The Incoterms ® Rules are a set of international commercial terms published by the International Chamber of Commerce. The current set is Incoterms 2010 and came into force on 1st January 2011. In use world-wide, 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 previous set of international commercial terms was published in the year 2000 and, although old Incoterms ® 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.
Key Differences between Incoterms 2010 and Incoterms 2000 Rules
- 11 terms not 13
- Can be used for domestic contracts not just international
- DAF, DES, DEQ and DDU replaced by a new term DAT
- FOB risk point changed - no longer over the ship's rail at loading
- Covers more responsibilities, eg supply chain security issues
Top errors by exporters in the use of Incoterms:
- 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.
- Not protected when things go wrong because the "term" quoted has never been reviewed against the legal issues.
- Using DDP when the seller is unable to meet the registration requirements of overseas customs authorities
Top errors by importers in the use of Incoterms:
- 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, ie not asking for an "ExWorks" price to compare with a DDU (delivered) price.
- 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