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Reproduced with permission of 5 Vindobona Journal of International Commercial Law & Arbitration (2001) 41-73.

International Chamber of Commerce Incoterms 2000: A Guide to Their Terms and Usage

Henry Gabriel [a1]

  1. Introduction
  2. Ex works, (... named place)
  3. Main carriage unpaid
  4. FOB (... named port of shipment)
  5. Main carriage paid group
  6. Arrival or delivery ex-ship (name port of arrival)
  7. Conclusion

1. INTRODUCTION

Out of long standing practice, international contracts for the sale of goods often contain standard shipping and delivery terms. However, even the most common terms, such as FOB or CIF, do not necessarily have the same meaning in different ports or centers of trade. In an attempt to end this confusion, over the years the International Chamber of Commerce has published lists of shipping and delivery terms known as "Incoterms." Incoterms were first published in 1936, and subsequent revisions and additions were made in 1953, 1967, 1980, 1990 [1] and most recently in 2000. The Incoterms 2000 is set out in ICC Brochure No 560,[2] and these terms have important differences from the earlier versions. [page 41]

The Incoterms are a contractual code of acronyms used in international commercial transactions. The word "Incoterm" itself is an acronym, and it is derived from the phrase "international commercial terms." The main functions of the Incoterms are to facilitate international commercial transaction, to avoid disputes by eliminating the barriers caused by distance, language and local business customs, and to eliminate uncertainties and differences in the interpretation of shipping and trade terms. The principle areas of concern that are resolved by the Incoterms are the risk of loss, delivery, export licence and custom clearance, and the obligations in contracts for carriage and insurance.[3]

Although initially the Incoterms were drafted for use in contracts for carriage by sea, the 1980, 1990 and 2000 versions take other modes of transport into consideration, and thus the Incoterms are also applicable to transportation by planes, trains and trucks, as well as ships. In addition, the Incoterms are continuing to evolve to meet the growth of electronic communication,[4] and they provide for the replacement of paper documentation by electronic equivalents (EDI-messages) if the parties agree to communicate electronically.[5]

The main advantage of using the Incoterms is to provide a short form of a contractual term which has a consistent and certain meaning in international transactions. It is important to note, however, that as influential as the Incoterms are, there is still quite a diversity of different national [6] and customary usages of shipping terms, and the Incoterms are not considered part of international customary law.[7] For this reason, one cannot rely blindly on the Incoterm defined usages with impunity, and therefore the intent of the parties to rely on the [page 42] Incoterms should be expressly stated in the agreement.[8] It is therefore best, as a drafting matter, to put in the contract that the shipping terms are to be given meaning as defined by the Incoterms 2000.[9] The Incoterms are easily incorporated into trade agreements by including a clause to the effect that the contract is governed by the provisions of Incoterms.[10] Specific reference to "Incoterms 2000" is recommended to avoid confusion with earlier versions.[11] It should be noted though, that because of the widespread usage of the Incoterms in international commercial practice, even if not expressly stated, the terms may be implied in an agreement as well.[12]

The most commonly used Incoterms are CIF and FOB, but there are other terms that buyers and sellers should be aware of along with the advantages and disadvantages of the various terms. For example, a seller quoting FOB will ask for a lower price than when quoting CIF, because in the former case the buyer will pay the insurance costs.

Sometimes other considerations will come into play in choosing the appropriate shipping terms. For example, the customs and excise practice in some countries bases the export value on FOB price and the import value on CIF price irrespective of the terms of the contract between the parties. In these circumstances, the parties will want to adjust prices accordingly, and this will likely be reflected in the shipping terms used. The question of the underlying substantive law may also influence the choice of shipping terms.[13] [page 43]

It should also be noted that although the United Nations Convention on the International Sale of Goods 1980 (Vienna) (hereinafter referred to as the "CISG" or the "Vienna Convention") does not set out definitions or meanings for shipping terms, in some instances, absent express terms to the contrary, the equivalent of shipping terms could be gleaned from the default risk of loss provisions in the Convention. Thus, for example, absent specific shipping terms designating party intent, when goods are to be shipped under an agreement governed by the Convention, where the contract requires the goods to be shipped, but does not require the seller to deliver the goods at a specific destination,[14] the risk of loss passes to the buyer upon the handing over the goods to the first carrier.[15] This is roughly equivalent to the American statutory "FOB place of seller" designation,[16] or the Incoterms FCA designation. However, it is unlikely that knowledgeable parties will be relying on the default provisions of the CISG, and will instead be incorporating shipping terms into their agreements.[17] The absence of more specific guidance in the Convention is quite easily explained by the fact that the drafters assumed parties would use standard shipping terms and that the parties could rely on industry formulations of those terms.[18]

One question raised, though, is whether the usage of shipping terms, absent a designation that the parties are relying on Incoterms as the source of meaning, could be implied as a matter of trade usage. This result has been suggested in commentary as well as court opinions.[19] [page 44]

The Incoterms are grouped into four categories according to the seller's degree of obligation:

 GROUP 
   ELEMENT   
  TERM  
   DESCRIPTION   
E [20] Departure EXW Ex Works
F [21]     Main carriage unpaid     FCA     Free Carrier
    FAS Free Alongside Ship
    FOB Free On Board
C [22] Main carriage paid CFR Cost and Freight
    CIF Cost Insurance and Freight
    CPT Carriage Paid To
    CIP Carriage and Insurance Paid To   
D [23] Arrival DAF Delivered at Frontier
    DES Delivered Ex Ship
    DEO Delivered Ex Quay
    DDU Delivered Duty Unpaid
    DDP Delivered Duty Paid [page 45]

The "E"-term provides for the lowest amount of obligation placed on the seller. Accordingly, the "F"-terms, the "C"-terms, and ultimately the "D"-terms increase the degree of burden placed on the seller. The following is a summary of each of the Incoterms.

2. EX WORKS, (... NAMED PLACE)

Here, the "E"-term generally means that the seller has to do nothing beyond simply placing the goods at the disposal of the buyer at the agreed place.[24] The following explanation is provided:

"Ex works" means that the seller delivers when he places the goods at the disposal of the buyer at the seller's premises or another named place (i.e. works, factory, warehouse, etc.) not cleared for export and not loaded on any collecting vehicle.

This term thus represents the minimum obligation for the seller, and the buyer has to bear all costs and risks involved in taking the goods from the seller's premises.

However, if the parties wish the seller to be responsible for the loading of goods on departure and to bear the risks and all the costs of such loading, this should be made clear by adding explicit wording to this effect in the contract for sale. This term should not be used when the buyer cannot carry out the export formalities directly or indirectly. In such circumstances, the FCA term should be used, provided the seller agrees that he will load at his costs and risks.[25]

Typically, the purchase price is due on delivery of the goods.[26] Normally the seller is under an obligation to pack the goods and the seller is required to use the [page 46] customary method of packing.[27] Failure to do so may result in a subsequent claim against a carrier being subject to a denial of liability for loss or damage because of the "insufficiency of packing."

An "Ex Works" clause may contain the address where the goods are to be collected, but in some cases it may only refer to the town where the seller's works, factory, warehouse or store is located. However, the seller is required to inform the buyer of the actual local address in sufficient time for the goods to be collected,[28] and the failure to give the notice may bar a subsequent claim for damages for non-acceptance.

