New Incoterms expected to take effect in 2011

SOURCE: Hunt & Hunt | Customs Trade and Transport Law e-alert | 5 February 2010
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Authors: Andrew Hudson, Partner
Brendan Sheehan, Lawyer

The standardised international trading terms known as Incoterms are being revised and are likely to be finalised later this year and then take effect 1 January 2011.

What are Incoterms?

Incoterms is short for “International Commercial Terms”. The International Chamber of Commerce (ICC) introduced the first version of Incoterms in 1936. The current version of Incoterms is called Incoterms 2000.

Incoterms are extensively used in international sales contracts as they are widely recognised and understood commercially. Incoterms determine critical issues such as who will pay for the carriage of the goods and the point that risk passes between the parties.

Even if you are not experienced with using Incoterms, you may be familiar with FOB, which is the Free On Board Incoterm. FOB is commonly misused by parties and often other Incoterms such as FCA or FAS are more appropriate. If you are presented with contracts that contain Incoterms and you do not understand the meaning of the Incoterms you should seek legal advice, as the use of the appropriate Incoterm can minimise your risks and obligations.

What are the proposed changes?

Frank Reynolds, the US Delegate to the ICC’s Incoterms Committee has been providing International Trade Law News with updates on the proposed changes to Incoterms 2000. According to International Trade Law News, Mr Reynolds has indicated that the new version of Incoterms will be entitled “Incoterms 2010”.Incoterms 2010 are expected to be more user-friendly and the explanations of each Incoterm will be expanded to assist users of the Incoterms. Some of the specific changes that are expected include:

• Clear distinction to be made between the multimodal Incoterms and Incoterms for marine use.
• Cargo security to be covered to the extent possible with differing regulatory systems.
• Elimination of some of the current 13 Incoterms. However, despite some speculation, Incoterm FAS is likely to remain.
• Inclusion of a new term for use in domestic transactions and transactions where no export or
• import clearance obligations exist.

What do you need to do?

Incoterms 2010 are not expected to take effect until 1 January 2011 and the final version has not yet been settled. We will continue to update you on the progress of the revisions. In the meantime, we recommend that you ensure, and if necessary seek legal advice to ensure, that your commercial trading terms accurately reflect the transaction.