International Commercial Terms 2010 (INCOTERMS 2010) – Part I | Trade Samaritan

International Commercial Terms 2010 (INCOTERMS 2010) – Part I

Incoterms are a set of three-letter standard trade terms commonly used in international contracts for the sale of merchandise.

Incoterms 2010 is the eighth and the current version of International Commercial Terms also known as INCOTERMS 2010, this particular edition was published on January 1, 2011. This latest version of the Incoterms rules have been officially endorsed by the United Nations Commission (UN) on International Trade Law which confirms their position as the global standard for international business transactions. These new terms also have the support of United Nations Economic Commission of Europe. Hence it is imperative for exporters, importers, bankers and professionals to gain an insight into these latest terms.

Incoterms were launched by ICC for the first time in 1936 and since then Incoterms have helped trade to prosper by bringing in clarity of responsibility to the buyers and sellers.

Incoterm clearly help buyers and sellers identify as to where does their responsibility, cost and risk under commercial contracts begin and end. Incoterms has standardized a set of trade terms and are used internationally. Incoterms have a big impact on the documentation of an under LC transaction for example the buyer should not request an insurance document from the seller if the terms of sale are CFR (Cost and Freight). Incoterms have to be developed from time to time to maintain the pace of the changing international trade practices. Now let us compare Incoterms 2010 with its predecessor Incoterms 2000. The two main factors which instigated Incoterms 2010 are

  1. Containerization
  2. Electronic versions of documents

Incoterms 2010 have eliminated four terms from Incoterms 2000:

  1. Delivered at Frontier (DAF)
  2. Delivered Ex-Ship (DES)
  3. Delivered Ex-Quay (DEQ)
  4. Delivered Duty Unpaid (DDU)

And two new terms have been added:

  1. Delivered at terminal (DAT)
  2. Delivered at Place (DAP)

Hence Incoterms 2010 has eleven terms whereas Incoterms 2000 had thirteen terms.

Incoterms 2010

Now let us discuss DAT and DAP in detail.

Delivery at terminal (DAT)

DAT obliges the seller to place the goods at the buyer’s disposal after unloading at the named terminal at port or place of destination. “Terminal” will include any place, whether it is covered or not, such as a quay, warehouse, container yard or road, rail or air cargo terminal. The Seller carries all risks and costs involved in bringing the goods to and also unloading them at the terminal at the named port or place of destination. Once the goods have been unloaded, sellers risk and cost ends and buyer’s risk and cost begin. DAT in Incoterms 2010 has replaced DEQ used in Incoterms 2000. Hence the import duties, taxes and clearance is buyer’s responsibility. DAT can be used for any transport mode or where there is more than one transport mode. In this incoterm, the main responsibility of the carriage is on the seller.

Delivery at Place (DAP)

DAP obliges the seller to place the goods ready for unloading at the named place. The difference between DAP and DAT is that under DAT the seller is responsible for unloading the goods whereas under DAP the seller is not responsible for unloading the goods. The seller carries all risks and costs involved in bringing the goods at the named place till the goods are ready for unloading. Once the goods have been made available ready for unloading at the named place, the seller’s risks and responsibility ends and buyer’s risks and responsibility begins. DAP has replaced the terms such as Delivered at Frontier (DAF), Delivered Ex-Ship (DES) and Delivered Duty Unpaid (DDU) under Incoterms 2000. DAP can be used for any transport mode or where there is more than one transport mode.

Incoterms facilitate smooth and dispute free trade between countries however in real life transactions at times cause complications and pose challenges over matters such as terminal handling charges which are levied over and above the freight charges, more than one carrier and exact place of exchanging title and responsibilities. Since there are large number of ports and transport hubs, it is also advisable to always specify the place for delivery as precisely as possible and ensure that the incoterm stated on the documentary letter of credit is in tandem with the sales contract.

In Part II we will discuss balance nine Incoterms which also were a part of Incoterms 2000.

 

Reference

International Chamber of Commerce

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