The seller's obligations include the requirement to deliver the goods and the commercial invoice, or its electronic equivalent, in conformity with the terms of the agreement.[29] Specifically, the seller must place the goods at the disposal of the buyer at the named place of delivery on the date or period agreed upon.[30] However, if no specific point has been agreed within the named place, the seller may select the point at the place of delivery which best suits the seller's purpose.[31] The seller must also: (1) render at the buyer's request any assistance in getting export licences if required; (2) pay all costs relating to the goods until they have been properly delivered; (3) give sufficient notice to the buyer as to when and where the goods will be placed at the buyer's disposal; (4) pay the costs of checking operations which are necessary for the purpose of placing the goods at the buyer's disposal; and (5) must provide packaging for the transport of the goods.[32] The seller bears all risks of loss or damage to the goods until they are properly delivered.[33]

The buyer's obligations include the acceptance of delivery [34] of the goods when they have been properly tendered and pay the price as provided for in the [page 47] agreement.[35] The buyer bears all risks of loss of or damage to the goods from the time they have been properly delivered.[36] The buyer must also: (1) obtain any export and import licence; (2) pay all costs relating to the goods from the time they have been properly delivered; (3) pay any additional costs incurred by failing either to take delivery of the goods when they have been placed for disposal, or to give appropriate notice; (4) pay all duties, taxes and costs of carrying out customs formalities; (5) pay all costs of any pre-shipment inspection;[37] and (6) reimburse all costs and charges incurred by the seller in rendering assistance to the buyer to procure insurance or to obtain import and export licences.[38] The buyer must also provide the seller with evidence of having taken the delivery of goods.[39]

3. MAIN CARRIAGE UNPAID

The "F"-terms cover agreements in which the seller must deliver the goods for carriage according to the buyer's instruction. At the delivery point, the seller fulfills the seller's obligation to the buyer, and the risks and costs of the goods generally pass at that time from the seller to the buyer.

3.1 FCA (... named place)

"FCA" stands for Free Carrier, and its usage includes all modes of transport, including combined transport. The following explanation is given:

"Free Carrier" means that the seller delivers the goods, cleared for export, to the carrier nominated by the buyer at the named place. It should be noted that the chosen place of delivery has an impact on the obligations of loading and unloading the goods at that place. If delivery occurs at the seller's premises, the seller is responsible for loading. If delivery occurs at any other place, the seller is not responsible for [page 48] unloading.

The term may be used irrespective of the mode of transport, including multimodal transport.

"Carrier" means any person who, in a contract for carriage, undertakes to perform or procure the performance of transport by rail, road, air, sea, inland waterway or a combination of such modes.

If the buyer nominates a person other than a carrier to receive the goods, the seller is deemed to have fulfilled his obligation to deliver the goods when they are delivered to that person.[34a]

This term is similar to FOB [35a] except that the seller's obligation under a FCA contract is only to place the goods in the custody of the carrier at the named place or port as opposed to having the further obligation under an FOB contract of safely loading the goods on the ship.

Further obligations of the seller include: (1) providing the goods and commercial invoice to the buyer; (2) obtaining any export licence; (3) paying all costs relating to the goods until they have been properly delivered; (4) paying all costs of customs formalities, duties, taxes, and other charges payable upon export; (5) giving sufficient notice to the buyer that the goods have been delivered; (6) providing the buyer with proof of delivery; (7) paying the costs of checking operations which are necessary for the purpose of delivering the goods; and (8) providing the packaging for the transport of the goods.[36a] The seller bears all risks of loss of or damage to the goods until they are properly delivered.[37a]

The buyer is obligated: (1) to pay the agreed upon price, to take delivery of the goods when they have been delivered, and to accept the proof of delivery; (2) to [page 49] obtain any import license; (3) to contract for the carriage of the goods from the named place; (4) to pay all costs relating to the goods from the time they have been properly delivered; (5) to pay all costs of customs formalities, duties, taxes, and other charges payable upon import; (6) to give the seller sufficient notice of the name of another person, nominated by the buyer, to receive the goods, as well as the date or period for delivering the goods to him; and (7) to pay all costs of any pre-shipment inspection, unless the inspection is mandated by the country of export.[38a] The buyer bears all risks of loss of or damage to the goods from the time they have been properly delivered.[39a]

3.2 FAS (... named port of shipment)

This term stands for "Free Alongside Ship", and it is used for sea or inland waterway transport only. The following explanation is provided:

"Free Alongside Ship" means that the seller delivers when the goods are placed alongside the vessel at the named port of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that moment. The FAS term requires the seller to clear the goods for export.[40]

The actual loading of the goods over the ship's rail is the buyer's obligation and expense. Generally, the buyer also has the obligation of nominating a suitable ship under an FAS contract.

Under an FAS contract, the obligations of the seller are: (1) to provide the goods and the commercial invoice to the buyer; (2) to obtain any export licence; (3) to place the goods alongside the vessel nominated by the buyer at the loading place named by the buyer at the named port of shipment on the agreed upon date or period; (4) to pay all costs relating to the goods until proper delivery; (5) to pay all costs of customs formalities, duties, taxes, and other charges payable upon export; (6) to give buyer notice that the goods have been delivered alongside the [page 50] nominated vessel; (7) to provide the buyer with proof of delivery of the goods; and (8) to pay the costs associated with checking operations and packaging.[41] The seller bears all risks of loss of or damage to the goods until they are placed alongside the vessel at the named port of shipment.[42]

The obligations of the buyer are: (1) to take delivery of the goods; pay the agreed upon price, and accept the proof of delivery; (2) to obtain any import licence; (3) to contract for the carriage of the goods from the named port of shipment; (4) to pay all costs relating to the goods from the time they have been properly delivered; (5) to pay all import costs of customs formalities, duties, taxes; (6) to give the seller sufficient notice of the vessel name, loading point and required delivery time; and (7) to pay the costs of any pre-shipment inspection, unless the inspection in mandated by the country of export.[43] The buyer bears all risks of loss of or damage to the goods from the time they have been properly delivered along side the vessel.[44]

4. FOB (... NAMED PORT OF SHIPMENT)

The term "FOB" means Free On Board, and it is used for sea and inland waterway transport only. The following explanation is provided:

"Free on Board" means that the seller delivers when the goods pass the ship's rail at the named port of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that point. The FOB term requires the seller to clear the goods for export.[45] [page 51]

This term means that all charges incurred up to and including the delivery of the goods on board the vessel are the responsibility of the seller. The buyer has to pay all subsequent expenses. Under some domestic sales law, the seller has an additional obligation to notify the buyer to allow the buyer to insure the goods.[46] This is also the trade usage in some industries.[47]

The American practice is to use FOB as a general delivery term, and under American usage it does not necessarily impose on the seller the risk of loading the goods on the vessel.[48] Moreover, under American usage, if the term is FOB (place of destination), the seller has the risk of delivery to that place.[49] As the usage of this term in the United States is by statute, parties run the risk of an application contrary to the Incoterms in American courts. The term FOB is also commonly used in air transport as AFOB (name of airport). This is also sometimes expressed as "FOA."

It may be safely assumed that the common American usage is a deviant form. For example, consistent with the Incoterms, the English courts have long acknowledged that under an FOB contract, the seller has the obligation to load the goods safely upon the vessel.[50] Yet, as is common worldwide, the English courts have been somewhat inconsistent about the exact obligations of the parties created by an FOB term.[51] Consequently, contracting parties must be very careful to designate what trade terms govern the meaning of FOB to avoid unexpected challenges later.

Under an Incoterm F.O.B., the seller must deliver the goods on board the vessel.[52] The seller must also: (1) obtain export licenses; (2) pay all costs relating to the [page 52] goods until they have passed the ship's rail;[53] (3) pay all export duties, taxes, and costs; (4) give sufficient notice to the buyer that the goods have been delivered; (5) provide the buyer with the usual proof of delivery; and (6) pay the costs associated with checking operations and packaging.[54] The seller bears all risks of loss of or damage to the goods until they have passed the ship's rail at the named port of shipment.[55]

The buyer's obligations are: (1) to take delivery of the goods; pay the agreed upon price; and accept the proof of delivery; (2) to obtain any import licence; (3) to contract for the carriage of the goods from the named port of shipment; (4) to pay all costs relating to the goods from the time they have passed the ship's rail; (5) to pay all import duties, taxes, and costs; (6) pay the costs of any pre-shipment inspection, unless the inspection is mandated by the country of export; and (7) to give the seller sufficient notice of the vessel name, loading point and required delivery time.[56] The buyer bears all risks of loss of or damage to the goods from the time they have passed the ship's rail at the named port of shipment.

