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Guide to the New Incoterms ® 2010 Rules for International Trade

09th February 2011
By Diana Dennis in Business Law
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The Incoterms® 2010 Rules are a set of international commercial terms published by the International Chamber of Commerce. They are an internationally recognized standard and are used worldwide in international and domestic contracts for the sale of goods.

In use worldwide, they have been in existence since 1936 and provide an invaluable tool to exporters and importers in determining where cost and risk pass in international transactions involving the movement of goods.

The current set of rules, Incoterms 2010, came into force on 1st January 2011. The previous set of international commercial terms was published in the year 2000 and, although old Incoterms 2010 Rules never die so they are still valid in commercial contracts, it is advisable to start using the new, more up-to-date terms as soon as possible.

So what are the key differences between Incoterms 2010 and Incoterms 2000 Rules that expoerters should be aware of? Firstly there are now 11 terms to use in contracts and not 13, as Two new Incoterms rules – DAT and DAP, have replaced the Incoterms 2000 rules DAF, DES, DEQ and DDU. Other changes include the fact that Rules can now be used for domestic contracts not just international ones, the risk point in the commonly used rule FOB has now changed in that is no longer over the ship's rail at loading, and the Rules now cover more responsibilities such as supply chain security issues.

Despite the improvements in Incoterms rules, they can still often be misused or misapplied in international trade.

For example, top errors by exporters using Incoterms include using a sea freight term like FOB or CIF when consigning goods by air freight or road; doing more under the term than required, e.g. loading under "ExWorks"; not including all the relevant costs covered by the Incoterms Rule; using DDP when the seller is unable to meet the registration requirements of overseas customs authorities and not being protected when things go wrong because the "term" quoted has never been reviewed against the legal issues.

Top errors by importers in the use of Incoterms include failure to realise the best option for them, i.e. an unreliable supplier can be controlled under "FCA..." terms; ambiguous "delivery points", e.g. CFR mentioned but the port not named; missing the opportunity to assess what the supplier has included in the transportation price, i.e. not asking for an "ExWorks" price to compare with a DDU (delivered) price, being unaware that the transit risk is theirs (the buyer's) under CIF and CIP; buying DDP even though the seller may not be able to undertake import customs formalities.

To avoid these types of errors, one of the best ways for your staff to familiarise themselves with the use of Incoterms and the latest changes is to attend a training course in the subject. There are a number of UK training providers able to assist; for example Strong and Herd offer export training courses including a series of one day training courses through the year entitled ‘The Incoterms ® 2010 Rules Explained’. Other reminders and training aids are also widely available including Incoterms book and wallcharts.

"Incoterms" and the Incoterms® 2010 logo are trademarks of the International Chamber of Commerce (ICC).

Article written by Strong and Herd, who offer a wide range of export training courses as well as courses, training and consultancy in other aspects of international trade. Strong & Herd LLP (S&H LLP) was formed in 1995 and has helped many companies, large and small, to understand the complexities of international trade in order to help them trade and compete in the international marketplace.
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