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INTRODUCTION

INCORTERM

Incoterms are a set of three-letter standard trade terms most commonly used in international
contracts for the sale of goods. First published in 1936, Incoterms provide internationally
accepted definitions and rules of interpretation for most common commercial terms. In the
US, Incoterms are increasingly used in domestic sales contracts rather than UCC shipment
and delivery terms. Incoterms inform the sales contract by defining the respective obligations,
costs and risks involved in the delivery of goods from the Seller to the Buyer.

INCORTERM 2010

The International Chamber of Commerce (ICC ) published the 8th and current version of its
International Commercial Terms, also known as Incoterms 2010 on January 1, 2011.

The revised rules, originally designated INCOTERMS 2010, contain a series of changes,
such as a reduction in the number of terms to 11 from 13. The DAF, DES, DEQ, and DDU
designations have been eliminated, while two new terms, Delivered at Terminal (DAT) and
Delivered at Place (DAP), have been added. INCOTERMS 2010 also attempt to better take
into account the roles cargo security and electronic data interchange now play in international
trade.

INCOTERMS: A BRIEF HISTORICAL PERSPECTIVE

Incoterms are an acronym for International Commercial TERMS. These terms were
developed by the International Chamber of Commerce (ICC). Incoterms were first codified in
a pre-Incoterms edition of 1923 (International Chamber of Commerce, 2010), comprising of
six terms: FOB (Free On Board), FAS (Free Alongside Ship), FOT (Free On Truck), FOR
(Free on Rail), Free Delivered CIF (Cost Insurance and Freight) and C&F (Cost and Freight).
These terms were subsequently released as the first revision of Incoterms in 1936. Although it
is known that international commerce had been taking place over several millennia, the
problems faced by traders were the different interpretations given to various delivery terms
across the globe. Incoterms were introduced to address the problem of interpretation, with the
aim of bringing more certainty into commercial transactions and reducing the number of
disputes between sellers and buyers.
Shortly after the launch of Incoterms 1936, an alternative set of delivery terms was
promulgated in the USA The Revised American Foreign Trade Definitions (RAFTD) of
1941. The original American Foreign Trade Definitions were issued in 1919. The RAFTD
were subsequently incorporated into the 1951 Uniform Commercial Code (UCC), where until
2004, the UCC contained definitions of terms of sale (also called shipping and delivery
terms) in section 2-319 through 2-324

Unlike Incoterms that are not a body of law, the USA terms were. The UCC created problems
for international traders, not so much because it was an alternative to the Incoterms, but
because it used the same abbreviations with completely different meanings. For example, the
term FOB in Incoterms is a departure term, that is, the seller fulfils their obligations prior to
the goods leaving from the agreed export port, whereas the RAFTD use the term FOB as an
arrival term, meaning the seller has extended obligations beyond the port of export. The FOB
term as used in the context of the RAFTD has several different Incoterms interpretations. It is
not difficult to imagine confusion between sellers and buyers.

Not with standing the existence of the RAFTD, Incoterms were regularly updated to reflect
changes in current practices on handling and delivery of goods. In fact Incoterms were 1953,
1967, 1976, 1980, 1990, 2000 and 2010. Incoterms did not gain immediate global acceptance.
In fact, in 1969 an unsuccessful attempt was made to have the Incoterms (year 1953)
endorsed by UNCITRAL, but the existence of the RAFTD appears to have prevented that
endorsement. However, over time Incoterms grew in popularity, to the point where they are
now the set of international delivery terms of choice recommended by UNCITRAL (1992,
2000), for use in all international transactions involving the delivery of tangible goods.

In 2004, the UCC was amended and the delivery terms that had been embedded in USA
legislation were removed, effectively allowing the Incoterms to become the definitive set of
delivery terms in contracts of sale. The Incoterms 2010, for the first time in their history, refer
to themselves as rules and may be used for domestic contracts, although this paper limits its
discussion to international applications. Interestingly, a recent survey of economists reports
that nearly three quarters of respondents agreed that the government of their country should
adopt the Incoterms rules into national legislation It is argued here, that such
recommendations should not proceed, for they are likely to bring back the problem
experienced with the USA legislation mentioned above.
Discuss the four categories of trade term under the incoterm 2010 .