5. MAIN CARRIAGE PAID GROUP

The "C"-terms require that the seller contract for carriage at the seller's own expense. These agreements are commonly mistaken for destination contracts because the point for division of costs is fixed at the country of destination.[57] However, because the seller fulfills the obligations under the contract at the point of shipment or dispatch under the "C"-terms, these contracts are necessarily shipment contracts.[58] Upon appropriate delivery by the seller to the carrier and by providing insurance under the CIF and CIP terms, the buyer assumes the risk of loss or damage to the goods or any other incidental charges associated with subsequent events.[59] [page 53]

Consequently, the greatest caution must be observed when adding obligations of the seller that seek to extend the seller's responsibility beyond the critical point for the allocation of risk.[60] Specifically, the seller should not accept any obligation for the arrival of the goods at the destination, because the risk of any delay during carriage should fall on the buyer under the "C"-terms.[61]

5.1 CFR (... named port of destination)

The term "CFR" designates "Cost and Freight", and this term is used in sea and inland waterway transport only. The following explanation of the term is given:

"Cost and Freight" means that the seller delivers when the goods pass the ship's rail in the point of shipment. The seller must pay the costs and freight necessary to bring the goods to the named port of destination but the risk of loss or damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller to the buyer. The CFR term requires the seller to clear the goods for export.[62]

This term should be used rather than the commonly but erroneously used C&F which does not exist in the Incoterms.[63] If the parties do not intend to deliver the goods across the ship's rail, the CPT term should be used.[64]

For the risk of loss to pass to the buyer, the seller must deliver conforming goods on board the vessel at the port of shipment on the date or within the agreed period and: (1) supply the commercial invoice or its electronic equivalent;[65] (2) obtain at the seller's own risk and expense any export license or other official authorisation [page 54] and carry out any applicable customs formalities necessary to export the goods;[66] and (3) contract at the seller's expense for the carriage of goods to the agreed port of destination by the usual route in a seagoing or inland waterway vessel of the type normally used to transport the goods.[67] While the seller is not required to obtain any insurance for the goods, the seller is responsible for costs incidental to the seller's account under the contract of carriage, including loading and unloading the goods, and applicable customs, duties, and taxes payable for the seller's account. Sufficient notice must be given to the buyer that the goods have been delivered to the port of shipment that will allow the buyer to arrange to take the goods.

The seller must also provide the usual transport documents or electronic equivalent necessary for the buyer to claim the goods from the carrier at the port of destination, or unless otherwise agreed, allow the buyer to sell the goods to a subsequent buyer during transit.[68] Furthermore, the seller must pay any costs (like measuring, weighing, or counting) necessary to deliver the goods aboard the vessel.[69] The seller must also render every assistance to the buyer who may request any documents or electronic equivalents generated during shipment of the goods that are necessary for import of the goods or, where necessary, their transit through any country.[70]

Under the CFR term, the buyer's obligations are: (1) to take delivery of the goods when they have been delivered on board the vessel at the port of shipment on the date or within the agreed period; (2) to pay the agreed upon price, to accept transport documents or their electronic equivalents; and (3) to receive the goods from the carrier at the port of destination. In addition, the buyer must obtain any import licence or other official authorisation and carry out any applicable customs formalities necessary to import the goods and transport them through any country. The buyer bears all of the risk of loss or damage to the goods from the time they pass the ship's rail at the port of shipment, and the buyer must pay all costs incidental to transporting the goods that are not for the seller's account under the carriage contract between the seller and the carrier. [page 55]

Moreover, the buyer must reimburse the seller for any extra documentation or electronic equivalents necessary to procure insurance or otherwise transport and import the goods. If the buyer fails to notify the seller when and where to ship when the buyer has the right make those determinations, then the buyer must pay all the additional costs incurred from the agreed date or expiry date of the period for shipment, unless the goods are not clearly set aside as the contract goods. The buyer must also pay any pre-shipment inspection costs except when the inspection is mandatory by the government of the country of port.

5.2 CIF (... named port of destination)

The term "CIF" designates "Cost, Insurance and Freight." It is used for sea and inland waterway transport only. The following explanation is provided:

"Cost, Insurance and Freight" means that the seller delivers when the goods pass the ship's rail at the point of shipment. The seller must pay the costs and freight necessary to bring the goods to the named port of destination but the risk of loss or damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller to the buyer. However, in CIF the seller also has to procure marine insurance against the buyer's risk of loss of or damage to the goods during the carriage.[71]

The CIF term requires the seller to clear the goods for export.[72] If the parties do not intend to deliver the goods across the ship's rail, the CIP term should be used.[73] The parties under CIF agreement share the same obligations and risk of loss rules as the parties under a CFR agreement, but the seller in a CIF contract accepts the added obligation of procuring insurance and providing the requisite documents on the buyer's behalf such that the buyer may claim directly from the insurer. The buyer has the added obligation to provide any necessary documents for the seller to purchase the insurance.[page 56]

Like the seller in a CFR agreement, the seller in a CIF contract must deliver conforming goods on board the vessel at the port of shipment on the date or within the agreed period and: (1) supply the commercial invoice or its electronic equivalent;[74] (2) obtain at the seller's own risk and expense any export licence or other official authorisation and carry out any applicable customs formalities necessary to export the goods;[75] and (3) contract at the seller's expense for the carriage of goods to the agreed port of destination by the usual route in a seagoing or inland waterway vessel of the type normally used to transport the goods.[76] The seller is responsible for costs incidental to the seller's account under the contract of carriage, including the loading and unloading the goods, and applicable customs, duties, and taxes payable for the seller's account. Sufficient notice must be given to the buyer that the goods have been delivered to the port of shipment that will allow the buyer to arrange to take the goods. The seller must also provide the usual transport documents or electronic equivalent necessary for the buyer to claim the goods from the carrier at the port of destination, or unless otherwise agreed, allow the buyer to sell the goods to a subsequent buyer during transit. The seller must also pay any checking costs (like measuring, weighing, or counting) necessary to deliver the goods aboard the vessel, and the seller must render every assistance to the buyer who may request any documents or electronic equivalents generated during shipment of the goods that are necessary for import of the goods or, where necessary, the transit of the goods through any country.

Under CIF, the seller must provide insurance "that shall be contracted with underwriters or an insurance company of good repute and, failing express agreement to the contrary, be in accordance with minimum cover of the institute cargo clauses (Institute of London Underwriters) or any similar set of clauses."[77] The minimum cover requirement reflects the common practice of subsequent sales of the goods in transit where it is impossible to know the actual insurance needs of every subsequent buyer. Thus, the minimum cover requirement is provided with the possibility that the buyer may require the seller to take out additional insurance.[78] For instance, the Incoterms provide that the buyer may require the seller to provide at the buyer's expense insurance protection against wars, strikes, [page 57] riots, and civil common risk if possible.[79] The minimum coverage under the policy is the contract price plus ten percent in the currency, and it "shall be provided in the currency of contract."[80]

Under CIF contract, the buyer's obligations are: (1) to take delivery of the goods when they have been delivered on board the vessel at the port of shipment on the date or within the agreed period; (2) to pay the agreed upon price, to accept transport documents or their electronic equivalents, and (3) to receive the goods from the carrier at the port of destination. In addition, the buyer must obtain any import licence or other official authorisation and carry out any applicable customs formalities necessary to import the goods and transport them through any country. The buyer bears all of the risk of loss or damage to the goods from the time they pass the ship's rail at the port of shipment, and the buyer must pay all costs incidental to transporting the goods that are not for the seller's account under the carriage contract between the seller and the carrier. The buyer must reimburse the seller for any extra documentation or electronic equivalents necessary to procure insurance or otherwise transport and import the goods. If the buyer fails to notify the seller when and where to ship when the buyer has the right make those determinations, then the buyer must pay all additional costs incurred from the agreed date or expiry date of the period for shipment, unless the goods are not clearly set aside as the contract goods. The buyer must pay any pre-shipment inspection costs except when the inspection is mandatory by the government of the country of export.

