Chapter Four International Commercial Terms (Incoterms)

1. Chapter Four International Commercial Terms (Incoterms)

2. Key words • Commerce, terms, international sales, Incoterms, international commercial law, Contracts of sale, transporting the goods, insurance, taxes, duties, claims, costs, rights, obligations, export, import clearance, costs, risks, passing of property, international trade of goods, standard code, trade usages, containerization, Containerized goods, freight, cargo, charter, Place of delivery, time of delivery, packaging, customs, customs formalities, shipping documents, bulk cargo, damage, liability.

3. Learning Objectives • By the end of this chapter you will: • 1. Be able to understand the meaning of International Commercial Terms or Incoterms. • 2. Be able to distinguish the different abbreviations. • 3. Be able to describe the functions of Incoterms. • 4. Understand the legal status of Incoterms. • 5. Be able to explain the Incorporation of Incoterms and give an example.

4. Learning Objectives • 6. Be able to explain how the development of transport systems has impacted upon Incoterms and give an example. • 7. Be aware of the use of Intermediaries and related matters. • 8. Be able to distinguish the Objects of Incoterms. • 9. Be able to understand Incoterms and Ownership. • 10. Be able to describe the four groups of Incoterms and briefly explain the meaning of the abbreviations.

5. Introduction • The International Chamber of Commerce (ICC) in Paris has created general terms of delivery for international sales contracts. These terms are known as the Incoterms rules (International Commercial Terms shortened to International Commercial TERMS). They are officially known as ‘International Rules for the Interpretation of Trade Terms’ as their purpose is to reduce or remove any uncertainties which may result from the different interpretation of the rules in different countries. Incoterms are accepted in international commercial law and by governments, legal authorities and traders.

6. Introduction The terms apply only to: • Contracts of sale and NOT to contracts of carriage. They are used to make sure buyer and seller know: • Who is responsible for the cost of transporting the goods, including insurance, taxes and duties. • Where the goods should be picked up from and transported to. • Who is responsible for the goods at each stage during the transportation of those goods.

7. Introduction Incoterms are: • Not subject to law so contracting parties are free to use them. • Not concerned with the transfer of ownership of goods. • Can prevent unnecessary claims and costs. • Can prevent legal problems between seller and buyer.

8. The Functions of Incoterms • Identify standard practices. • Give details of what each term wants the parties to do. • Makes contracting easier as they allow the parties to include rights and obligations by the use of a shorthand expression. • Incoterms are limited in their scope.

9. The Functions of Incoterms • They deal with ‘carriage of goods from seller to buyer’, ‘export and import clearance’ and ‘the division of costs and risks between the parties’.

10. The Functions of Incoterms • The Incoterms do not provide general regulation of the contract such as regulating the passing of property in the goods. • Incoterms do not state the results of a breach of contract. This means that the rules concerning these matters have to be referred to in other terms of the contract as well as the law of the contract which would be the applicable municipal law agreed upon by the parties.

11. The Functions of Incoterms • محذوف • The Incoterms do not affect the interpretation of any contract of carriage which may be entered into by a party to the sales contract. • When the parties adopt the Vienna Convention on Contracts for the International Sale of Goods, and use an appropriate Incoterm, there will be more certainty regarding the rules, contractual and ex-contractual, which govern their transaction.

12. Legal Status of the Incoterms • Incoterms do not have legal status as they are not part of the municipal law of any State. This is in contrast to the Vienna Convention on Contracts for the International Sale of Goods. • The ICC update the Incoterms every 10 years to reflect changing practices in the international trade of goods.

13. Incorporation of Incoterms • Incoterms are a standard code which can be incorporated into foreign goods contracts by the parties. • Other similar references can be used but because many well-known trade usages are in domestic or municipal law, the parties should just refer to the Incoterms to decide the rights and obligations of that reference.

14. Incorporation of Incoterms • The chosen Incoterm can be amended by a provision in the contract. The details of a contract may even be able to negate the chosen Incoterm. • Example • A term is used which requires the seller to deliver the goods but the specific provisions of the contract impose this obligation onto the buyer.

15. Transport Developments Which Effect Incoterms • The traditional trade usages involved marine transport (sea and inland waterways). • The range of the different types of transport to carry goods from the seller to the buyer has developed and increased especially in the air transportation of cargo.

16. Transport Developments Which Effect Incoterms • The arrival of containerization, (which is the shipment of goods in re-usable containers such as a truck trailer which can then be transferred unopened onto a ship or a train), has had implications for international trade the Incoterms.

17. Transport Developments Which Effect Incoterms • Example • The identification of the ship’s rail as the place where the costs and risks are to be divided (with the buyer taking responsibility when the cargo passes over the rail).