E term

In E term consist of 1 term only

1. EXW: Ex Works

EXW is usually followed by a place name such as EXW Portland and means essentially that
the seller will make the goods available to the buyer at a specified place example :the sellers
premises/warehouse/works/factory, and at a specified time. Alternate arrangements can be
made, such as the seller agreeing to load the goods and assume the risks of such loading, etc.
Any such deviation must be made explicit in the contract

The sellers obligation is to leaving the buyer to load the goods onto whatever transportation
has been arranged, clear the goods for export, and bear all the risk during transport. The buyer
obligation is to bears all costs and risks involved in taking the goods from the seller's
premises to the desired destination such as to get the export or import licenses and to carry
out all customs formalities including transitThis term represents minimum obligation for the
seller. This term can be used across all modes of transport exclusively to air, rail, road, and
containerized/multimodal transport.

Cases law :
Amiri flight authority v bae system (2004)
Fact : the contract are between the parties for the manufacture and delivery of aircraft in
England. The buyer are established in Abu Dhabi . under the contract the defendant have to
supply a maintenance for the aircraft the corrosion had occurred as a result of negligent a
maintenance by the seller. The question was whether the contract was an international supply
contract.
Held: it was thus a domestic sale of good . if the contract had been made with the offer being
made in England and the acceptance in Abu Dhabi then it would have qualified as an
international supply contract
F term

1. FCA: Free Carrier

FCA is usually followed by a place name the initial destination of the goods, FCA
Anchorage for example. Not surprisingly, this term is also referred to as named place
delivery.

The seller's obligation is to hand over the goods, cleared for export, into the charge of the
carrier named by the buyer at the named place or point. If no precise point is indicated by the
buyer, the seller may choose within the place or range stipulated where the carrier shall take
the goods into his charge. When the seller's assistance is required in making the contract with
the carrier the seller may act at the buyers risk and expense. This term can be used across all
modes of transport.

Sometimes, no specific place of delivery is where the goods will change hands and be
delivered into the hands of the carrier within the range specified in the contract FCA
represents an incremental increase in the cost and obligation to the seller over the EXW
arrangement. Because the seller owns the good right up to delivery, FCA arrangements allow
the seller to resell the goods to someone else while the goods are still in transit. Free Carrier
applies exclusively to air, rail, road, and containerized/multimodal transport.

3.FAS: Free Alongside Ship

Free Alongside Ship means what it sounds like, that the seller must transport the goods all the
way to the dock, close enough to be reached by the crane of the ship it will be transported in.
Also it is the sellers responsibility to clear the goods for export. FAS is usually followed by a
place name, for example FAS San Francisco. The place name indicates the port where the
goods are to be delivered on the quay beside the carrier ship.

Not surprisingly, FAS applies exclusively to maritime and inland waterway shipping.
However it does not apply to goods packaged in shipping containers. FAS is instead usually
used for goods sold as bulk cargo, such as petroleum products or grain.
4. FOB: Free On-board Vessel

Free On-board Vessel is sort of a hybrid, where the seller is obligated to bring the goods all
the way to the port, clear the goods for export, and see that they are loaded onto the ship
nominated by the buyer. Once the goods clear the railing of the vessel the buyer assumes the
risk .FOB is often followed by the named loading port thus FOB Long Beach, meaning the
seller delivers the goods, pays the port fees, and sees the goods loaded onto the ship docked
(in this case) at the port of Long Beach. This Incoterm is used exclusively for maritime and
inland waterway transport but not for container shipping.

Term C

Terms from this group have one thing in common, they are all terms used when the seller can
arrange to pay all the fees up to delivery at a foreign port.

1. CFR: Cost and Freight, aka C&F, aka CNF

This acronym means that the seller covers all the costs of bringing goods from their origin to
the port of destination, including carriage costs and clearing the goods for export except for
the insurance. Even though the seller takes care of the actual loading and transportation of
goods up to the port of destination, the buyer pays the insurance (and therefore assumes the
risk) from the moment the goods are loaded onto the vessel at the port of origin throughout
their transit to the port of destination and beyond. This term is used exclusively for maritime
and inland waterway trade.

2. CIF: Cost Insurance and Freight

This term is identical to the one preceding it with exception for the insurance portion. With
a CIF arrangement, the seller (not the buyer) assumes the risk (and therefore is responsible
for purchasing insurance) for the goods during transit from origin to the port of destination.