5.3 CPT (... named place of destination)

This term signifies "Carriage Paid To", and its usage includes all modes of transport, including combined transport.[81] The following explanation is provided:

"Carriage paid to..." means that the seller delivers the goods to the carrier nominated by him but the seller must in addition pay the cost of carriage to bring the goods to the named destination. This means that the buyer bears all risks and any other costs occurring after the goods have been so delivered.[82] [page 58]

The use of this term signifies that the seller has agreed to pay the freight for the carriage of the goods to the named destination, but that the risk of loss or damage and additional costs after delivery to the carrier transfers from the seller to the buyer when the goods have been delivered to the carrier or the first carrier if there is more than one such as when there is combined transport. The CPT term requires the seller to clear the goods for export.[83]

For the risk of loss to pass to the buyer, the seller must deliver conforming goods to the carrier on the date or within the agreed period and: (1) supply the commercial invoice or its electronic equivalent;[84] (2) obtain at the seller's risk and expense any export licence or other official authorisation and carry out any applicable customs formalities necessary to export the goods;[85] and (3) contract at the seller's expense for the carriage of goods to the agreed point by the usual route in a customary manner.[86] If custom does not dictate where the point of destination is, the seller may select a destination that best suits the contract.[87]

While the seller is not required to obtain any insurance for the goods, the seller is responsible for costs incidental to the seller's account under the contract of carriage, including freight, loading and unloading the goods, and any applicable customs, duties, and taxes payable for the seller's account.[88] Sufficient notice must be given to the buyer that the goods have been delivered to the carrier such that the buyer may arrange to take the goods.[89] The seller also must provide the buyer with the usual transport documents or electronic equivalent consistent with the transportation of the goods to the point of destination.[90] The seller must pay any packaging and checking costs (like measuring, weighing or counting) that are necessary to deliver the goods to the carrier.[91] The seller must render every assistance to the buyer who may request any documents or electronic equivalents generated during shipment of the goods that are necessary for import of the goods or, where necessary, the transit of the goods through any country. The seller must also provide any information necessary for the buyer to procure insurance.[92] [page 59]

Under a CPT contract, the buyer's obligations are: (1) to take delivery of the goods when they have been delivered to the carrier on the date or within the agreed period; (2) to pay the agreed upon price, to accept transport documents or their electronic equivalents; and (3) to receive the goods from the carrier at the named place.[93] In addition, the buyer must obtain any import licence or other official authorisation and carry out any applicable customs formalities necessary to import the goods and transport the goods through any country.[94] The buyer bears all of the risk of loss or damage to the goods from the time the goods are delivered to the carrier, and the buyer must pay all costs incidental to transporting the goods that are not for the seller's account under the carriage contract between the seller and the carrier.[95] If the buyer fails to notify the seller when and where to dispatch the goods when the buyer is entitled to make those determinations, then the buyer must pay all additional costs incurred from the agreed date or expiry date of the period for dispatch, unless the goods are not clearly set aside as the contract goods. The buyer must pay any pre-shipment inspection costs unless the inspection is mandatory by the government of the country of export. In addition, the buyer must reimburse the seller for any other incidental costs the seller incurred to provide information to the buyer necessary for insurance or importing the goods.[96]

5.4 CIP (... named place of destination)

This term signifies "Carriage and Insurance Paid To" and its usage includes all modes of transport including combined transport.[97] The following explanation is provided:

"Carriage and insurance paid to" means that the seller delivers the goods to the carrier nominated by him, but the seller must in addition pay the cost of carriage necessary to bring the goods to the named destination. This means that the buyer bears all risks and any additional costs occurring after the goods have been so delivered. However, in CIP the seller also has to [page 60] procure insurance against the buyer's risk of loss of or damage to the goods during the carriage.[98]

This term imposes on the seller the same obligations as under a CPT contract but with the additional obligation on the seller to buy insurance for the buyer's benefit against the buyer's risk of loss or damage to the goods during carriage. The CIP term requires the seller to clear the goods for export.[99]

With the use of this term, the seller agrees to deliver conforming goods to the carrier on the date or within the agreed period and: (1) supply the commercial invoice or its electronic equivalent;[100] (2) obtain at the seller's own risk and expense any export licence or other official authorisation and to carry out any applicable customs formalities necessary to export the goods;[101] and (3) contract at the seller's expense for the carriage of goods to the agreed point by the usual route in a customary manner.[102] If custom does not dictate where the point of destination shall be, the seller may select a destination that comports with the intent of the agreement.[103]

The seller is responsible for costs incidental to the contract of carriage, including freight, loading and unloading the goods, and any applicable customs, duties, and taxes payable for the seller's account.[104] The buyer must be notified that the goods have been delivered to the carrier so that the buyer may arrange to take the goods.[105] The seller also must provide the buyer with the usual transport documents or electronic equivalent consistent with the transportation of the goods to the point of destination. In addition, the seller must pay any packaging and checking costs, such as measuring, weighing, or counting that are necessary to deliver the goods to the carrier.[106] The seller must render any necessary assistance to the buyer to acquire any documents or electronic equivalents generated during shipment of the goods that are necessary for import of the goods or, where necessary, their transit through any country, and the seller must provide any information necessary for the buyer to get additional insurance. [page 61]

The insurance that the seller must provide for the buyer's behalf "shall be contracted with underwriters or an insurance company of good repute and, failing express agreement to the contrary, be in accordance with minimum cover of the Institute Cargo Clauses (Institute of London Underwriters) or any similar set of clauses."[107] The buyer should be particularly aware that the "minimum cover" requirement is consistent with the CIF shipping term primarily to avoid confusion.[108] However, it may not be adequate for the sale of manufactured goods that generally involve risks of theft, pilferage or mishandling.[109] Thus, the buyer should consider taking out additional insurance or requiring the seller to take out additional insurance.[110] In addition, the Incoterm provides that the buyer may require the seller to provide at the buyer's expense insurance protection against wars, strikes, riots, and civil common risk if possible.[111] The minimum coverage under the policy is the contract price plus ten percent in the currency, and it "shall be provided in the currency of contract."[112]

With the use of the CIP term, the buyer becomes obligated: (1) to take delivery of the goods when they have been delivered to the carrier on the date or within the agreed period; (2) to pay the agreed upon price, to accept transport documents or their electronic equivalents; and (3) to receive the goods from the carrier at the named place.[113] The buyer must obtain any import licence or other official authorisation and carry out any applicable customs formalities necessary to import the goods and transport them through any country.[114] The buyer bears all of the risk of loss or damage to the goods from the time they are delivered to the carrier, and the buyer must pay all costs incidental to transporting the goods that are not for the seller's account under the carriage contract between the seller and the carrier.[115] If the buyer fails to notify the seller when and where to dispatch the goods when the buyer is entitled to make those determinations, then the buyer must pay all additional costs incurred from the agreed date or expiry date of the period for dispatch, unless the goods are not clearly set aside as the contract [page 62] goods.[116] The buyer must pay any pre-shipment inspection costs except when the inspection is mandatory by the government of the country of export, and the buyer is under the obligation to provide any documentation necessary for the seller to procure additional insurance.[117]

6. ARRIVAL OR DELIVERY EX-SHIP (NAME PORT OF ARRIVAL)

As opposed to the "C"-terms that designate evidence shipment contracts, the "D"-terms designate destination contracts, and the seller bears all of the risks and costs of bringing the goods to the agreed place or point of destination at the border or within the country of import.[118] The "D"-terms place the maximum amount of burden on the seller.

