Incoterms are not law, and the parties are not bound by the clauses. Incoterms are standardised transportation clauses, which the parties may agree on applying if they deem it appropriate under the circumstances.


Basically, nothing precludes the parties from continuously agreeing on the application of Incoterms 2000. However, since the purpose of updating the clauses has been to eliminate discrepancies in the previous clauses, it is highly recommendable that parties to an international trade relationship in future agreements agree on the application of Incoterms 2010.



If you have any questions or require additional information on Incoterms, please contact Partner Thomas Weitemeyer (twe@mwblaw.dk) or attorney Pernille Nørkær (pno@mwblaw.dk).


The above does not constitute legal counselling and Moalem Weitemeyer Bendtsen does not warrant the accuracy of the information. With the above text, Moalem Weitemeyer Bendtsen has not assumed responsibility of any kind as a consequence of a reader’s use of the above as a basis of decisions or considerations.