“Incoterms” are the set of accepted contract shorthand terms commonly used in private commercial agreements for cross-border trade and contracting in goods and services, such as standardized terms “CIF” (Cost, Insurance and Freight), “FOB” (Free On Board) and several others. They were originally developed by the “real” International Chamber of Commerce (ICC) based in Paris and introduced in 1936 with occasional revisions since. The Incoterms do not have the automatic force of law, but are commonly used in private commercial contracts by custom, including incorporation by usage and reference as contracts are drafted and negotiated. In contract drafting it is key to spell out terms and, if the shorthand terms are used, make sure the contract language is consistent with the chosen shorthand.
The 2011 Incoterms revisions are significant updates, to conform to current usage and avoid common drafting errors. Four terms are dropped altogether (DDU, DEQ, DES and DAF), replaced by simpler new terms DAT (Delivered At Terminal) and DAP (Delivered At Place). The remaining terms are regrouped to clearly identify those meant for Sea and Inland Waterway Transport Only, versus those for Any Mode of Transport. A frequent area of confusion, as to terminal handling charges, is clarified in several areas, such as the CIP term (Carriage and Insurance Paid), which is clarified to mean that the buyer bears “unloading costs”, unless such costs were for the seller’s account under the contract of carriage. Another clarification applies to the commonly used terms FOB, CFR and CIF: Historically, risk has transferred to buyer when goods cross the ship’s rail during loading, but it will now be understood that risk passes with “placing goods on board” the vessel. The new Incoterms are stated to take effect January 1, 2011, and care should be taken using those terms going forward. The “Incoterms 2010 ICC Official Rules of the Interpretation of Trade Terms” may be ordered directly at the ICC website, www.iccbooksusa.com.