6.1 DAF (... named place)

The term "DAF" signifies "Delivered at Frontier" and is used for all modes of transport, but it is principally used for inland carriage by rail or road.[119] The following explanation is provided:

"Delivered at Frontier" means that the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport not unloaded, cleared for export, but not cleared for import at the named place at the frontier, but before the customs border of the adjoining country. The term "frontier" may be used for any frontier including that of the country of export. Therefore it is of vital importance that the frontier in question be defined precisely by always naming the point and place in the term.[120]

This term is frequently used for inland carriage by rail or road where there are inland frontiers such as in Europe. Because many countries use unique railway traffic trade terms ("franco border", "Afraco-frontiere", "Frei Grenze") not found in Incoterms, it is not normally intended that the seller should assume the risk for loss or damage to goods during transport beyond the border.[121] Rather, it is advisable to use CPT indicating the border.[122] Should the seller and buyer [page 63] specifically agree that the seller will incur the costs and risks during the transport, then DAF indicating the border may be appropriate.[123] When delivery is to take place in port on board a vessel, the DES or DEQ terms should be used.[124]

Under the DAF term, the risk passes when the seller places the conforming goods at the buyer's disposal not unloaded on the arriving means of transport at the named place of delivery on the agreed date or within the agreed period.[125] The seller must also: (1) supply the commercial invoice or its electronic equivalent;[126] (2) obtain at the seller's own risk and expense any export licence or other official authorisation and carry out any applicable customs formalities necessary to place the goods at the buyer's disposal;[127] and (3) undertake any formalities necessary to export the goods to the named place of delivery at the frontier and to transport them through any country.[128] The seller must contract at the seller's expense for the carriage of goods to the named point of delivery, and if a place of delivery at the frontier is not named, the seller may choose one that best suits the seller's purpose of the agreement.[129] Upon the buyer's request, the seller may agree to contract at the buyer's risk and expense for the carriage of the goods beyond the frontier and ultimately to the final destination. The seller should promptly notify the buyer if he declines to contract for the additional carriage.

The seller is also responsible for all costs incidental to the contract of carriage, including loading and unloading the goods, and any applicable customs, duties, and taxes payable until the goods are placed at the buyer's disposal.[130] The buyer must be notified that the goods have been dispatched to the named place at the frontier so that the buyer can arrange to take the goods.[131] The seller also must provide the buyer with the usual transport documents or electronic equivalent.[132] Should the buyer and seller agree to on-going carriage beyond the frontier, the seller must provide any documents normally obtained in the country of dispatch that cover the goods from the point of dispatch to the final destination.[133] The seller must pay any checking costs, such as measuring, weighing or counting, that [page 64] are necessary to deliver the goods aboard the vessel.[134] The seller must render any necessary assistance to the buyer to procure any documents or electronic equivalents generated during shipment of the goods that are necessary for the import of the goods or, where necessary, their transit through any country.[135] In addition, the seller must provide the buyer with any necessary information to procure insurance.[136]

The buyer's obligations under a DAF term include the requirement that the buyer take delivery of the goods when they have been properly delivered and pay the contract price.[137] The buyer bears all the risks of loss of or damage to the goods from the time they have been properly delivered.[138] The buyer must also: (1) obtain any necessary import licences; (2) pay all costs that relate to the goods from the time they have been properly delivered; (3) pay any additional costs incurred by failing either to take delivery of the goods when they have been placed for disposal, or to give appropriate notice; (4) pay all duties, taxes and costs of carrying out customs formalities necessary to import the goods; (5) pay all costs of any pre-shipment inspection that is not mandatory by the government; and (6) reimburse all costs and charges incurred by the seller in rendering assistance in getting import licences.[139] The buyer must accept the transport documents or any other evidence of delivery.[140] If the buyer and the seller agreed to on-going carriage beyond the frontier, the buyer must provide the seller with any documentation or information necessary for the seller to obtain the through document of transport or any other delivery documents necessary for the carriage.[141]

6.2 DES (... named port of destination)

The term "DES (... named port of destination)" means "Delivered Ex Ship."[142] This term is used for sea and inland waterway transport only.[143] The following explanation of the term is provided: [page 65]

"Delivered Ex Ship" means that the seller delivers when the goods are placed at the disposal of the buyer on board the ship not cleared for import at the named port of destination. The seller has to bear all of the costs and risks involved in bringing the goods to the named port of destination before discharging. If the parties wish the seller to bear the costs and risks of discharging the goods, then the DEQ term should be used.[144]

Under the DES term, the seller is obligated to place the goods at the disposal of the buyer aboard the vessel at the agreed unloading point at the named point of destination on the date or within the agreed period.[145] The seller must also: (1) supply the commercial invoice or its electronic equivalent;[146] (2) obtain at the seller's own risk and expense any export licence or other official authorisation and carry out any applicable customs formalities necessary to place the goods at the buyer's disposal;[147] and (3) undertake any formalities necessary to export the goods or to transport them through any country.[148] The seller must at the seller's expense contract for the carriage of goods to the named point of delivery, and if a place of delivery is not identified, the seller may choose one that best suits the contractual purpose.[149] The seller must pay: (1) all of the carriage costs under the seller's contract with the carrier and any other incidental costs including customs, duties, taxes and other charges related to export until the goods have been delivered; (2) all of the costs of checking, such as measuring, weighing, counting; and (3) packaging (unless the particular trade usually delivers the contract goods unpacked).[150] The seller must give sufficient notice of the estimated arrival of the vessel or provide any required notice that allows the buyer to prepare to take delivery the goods.[151] The seller must provide any requisite transport documents, delivery orders, or the electronic equivalents necessary for the buyer to claim the goods.[152] The seller must also render any necessary assistance for the buyer to obtain any documents or electronic equivalents necessary for the buyer to import the goods any necessary information to procure insurance.[153] [page 66]

Under the DES term, the buyer is obligated to take delivery of the goods when they have been properly delivered and pay the contract price.[154] The buyer bears all the risks of loss of or damage to the goods from the time they have been properly delivered.[155] The buyer must also: (1) obtain any import licence or undertake any customs formalities necessary to import the goods; (2) pay all costs relating to the goods from the time they have been properly delivered, including the cost of unloading the goods; (3) pay any additional costs incurred by failing either to take delivery of the goods when they have been placed for disposal, or to give appropriate notice of when or where the delivery will occur; (4) pay all duties, taxes and costs of carrying out customs formalities necessary to import the goods; (5) pay all costs of any pre-shipment inspection that is not mandatory by the government; and (6) reimburse all costs and charges incurred by the seller in rendering assistance in getting import licences.[156] The buyer must also accept the transport documents or any other evidence of delivery.[157]

6.3 DEQ (... named port of destination)

The term "DEQ (... named port of destination)" signifies "Delivered Ex Quay.@ [158] It is used for sea and inland waterway transport only.[159] The following explanation is provided:

"Delivered Ex Quay" means that the seller delivers when the goods are placed at the disposal of the buyer not cleared for import on the quay (wharf) at the named port of destination. The seller has to bear costs and risks involved in bringing the goods to the named port of destination and discharging the goods on the quay (wharf). The DEQ term requires the buyer to clear the goods for import and to pay all formalities, duties, taxes and other charges upon import.[160]