This term too applies solely to maritime and inland waterway trade. However, CIF may not
be appropriate where the goods are handed over to the carrier before they are loaded on the
vessel the usual container scenario.
3. CPT: Carriage Paid To, aka DPC

This term indicates that the seller assumes most of the cost of transportation of the goods
including export fees, carriage charges, and fees at the port of destination. Seller does not pay
for insurance that is the buyers obligation. The moment that the risk of loss or damage is
transferred from seller to buyer is when the goods are loaded onto the first carrier vessel,
despite the seller paying the carriage charges. CPT can be used for all modes of
transportation, including container or roll-on roll-off traffic.

4. CIP: Carriage and Insurance Paid To

Carriage and insurance paid is much like CPT in that the seller assumes most of the costs of
transportation including export fees, carriage charges, and fees at port of destination. For CIP
arrangements, however, the seller is responsible for purchasing insurance for the goods
during the carriage.While the seller is required to buy insurance for the carriage, the risk of
loss or damage is transferred from seller to buyer when the goods are loaded onto the first
carrier vessel. CIP can be used for all modes of transport but is most common for intermodal
(i.e. container) shipping.

Terms D
The D group describes different methods of delivery of goods and represents the
arrangements with the maximum amount of responsibility (both for costs and risks) to the
seller, not the buyer. There used to be 5 acronyms in the D group total. Now there are only 3.

Previously, there were 3 terms used to indicate where goods were to be delivered, i.e. DAF,
Delivered at Frontier; DES, Delivered Ex Ship; DEQ, Delivered at Quay. Now those 3
terms have been simplified.

The delivery location is now identified simply as DAT or DAP Delivered at Terminal or
Delivered at Place. The reasoning is that the increase in point-to-point sales and
containerization made the other terms obsolete.
Lastly, the term DDUP Delivery Duty Unpaid has been eliminated completely. I guess
theres no getting out of paying duty which leaves the term DDP Delivery Duty Paid.

1. DAT Delivered at Terminal

This term means that the seller covers all the costs of transport (export fees, carriage,
insurance, and destination port charges) and assumes all risk until after the goods are
unloaded at the terminal Terminal includes any place, whether covered or not, such as a
quay, warehouse, container yard or road, rail or air cargo terminal. The buyer covers the cost
of transporting the goods from the terminal or port to final destination and pays the import
duty/taxes/customs costs.With this arrangement, the seller assumes a large portion of the risks
and costs of transport. This term applies to any mode of transport.

2.DAP Delivered at Place

This term means that the seller pays all the costs of transportation (export fees, carriage,
insurance, and destination port charges) up to and including the delivery of the goods to the
final destination. The buyer is responsible to pay only the import duty/taxes/customs costs.
The buyer also is responsible to unload the goods from the vehicle at the final destination.

The big difference between DAP and DAT is that with DAP the seller is responsible for the
final leg of the journey and the buyer is responsible for the final unloading of the goods. This
term applies to any mode of transport.

3.DDP Delivered Duty Paid

This term means that the seller assumes all the risks and costs of transport (export fees,
carriage, insurance, and destination port charges, delivery to the final destination) and pays
any import customs/duty. The buyer has only to unload the goods at the final destination.
The non-Incoterm Free In Store (FIS), DDP represents maximum responsibility for both
costs and risk assumption from beginning to end to the seller. This arrangement is the
opposite end of the spectrum from Ex-Works (EXW) where the majority of the cost and risk
assumption is on the shoulders of the buyer .This term applies to any mode of transport.
Conclusion

In conclusion, the Incoterm chosen should reflect the transportation aspect of an agreement
between the buyer and seller. In doing so, the parties should consider the allocation of tasks,
costs and risk. Who is supposed to do what to get the goods from Point A to Point B? What
does the sale price include? Where does the risk start and where does it end for the parties? In
answering these questions, the parties should be able to arrive at the appropriate Incoterm to
be used to encapsulate the agreement. The changes to the Incoterms in 2010 are not major,
however, the revisions encourage users to put their minds to the mode or modes of
transportation required to ensure use of the appropriate term. Users should remember that
Incoterms serve to further the contractual agreement between parties, and that the parties
should not be afraid to spell out in the contract any agreed term that cannot be captured by the
Incoterm used