18. Transport Developments Which Effect Incoterms • محذوف • Containerized goods, including those intended for sea transport, usually pass from the seller and to the (first) carrier at an earlier point. This will be the point where the goods are delivered to a freight forwarder at a freight-forwarding depot, container terminal, etc. for shipping, either in the original container or after removal and re-packing. These arrangements, which impose more obligations on sellers, are common.

19. Use of Intermediaries andRelated Matters • The Incoterms represent different standard practices and they must consider the use of a variety of agencies involved in making the delivery. They must reflect the different types of cargo: • General cargo - concerns sea transport and is carried by liner trade, (ships following regular schedules). • Bulk cargo – this is carried by a ship chartered by the seller or the buyer.

20. Objects of Incoterms Incoterms deal with the passing of the risk of the goods from seller to buyer. This does not include services or immaterial goods (computer software). Incoterms can be used if the parties are in different countries and when they are in the same country. In particular, Incoterms deal with: • Place and time of delivery and the place and the moment where the risk concerning the goods passes from seller to buyer. • The obligation to pay for the costs related to the transport: costs related to freight, packaging, customs, and inspections, etc. • Deciding which of the parties is responsible for customs formalities. • Deciding which of the parties takes care of the shipping documents.

21. Ownership • محذوف • Incoterms do not deal with the moment the ownership of the goods is transferred from seller to buyer. This is dealt with by the applicable law to the contract of sale based on the ECO Treaty. Incoterms do not apply to the contract of carriage closed by the sender and the carrier or any other parties involved in that contract. The contract of carriage itself (and perhaps the CMR Convention) applies to these contracts: • General set up of Incoterms • Responsibility for the transport

22. Ownership • Incoterms are only used when the contracting parties refer to it in their contract of sale. Incoterms divide the responsibility for the transport between seller and buyer. • Exactly where this responsibility lies depends on the contents of the Incoterms.

23. Description of Incoterms In general Incoterms are divided into four groups: • Buyer responsible for all carriage – EXW • Buyer arranges main carriage – FAS; FOB; FCA • Seller arranges main carriage, risk passes after main carriage – DAT; DAP; DDP • Seller arranges main carriage, but risk passes before main carriage – CFR; CIF; CPT; CIP

24. Description of Incoterms • Incoterms are used in contracts in a 3-letter English word followed by the place named in the contract such as the port or where the goods are to be collected. • There are different terms for sea and inland waterways (e.g. rivers and canals). • The following is a brief description of what each3-letter English word means:

25. Description of Incoterms • EXW (‘Ex Works’) تسليم البضائع في المصنع، تحديد المكان • The seller makes the goods available to be collected at their premises and the buyer is responsible for all other risks, transportation costs, taxes and duties. This term is used when quoting a price. • Example: Goods are being picked up by the buyer from the seller’s premises in Manchester. The term used in the contract is ‘EXW Manchester’.

26. Description of Incoterms • FCA (‘Free Carrier’) ناقل حر • The seller gives the goods, cleared for export, to the buyer’s carrier at a named place. The buyer is responsible for the transportation of the goods to the named place of final delivery. This term is used for containers travelling by more than one mode of transport. • يقوم البائع بتسليم البضاعة إلى الناقل الأول (الذي يحدده المشتري) وفي مكان محدد وتكون البضاعة جاهزة للتصدير.  يعتبر هذا المصطلح مناسباً لكل أساليب النقل، مثل النقل الجوي والنقل عبر القطارات والنقل البري وأسلوب النقل المتعدد

27. Description of Incoterms • CPT (‘Carriage Paid To’) الحمولة مدفوعة إلى • The seller pays to transport the goods to the named destination. Responsibility for the goods transfers to the buyer when the seller passes them to the first carrier. • الحمولة مدفوعة إلى (يتم تسمية ميناء الوصول): يدفع البائع للحمولة إلى نقطة الوصول، إلا أن المخاطر تنتقل إلى المشتري بمجرد تسليم البضاعة  إلى الناقل الأول.

28. Description of Incoterms • CIP (‘Carriage and Insurance Paid’) الحمولة والتأمين مدفوعة إلى • This is used for goods being transported by container by more than one type of transport. The seller pays for both the transport and insurance of the goods to the named destination. Responsibility for the goods transfers to the buyer when the seller passes them to the first carrier. If the goods are only being transported by sea, CIF is used (Cost,, insurance and freights). • الحمولة والتأمين مدفوعة إلى (يتم تحديد ميناء الوصول: يدفع البائع مصاريف النقل والتأمين إلى نقطة الوصول، إلا أن المخاطر تنتقل إلى المشتري  بمجرد تسليم البضاعة إلى الناقل الأول.