This usage of DEQ is a reversal of previously published usages of the term in that under the current designation the buyer must arrange for import clearance; in the past this designation placed the obligation on the seller.[161] The parties may agree [page 67] that the seller is obliged to pay some or all of the costs necessary to import the goods, but the parties should be very careful to add explicit language to this effect in the contract of sale.[162] Should the parties desire that the seller be responsible for risks and costs of handling the goods from the quay to another location (warehouse, terminal, etc.), the terms DDU or DDP should be used.[163]

Under the DEQ term, the seller is obligated to place the goods at the disposal of the buyer on the quay at the named point of destination on the agreed upon date or within the agreed period. The seller must also: (1) supply the commercial invoice or its electronic equivalent;[164] (2) obtain at the seller's own risk and expense any export licence or other official authorisation and carry out any applicable customs formalities necessary to place the goods at the buyer's disposal;[165] and (3) undertake any formalities necessary to export the goods or to transport them through any country.[166] The seller must contract at the seller's expense for the carriage of goods to the named quay at the named port of destination, and if a quay of delivery is not identified, the seller may choose one that fits the contract purpose.[167] The seller must pay: (1) all of the carriage costs under the seller's contract with the carrier and any other incidental costs including customs, duties, taxes and other charges related to export until the goods have been delivered; (2) all of the costs of checking (such as measuring, weighing, counting); (3) packaging (unless the particular trade usually delivers he contract goods unpacked).[168] The seller must also give the buyer notice so that the buyer will be prepared to take delivery the goods.[169] The seller must provide any requisite transport documents, delivery orders, or the electronic equivalents necessary for the buyer to claim the goods.[170] In addition, the seller must render any necessary assistance and information to the buyer to allow the buyer obtain any documents or electronic equivalents necessary for the buyer to import the goods or to procure insurance.[171] [page 68]

The buyer's obligations in a DEQ contract include taking delivery of the goods when they have been properly delivered and paying the contract price.[172] The buyer bears all the risks of loss of or damage to the goods from the time they have been properly delivered on the quay.[173] The buyer must also: (1) obtain any import licence or undertake any customs formalities necessary to import the goods; (2) pay all costs relating to the goods from the time they have been properly delivered; (3) pay any additional costs incurred by failing either to take delivery of the goods when they have been placed at the buyer's disposal, or to give appropriate notice of when or where the delivery will occur; (4) pay all duties, taxes and costs of carrying out customs formalities necessary to import the goods or transport them further; (5) pay all costs of any pre-shipment inspection that is not mandatory by the government; and (6) reimburse all costs and charges incurred by the seller in rendering assistance in getting import licences.[174] The buyer must also accept the transport document or delivery order.[175]

6.4 DDU (... named place of destination)

The shipping term "DDU (... named place of destination)" means "Delivered Duty Unpaid."[176] It is used for all modes of transport.[177] The following explanation is provided:

"Delivered duty unpaid" means that the seller delivers the goods to the buyer, not cleared for import and not unloaded from any arriving means of transport at the named place of destination. The seller has to bear the costs and risks involved in bringing the goods thereto, other than, where applicable, any duty (which term includes the responsibility for and the risks of the carrying out of customs, duties, taxes and other charges) for import in the country of destination. Such "duty" has to be borne by the buyer as well as any costs and risks caused by his failure to clear the goods for import in time.[178]

Should the parties wish for the seller to assume some of the risks and costs of customs and importation, language for this should be clearly included worded in the contract of sale.[179] When delivery is to take place in the port of destination, either on board the vessel or on the quay, the DES or DEQ term should be used.[180] The seller should be aware that DDU provides that the buyer assumes any additional risk of loss or damage from failing to fulfill the buyer's obligation to clear the goods for import,[181] but the seller is advised not to use the DDU term "where difficulties might be expected in clearing the goods for transport."[182]

Under the DDU term, the seller is obligated to place the goods at the disposal of the buyer or another party named by the buyer on the contract delivery date or within the agreed period.[183] The seller must also: (1) supply the commercial invoice or its electronic equivalent;[184] (2) obtain at the seller's own risk and expense any export licence or other official authorisation and carry out any applicable customs formalities necessary to place the goods at the buyer's disposal;[185] and (3) undertake any formalities necessary to export the goods or to transport them through any country.[186] The seller must contract at the seller's expense for the carriage of goods to the agreed place of destination, and if a place is not identified, a place that satisfies the purpose of the agreement.[187] The seller must pay: (1) all of the carriage costs under the contract with the carrier and any other incidental costs including customs, duties, taxes and other charges related to export until the goods have been delivered; (2) all of the costs of checking (such as measuring, weighing, counting); and (3) packaging (unless the particular trade usually delivers he contract goods unpacked).[188] The seller must give sufficient notice of the dispatch of the goods that allows the buyer to take delivery.[189] The seller must also provide any requisite transport documents, delivery orders, or the electronic equivalents.[190] In addition, the seller must give the buyer any necessary assistance to obtain any documents or electronic equivalents necessary for the [page 70] buyer to import the goods, and the seller must provide the buyer with any necessary information to procure insurance.[191]

The use of the DEQ term obligates the buyer to take delivery of the goods when they have been properly delivered and pay the contract price.[192] The buyer bears all risks of loss of or damage to the goods from the time they have been properly delivered.[193] The buyer must also: (1) obtain any import licence or undertake any customs formalities necessary to import the goods; (2) pay all costs relating to the goods from the time they have been properly delivered; (3) pay any additional costs incurred by failing either to take delivery of the goods when they have been placed at the buyer's disposal, or to give appropriate notice of when or where the delivery will occur; (4) pay all duties, taxes and costs of carrying out customs formalities necessary to import the goods; (5) pay all costs of any pre-shipment inspection that is not mandatory by the government; and (6) reimburse all costs and charges incurred by the seller in giving the buyer assistance in getting import licences.[194] The buyer must also accept the transport document or delivery order.[195]

6.5 DDP (... named place of destination)

The term ADDP (... named place of destination) signifies "Delivered Duty Paid",[196] and it is used for all modes of transport.[197] The following explanation is provided:

"Delivered duty paid" means that the seller delivers the goods to the buyer, cleared for import, and not unloaded from any arriving means of transport at the named place of destination. The seller has to bear all of the costs and risks involved in bringing the goods thereto including, where applicable, any "duty" (which term includes the responsibility for and the risks of carrying out of customs formalities and the payment of formalities, [page 71] customs, duties, taxes and other charges) for import in the country of designation.[198]

This term is sometimes expressed as "Free Domicile" or "Free Delivery" and represents the most favorable terms for a buyer can obtain but the most onerous terms for a seller. Unlike all of the other Incoterms, DDP specifically places the burden of clearing goods for export and import upon the seller. Thus, the Incoterms states that DDP "should not be used if the seller is unable to directly or indirectly obtain the import license."[199] The parties are free to exclude the seller from some of the costs of importation, such as any value-added taxes, but the parties should reflect this understanding explicitly in the contract of sale.[200] Otherwise, if the buyer is to assume all risks and costs of the import, DDU should be used.[201]

