INCOTerms

INCOTERMS®

aka International Commercial Terms

“This contract is to be interpreted in accordance with Incoterms 2020”

This is not a choice of law, it is designed to help interpret the contract

See Pro Forma invoice (page 97 of textbook): how is the price stated?

Without a trade term (or detail) your price is meaningless

It is divided into two groups

• 7 for any mode(s) of Transportation

• 4 and Sea and Inland Waterway Transportation

Unimodal or multimodal transport documents

Unimodal - one mode of transport

Multimodal - more than one mode

• Combined transport document (through Bills of Lading)

• Cite Incoterms 2020

Rules for any modes of transportation

Shipment contracts

• EXW - ex works

• FCA - Free carrier

• CPT - carriage paid to

• CIP - carriage and insurance paid to

Destination contracts

• DAT - delivered at terminal

• DAP - delivered at place

• DDP - delivery duty paid

Reminder: In a shipment contract, the seller's responsibility ends when the goods are handed over to a carrier. The risk of loss or damage then shifts to the buyer. In contrast, a destination contract requires the seller to ensure the goods reach the buyer's specified destination. The seller retains responsibility and risk of loss until the goods are delivered.

4 rules for sea and inland waterway transportation

FAS: Free Along Side

FOB: Free on Board

CFR: Cost and Freight

CIF: Cost Insurance and Freight

What has changed from Incoterms® 2010

FCA & On-Board Bills of Lading

• Seller responsible for making goods available at own place or at a named place – loads goods on Buyer’s transport

• Problem: when seller responsible for loading onto a truck (not international carrier) if agreed to use letter of credit

• Banks often require on board bill of lading

• International carrier won’t typically provide a bill of lading to seller who doesn’t present the goods

• Incoterms® 2020 allows parties to agree in the sales contract that buyer will instruct the carrier to issue the on-board notification to the seller

• Different levels of insurance coverage for CIF & CIP

• Security Requirements

• Delivered at Terminal (DAT) becomes Delivered at Place Unloaded (DPU)

  • Sometimes Buyer and/or Seller want the delivery to occur somewhere

    other than a terminal

Questions to Ask

What mode of transport is appropriate?

Who arranges for transport/carriage?

Where does ‘delivery’ occur?

• Ramberg (Incoterms 2000) Explaining “C” terms: under no circumstances should a stipulation as to time for delivery be mentioned in connection with arrival at destination

Where does risk of loss or damage pass?

Who is responsible for clearing for import (tariff)?

When can Buyer inspect the goods?

Which documents are required? Optional?

What are the other obligations???

Do the Incoterms impact:

• Seller’s obligation to provide goods in conformance to the Contract?

• Buyer’s obligation to pay invoice according to contract?

• The time for shipment of goods &/or delivery of goods?

Relationship between Incoterm & Force Majeure clause

Where does the risk pass? What are my foreseeable risks?

Transaction Risk

Negotiate terms

Allocate risk: delivery, payment, etc.

Fix performance obligation and responsibilities

Fix price

Make sure each party’s understanding is reflected in the contract

Only the contract, not trade terms will set terms for transfer of ownership