29. Description of Incoterms • DAT (‘Delivered at Terminal’) تسليم عند ميناء الاستيراد • The seller pays for transport to a named terminal at the agreed destination. The buyer is responsible for the cost of importing the goods. The buyer takes responsibility once the goods are unloaded at the terminal.

30. Description of Incoterms • DAP (‘Delivered at Place’) • The seller pays for transport to the named destination, but the buyer pays the cost of importing the goods. The seller takes responsibility for the goods until they are ready to be unloaded by the buyer.

31. Description of Incoterms • DDP/DTPDDP/DTP (‘Delivered Duty/taxess Paid’) • The seller is responsible for delivering the goods to the named destination in the buyer’s country, including all costs involved.

32. Description of Incoterms • FAS (‘Free Alongside Ship’) • The seller puts the goods alongside the ship at the named port that they are going to be shipped from. The seller must get the goods ready for export, but the buyer is responsible for the cost and risk involved in loading them. • This term is used for heavy-lift or bulk cargo (e.g. generators, boats), but not for goods transported in containers by more than one mode of transport (FCA is usually used for this). • FAS خالص المصاريف حتى رصيف الشحن (يتم تحديد ميناء التحميل): يجب على البائع أن يضع البضاعة على رصيف الشحن عند الميناء المحدد يقوم البائع بتجهيز ة تخليص البضاعة للتصدير، تم تغيير هذا في نسخة 2000. يستعمل هذا المصطلح في النقل البحري فقط

33. Description of Incoterms • FOB (‘Free on Board’) • The seller must get the goods ready for export and load them onto the named ship. The buyer and seller share the costs and risks when the goods are on board. This term is not used for goods transported in containers by more than one mode of transport (FCA is usually used for this). • تسليم على ظهر الباخرة (يتم تحديد ميناء التحميل): يعتبر هذا الشرط شرط بحري تقليدي، يجب على البائع تحميل البضائع على ظهر السفينة التي قام المشتري بتعيينها، يتم تقسيم الكلفة والمخاطر على حاجز السفينة. يجب على البائع تخليص البضاعة للتصدير. يتم استعمال هذا الشرط في النقل البحري فقط.

34. Description of Incoterms • CFR (‘Cost and Freight’) • The seller must pay the costs of bringing the goods to the named port. They also pay for insurance. The buyer is responsible for risks when the goods are loaded onto the ship. • التكاليف وأجرة الشحن (يتم تحديد اسم ميناء الوصول): يقوم البائع بدفع التكاليف وأجرة الشحن حتى يتم توصيل السلع إلى ميناء الوصول. من ناحية ثانية، يتم نقل المخاطر إلى المشتري عندما تتعدى البضائع حاجز السفينة. يتم استعمال هذا الشرط في النقل البحري فقط

35. Description of Incoterms • CIF (‘Cost, Insurance and Freight’) • The seller must pay the costs of bringing the goods to the specified port. They also pay for insurance. The buyer is responsible for risks when the goods are loaded onto the ship. • التكاليف والتأمين وأجور الشحن (يتم تحديد ميناء الوصول):.

36. Liability of the Seller and Buyer Concerning Damage during Carriage • محذوف • There is always the risk that the goods can be stolen, mislaid or damaged. The liability for the seller to pay for this damage can be excluded by choosing the right Incoterm. With Incoterms such as EXW, FCA, FAS, FOB, CFR and CPT the liability during the transportation of the goods is with the buyer. The seller does not have to close a contract of insurance. If there is an insurance contract and the insurance policy holds the provision 'warehouse to warehouse', then the carriage of the goods from the place of business of the seller and the place of delivery to the buyer will be insured.

37. Liability of the Seller and Buyer Concerning Damage during Carriage • محذوف • In case of CIF or CIP, the seller has to insure himself against the risks of carriage of the goods. There is no obligation in case of OAF, DES, DEO, DDU and DDP. In these cases, damage to or loss of the goods is at the seller's expense. For that reason the seller should obtain an insurance contract.

38. Seller’s responsibilities under INCOTERMS 2010

39. Seller’s responsibilities under INCOTERMS 2010

40. Seller’s responsibilities under INCOTERMS 2010

41. Seller’s responsibilities under INCOTERMS 2010

42. Seller’s responsibilities under INCOTERMS 2010

43. Buyer’s responsibilities under INCOTERMS 2010

44. Buyer’s responsibilities under INCOTERMS 2010

45. Passing of risk under INCOTERMS 2010

46. Passing of risk under INCOTERMS 2010 • Tables: 1.1a, 1.1b, 1.1c, in: Carr, I., International Trade Law - 5th Edition, Routledge, 2014, pp. 51-58.