The use of the DDP term obligates the seller to place the goods at the disposal of the buyer or another party named by the buyer contractually agreed date or within an agreed period.[202] The seller must also: (1) supply the commercial invoice or its electronic equivalent;[203] (2) obtain at the seller's own risk and expense any export and import licence or other official authorisation and carry out any applicable customs formalities necessary to place the goods at the buyer's disposal;[204] and (3) undertake any formalities necessary to export and import the goods or to transport them through any country.[205] The seller must contract at the seller's own expense for the carriage of goods to the agreed place of destination, and if a place is not identified, the seller may choose one that fits the contract purpose.[206] The seller must pay: (1) all of the carriage costs under the contract with the carrier and any other incidental costs including customs, duties, taxes and other charges related to import and export until the goods have been delivered; (2) all of the costs of checking, such as measuring, weighing, counting; and (3) packaging (unless the particular trade usually delivers he contract goods unpacked).[207] The seller must give sufficient notice of the dispatch of the goods that allows the buyer to prepare [page 72] to take delivery the goods.[208] The seller must provide any transport documents, delivery orders, or the electronic equivalents that are necessary for the buyer to claim the goods.[209] In addition, the seller must provide the buyer any necessary information to procure insurance, and the seller must reimburse the buyer for any expenses the buyer incurs to provide the seller with any documents or electronic equivalents necessary for importing the goods.[210]

The use of the DDP term obligates the buyer to take delivery of the goods when they have been properly delivered and pay the contract price.[211] The buyer bears all the risks of loss of or damage to the goods from the time they have been properly delivered.[212] The buyer must also: (1) render at the seller's request any information necessary for the seller to obtain any import licence or undertake any customs formalities necessary to import the goods; (2) pay all costs relating to the goods from the time they have been properly delivered; (3) when enabled to do so, notify the seller when and where to deliver; (4) accept the transport document or delivery order; (5) pay any additional costs incurred by failing either to take delivery of the goods when they have been placed at the buyer's disposal, or to give appropriate notice of when or where the delivery will occur; and (6) pay all costs of any pre-shipment inspection that is not mandatory by the government.[213]

7. CONCLUSION

Because of the common adoption of Incoterms into international sales agreements, a familiarity with the terms is of great value to counsel who are engaged in international commercial law. The terms provide a prudent and efficient way to allocate the duties and risks in agreements. However, while the terms are easy to use, they are equally easy to misuse, and the use of an improper term may result in unintended consequences to the transaction. Thus, parties should take great care to recognize their objectives under the sales agreement, appreciate the underlying law that will govern the agreement, and adopt the appropriate Incoterm to meet party objectives by explicitly identifying it in the contract. [page 73]


FOOTNOTES

a1. DeVan Daggett Professor of Law, Loyola University, New Orleans; Kohlar Frantzen, Loyola University Law School Class of 2002

1. For a discussion of the Incoterms 1990, see H Gabriel, "The International Chamber of Commerce Incoterms 1990: A Guide to the Terms and Their Usage" (1999) 3 VJ 1 at 61.

2. International Chamber of Commerce, Incoterms 2000, ICC Publication no. 560. The publication was released in September 1999.

3. However, the Incoterms are not designed to resolve questions of title or other property rights of the seller and buyer. These issues are to be resolved by the parties' agreement or by other substantive law that governs the agreement. See e.g., Texful Textile Ltd. v. Cotton Express Textile, Inc., 891 F.Supp. 1381 (C.D. Cal. 1995).

4. Incoterms 2000, p. 6.

5. Id. A typical example is the bill of lading. The physical bill of lading is generally necessary to prove delivery of the goods, evidence the contract of carriage, and provide the ability to transfer rights to the goods to another party. Despite the usefulness of a physical bill of lading, electronic commerce is expected to eventually replace it. For a description of necessary documentary requirements, see theICC Rules for Documentary Credits, ICC publication 500. In the United States, Article 7 of the Uniform Commercial Code (hereinafter referred to as the U.C.C.), which governs the usage of documents of title, is currently under revision to accommodate electronic documents of title.

6. In most countries, Incoterms are not part of the domestic law, but there are some exceptions such as Spain and Iraq. In some other countries, such as France and Germany, they are recognized as a custom of trade.

7. Hans van Houtte, The Law of International Trade, Sweet & Maxwell, London, 1995 at 151.

8. American Courts have been willing to allow the parties to supercede the domestic law defining shipping terms with Incoterms when the parties have expressly made the choice. See eg., Phillips Puerto Rico Core, Inc. v. Tradex Petroleum Ltd., 782 F.2d 314 (2d. Cir. 1985).

9. In this regard, it is also important to note that only the English text of the Incoterms is considered authentic. Id. at 150.

10. It is important to note that parties who wish to resort to ICC Arbitration should specifically and clearly agree upon it. Incorporating one or more Incoterms in a contract does NOT constitute an agreement to arbitrate under the rules of the ICC. Incoterms 2000, p. 26.

11. Because of the recent promulgation of the Incoterms 2000, it would be unwise to use the term "Incoterms" alone, as the party expectations may be based on the usage of earlier terms. As to the express usage of earlier versions of the Incoterms, there is no reason why parties could not choose an earlier version of the Incoterms if they so desired, although such a choice would be quite unusual. But see, In the Matter of: Commonwealth Oil Refining Co. Inc., 734 F.2d 1079 (5th Cir. 1988), where the parties in a contact in the early 1980s incorporated the "Incoterms 1953", and Garner Lumber Co. v. Randolf E. Valensi, Lange, Inc., 513 F.2d 1171 (4th Cir. 1975), where the parties in a contract entered into in 1973 also incorporated by reference the earlier "Incoterms 1953").

12. S Walt, "Novelty and the Risks of Uniform Sales Law", 39 VA. J. Int. L. 671 (1999); Abul F.M. Maniruzzaman, "The Lex Mercatoria and International Contracts: A Challenge For International Commercial Arbitration?", 14 American University International Law Journal 657 (1999).

13. For example, although the UN Convention on Contracts for the International Sale of Goods does not set out shipping terms, and therefore the parties are free to designate their own terms, the domestic law of the United States defines shipping terms. In the case where the United States law would apply, the parties would have to carefully draft the agreements to avoid conflicts between the substantive law and the Incoterms.

14. In other words, a "shipment" contract, and not a "destination" contract.

15. CISG, art. 67(1).

16. The American "FOB place of shipment" designation requires the seller to put the goods in the possession of "the" carrier; the CISG requires the seller to put the goods in the possession of "the first" carrier. Compare U.C.C. section 3191(a) with CISG, art. 67(1).

17. Because the CISG provisions are default provisions, the express usage of shipment terms should pre-empt the CISG. See, for example, Garro, "The U. N. Sales Convention in the Americas: Recent Developments", 17 J. Law & Com. 219, 238-43 (1998).

18. See J Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention, Kluwer Law and Taxation Publishers, 2nd Edition, 1991 at 208, 211.

19. See eg., Jan Ramberg, "Incoterms 1980", in The Transnational Law of International Commercial Transactions, Horn & Schmitthoff (eds), 1982 at 137, 151; Texful Textile, Ltd. v. Cotton Express Textile, Inc. 891 F. Supp 1381 (C.D. Cal. 1995). In addition, both the French and German Courts have concluded that the Incoterms have the force of law by way of international custom. See JA.Spanogle, "Incoterms and UCC Article 2 - Conflict and Confusion", (1997) 31 International Lawyer 111 at 113.

20. The seller makes the goods available at the seller's premises.

21. The seller delivers the goods to a carrier appointed by the buyer.

22. The seller has the obligation to contract for carriage, but the seller does not assume the risk of loss during transit.

23. The seller assumes the risk of delivery.

24. Incoterms 2000 at p 12.

25. Id. at p 27.

26. This would be the default result. The buyer's specific payment obligation is "as is provided in the contract for sale"": Id. at p 29.

27. Id. at p 30.

28. Id. at p 28, 30.

29. Id. at p 28.

30. Id.

31. Id.

32. Id. at p 28, 30.

33. Id.

34. When a buyer accepts delivery according to the obligations under the Incoterms, he does not necessarily accept the goods as conforming with the contract. Rather, accepting delivery merely avoids superfluous charges (generally by the carrier) associated with prolonged storage. Thus, a buyer reserves all of the remedies available for nonconforming goods under the contract and the law despite "accepting delivery": Id. at p 9.

