There are big changes for 2011 in Inco terms, Are you ready?  International Commercial Terms were first released by the ICC in 1936.  The purpose was to standardize international trade shipping terms, making it easier for drafting international trade contracts.  Inco terms are updated periodically generally every 10 years, 1990, 2000 and starting January 1 2011, INCO terms 2010 go into effect.  Trade throughout the world has changed in the last 10 years.  9/11 brought about need to additional security, China joined the World Trade Organization, the European Union expanded along with the acceptance of the euro, and in the US; Sarbanes-Oxley required clarity in revenue and expense recognition.

 

The new terms are segregated by mode of transportation: Waterway/Maritime or Any transportation mode.  Waterway/Maritime terms remain the same: FOB, FAS, CFR, CIF.  FOB has referred to maritime transportation for several revisions but is still commonly misused, to mean that the buyer pays freight from the sellers dock.   Any transportation modes are:  DDP DAP DAT CIP CPT FCA and EXW. DAP and DAT are new terms. The number of terms has been reduced from 13 to 11 DAF DDU DEQ and DES have been replaced by DAP and DAT.

 

Inco terms rules do say which party to the sale contract has the obligation to make carriage or insurance arrangements when the seller delivers the goods to the buyer, and which costs each party is responsible. These rules apply to both domestic and international sales. The new rules are intended to eliminate misunderstanding, and define roles and responsibilities of both the seller and the buyer,

 

It is imperative to understand that Inco terms do not address transfer of title or ownership of the goods. Ownership should be addressed in the sales contract.  Inco Terms do not specifically deal with revenue recognition; however they do clarify the issues of delivery, control, and risk transfer.

 

So, what has become of DAF, DES, DDU and DEQ?

 – DAF (delivered at frontier): rarely used and limited to ground transport

– DES (delivered ex-ship): limited to water shipments only

– DDU (delivered duty unpaid): not appropriate for domestic shipments since duty was implied and therefore irrelevant.

Are replaced with:

 

DAP (deliver at place) which can be used for any mode of transportation international or domestic. The seller obtains export clearance and handles export documentation.  The seller arranges and pays for all transportation, using any mode, to the buyer’s choice of destination. The seller also arranges for the documentation for release of the goods at the buyers named place.  The buyer is responsible for unloading the freight, import clearance, and carriage.

 

DEQ (delivered ex –quay) Is replaced by DAT (delivered at terminal) DAT requires the seller to unload at quay, terminal or warehouse and can be used for any transportation mode.

 

So what if your sales contract calls for deliver after January 1 2011 and calls for DDU terms?  You can still make the shipment, but be sure to indicate that the terms are DDU Inco terms 2000)

 

Make sure both parties are using the same revision so that any confusion is eliminated.  Inco terms are not law, but only rules to standardize contracts.  If both parties agree to different rules in the contract, then those terms would apply.

 

I welcome your comments.