35. Id. at p 29.

36. Id.

37. Although "checking, packaging, and marking the goods" and "inspection of the goods" are roughly synonymous, the Incoterms distinguishes the phrases according to the former task that is deemed necessary for the carrier to ship goods, and the latter task that is concerned with whether or not the goods conform to the actual contract or official specifications. Id. at p 11.

38. Id. at p 29, 31.

39. Id. at p 31.

34a. Id. at 33

35a. FOB is used here as defined by the Incoterms. The use of the term "FOB place of shipment" in American domestic law is similar to the Incoterm FCA designation, however, under the American "FOB place of shipment" term, the seller has the obligation to arrange for the transportation, see U.C.C. 2- 319 and 2-504, an obligation not specified in the Incoterm FCA term.

36a. Incoterms 2000 at p 34-38.

37a. Id. at p 36.

38a. Id. at p 35-39.

39a. Id. at p 37.

40. Id. at p 41. This is a reversal of all previous Incoterm usages of FAS which required the buyer to arrange for export clearance.

41. Id. at p 42-46.

42. Id. at 42

43. Id. at 43-47.

44. Id. at 43.

45. Id. at 49. The American usage of FOB port of shipment is not to place the risk of loading on the seller unless the specific vessel is mentioned in the FOB term. U.C.C. 2-319(1)(a) & (c). American courts have long acknowledged the differences in American statutory law and international commercial practice. See eg., Allen N. O'Quinn v. The United States, 100 F.Supp.2d 1136. The variant forms and meanings of "FOB" are legion, and are a prime example of the utility of the Incoterms. In the United States, for example, in addition to the usage set out in the Uniform Commercial Code, see U.C.C. 2-319, there are, for example, "FOB Plant" which is understood to require delivery to the carrier, A.M. Knitwear Corp. v. All Am. Export-Import Corp., 359 N.E. 2d 342 (N.Y.1976); "FOB Refinery" which means that the seller has the risk and expense of loading oil into the buyer's trucks: L & L Trading Co. v. Tenneco Oil Co., 693 F.Supp470 (E.D. La. 1988); "FOB Del'd" which indicates that the goods are to be delivered to the destination at the risk and expense of the seller: Milwaukee Valve Co. v. Mishawaka Brass Mfg., 319 N.W.2d 885 (Wis. Ct. App. 1982).

46. See eg. the U.C.C. 2-504(b) and s. 35 Sale of Goods Act 1923 (NSW), Australia).

47. This is the case in the oil industry. See eg., Scandinavian Trading Co A/S v. Zodiac Petroleum SA & William Hudson Ltd. The Al Hofuf [1981] 1 Lloyds Rep 81, 84.

48. The American usage of FOB port of shipment is not to place the risk of loading on the seller unless the specific vessel is mentioned in the FOB term. Uniform Commercial Code 2-319(1)(a) & (c). This is the roughly the equivalent of an "FCA" contract under the Incoterms with the minor differences noted above in footnote.

49. U.C.C. 2-319(1)(b).

50. See eg., Stock v. Inglis 12 Q.B.D. 564 (1884).

51. For a discussion of the FOB contract in England, with its various forms, see Benjamin's Sale of Goods (5th Ed), 1997.

52. Incoterms 2000 at p 50.

53. Despite considerable debate, the delivery point under FOB, which is the same under CFR and CIF in Incoterms 2000, remains "across the ship's rail" primarily to avoid unnecessary confusion with existing trade practice: Id. at p 13.

54. Id. at p 50, 52.

55. Id. at p 50.

56. Id. at p 51, 53.

57. Id.

58. Id. at p 14.

59. Id.

60. Id.

61. Id. at p 15.

62. Id. at p 57.

63. C&F is commonly used in the United States, and its usage is provided for by statute. See U.C.C. 2-320(1). The 1980 Incoterms used the C&F designation, and its usage was commonly acknowledged by American courts. See eg., Phillips Puerto Rico Core, Inc. v. Tradex Petroleum Ltd., 782 F.2d 314 (1985).

64. Incoterms 2000 at p 57.

65. Id.

66. Id.

67. Id. at p 58.

68. Id. at p 60.

69. Id.

70. Id.

71. Id. at p 65.

72. Id.

73. Id.

74. Id. at p 58.

75. Id.

76. Id.

77. Id. at 66.

78. For instance, the buyer may require that the insurance policy cover the goods beyond the ship's tackle at the point of destination because it may be difficult to determine when the goods pass the ship's rail.

79. Incoterms 2000 at p 66.

80. Id.

81. Id. at p 73.

82. Id.

83. Id.

84. Id. at p 74.

85. Id.

86. Id.

87. Id.

88. Id. at p 76.

89. Id.

90. Id.

91. Id. at p 78.

92. Id.

93. Id. at p 75.

94. Id.

95. Id. at p 77.

96. Id. at p 79.

97. Id. at p 81.

98. Id.

99. Id.

100. Id. at p 82.

101. Id.

102. Id.

103. Id.

104. Id. at p 84.

105. Id.

106. Id. at p 86.

107. Id. at p 82.

108. Id. at p 17.

109. Id.

110. "The buyer should note that under the CIP term, the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have the protection of greater cover, the buyer would either need to agree as much expressly with the seller or to make the buyer's own extra insurance arrangements": Id. at p 81.

111. Id. at p 66.

112. Id.

113. Id. at p 83.

114. Id.

115. Id. at p 85.

116. Id.

117. Id. at p 87.

118. Id. at p 18.

119. Id. at p 89.

120. Id.

121. Id. at p 18.

122. Id.

123. Id.

124. Id. at p 89.

125. Id. at p 90.

126. Id.

127. Id.

128. Id.

129. Id.

130. Id. at p 92.

131. Id.

132. Id.

133. Id. at p 94.

134. Id.

135. Id.

136. Id.

137. Id. at p 93.

138. Id.

139. Id. at p 93, 95.

140. Id. at p 95.

141. Id.

142. Id. at p 97.

143. Id.

144. Id.

145. Id. at p 98.

146. Id.

147. Id.

148. Id.

149. Id.

150. Id. at p 100.

151. Id.

152. Id.

153. Id. at 102.

154. Id. at 99.

155. Id.

156. Id. at 99 and 101.

157. Id. at 101.

158. Id. at 105.

159. Id.

160. Id.

161. Id.

162. Id. at p 105.

163. Id.

164. Id. at p 106.

165. Id.

166. Id.

167. Id. at p 108.

168. Id.

169. Id.

170. Id.

171. Id. at p 110.

172. Id. at p 107.

173. Id.

174. Id. at p 109, 111.

175. Id. at p 109.

176. Id. at p 113.

177. Id.

178. Id. This term is similar to the American domestic "FOB place of destination" term. See U.C.C. 2-319(10(b).

179. Id.

180. Id.

181. Id. at p 115.

182. Id. at p 18.

183. Id. at p 114.

184. Id.

185. Id.

186. Id.

187. Id.

188. Id. at p 116.

189. Id.

190. Id.

191. Id. at p 118.

192. Id. at p 115.

193. Id.

194. Id. at p 117, 119.

195. Id. at p 109.

196. Id. at p 121.

197. Id.

198. Id.

199. Id. at p 121.

200. Id.

201. Id.

202. Id. at p 122.

203. Id.

204. Id.

205. Id.

206. Id.

207. Id. at p 124.

208. Id.

209. Id.

210. Id.

211. Id. at 123.

212. Id.

213. Id. at p. 117, 119.


Pace Law School Institute of International Commercial Law - Last updated August 17, 2006
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