In the last issue of PARCEL Counsel, we analyzed the most commonly used terms of sale in the United States: F.O.B. Origin and F.O.B. Destination. In this issue, we will look at the terms of sale most commonly used in international transactions… Incoterms 2000.
The International Chamber of Commerce first promulgated a set of trade terms in 1936 that were styled INCOTERMS. Since then, the terms have been revised several times with the latest revision being in 2000, which are called Incoterms 2000. The next revision, Incoterms 2010, is scheduled to be released September 15, 2010.
In the current version, there are 13 specific terms comprising four groups as follows.
The International Chamber of Commerce first promulgated a set of trade terms in 1936 that were styled INCOTERMS. Since then, the terms have been revised several times with the latest revision being in 2000, which are called Incoterms 2000. The next revision, Incoterms 2010, is scheduled to be released September 15, 2010.
In the current version, there are 13 specific terms comprising four groups as follows.
Group C - The seller arranges and pays for the transportation to a named point, with risk of loss transferring per the language of the specific Incoterm with subsequent costs being the responsibility of the buyer.
CFR, Cost and Freight; CIF, Cost Insurance and Freight; CPT, Carriage Paid To; CIP, Carriage and Insurance Paid to.
Group D - Seller is responsible for all costs and risk of loss for transportation to a designated place.
DAF, Delivered At Frontier; DES, Delivered Ex Ship; DEQ, Delivered Duty Unpaid; DDP, Delivered Duty.
Group E - The seller makes the goods available for the buyer at the seller’s named facility.
EXW, Ex Works
Group F - The seller is only responsible to deliver the goods to a carrier selected by the buyer.
FAS, Free Alongside Ship; FOB, Free on Board; FCA, Free CArrier. NOTE: FCA is the Incoterm most similar to the term F.O.B. Origin under the UCC.
CFR, Cost and Freight; CIF, Cost Insurance and Freight; CPT, Carriage Paid To; CIP, Carriage and Insurance Paid to.
Group D - Seller is responsible for all costs and risk of loss for transportation to a designated place.
DAF, Delivered At Frontier; DES, Delivered Ex Ship; DEQ, Delivered Duty Unpaid; DDP, Delivered Duty.
Group E - The seller makes the goods available for the buyer at the seller’s named facility.
EXW, Ex Works
Group F - The seller is only responsible to deliver the goods to a carrier selected by the buyer.
FAS, Free Alongside Ship; FOB, Free on Board; FCA, Free CArrier. NOTE: FCA is the Incoterm most similar to the term F.O.B. Origin under the UCC.
Each of these terms has various ramifications relating to the allocation of the risk of loss and costs between buyer and seller. A detailed examination of each of these 13 terms is far beyond the scope of this column, so we will focus on the most critical differences between the UCC terms of sale and Incoterms of which one must be aware.
First, when using Incoterms 2000, one must be very conscience of the exact meaning of the 13 terms to make sure the appropriate one is used. They are very precise in nature. This is completely different than the way the UCC terms of sale are used where people in the industry routinely modify them to create a term such as “F.O.B. Origin, Freight Prepaid & Charge Back”. The additional language is not defined in the UCC or in a state statute; rather they are “defined” by industry usage. Put another way, everything after “F.O.B. Origin” in this example is only business slang.
Second, Incoterms 2000 are not laws. This means, amongst other things, that the parties must agree to use them in a contract or purchase order or similar document. They also have to specify which version. Accordingly, a sale or purchase contract should have language such as “the terms of sale herein are Incoterms 2000” or “governed by Incoterms 2000”.
Third, when one uses F.O.B. Origin or Destination terms in domestic transactions, the term used will determine when title passes. However, the use of an Incoterm standing alone does NOT determine passage of title and, accordingly, the passage of title must be separately and specifically addressed in a document such as a sales contract or purchase order.
Fourth, one Incoterm is F.O.B. This Incoterm has an entirely different meaning than when the term F.O.B. is used domestically. In both instances, the letters stand for “Free on Board”. However, the Incoterm F.O.B. is only to be used for shipping by ocean, whereas in the United States the F.O.B. terms are used for any mode. Similarly, the Incoterm “CIF” has a different meaning than “CI&F” under the UCC.
Fifth, the latter point leads to the conclusion that one has to be very careful not to intentionally or inadvertently mix or confuse the use of Incoterms and the terms derived from the UCC. It has been my observation that the terms of sale based on the UCC are the most commonly used terms for transactions within the United States and Incoterms 2000 are the most commonly used terms for international transactions. However, the most important consideration is that all parties involved in a transaction know (1) which set of terms is being used and (2) know what the terms mean and how to use them.
All for now!
Brent Wm. Primus, J.D., is the CEO of Primus Law Office, P.A., the Senior Editor of transportlawtexts, inc., and is the co-author of the text U.S. Domestic Terms of Sale and Incoterms 2000 and Uniform Commercial Code vs. Incoterms 2000. Previous columns, including those of William J. Augello, may be found in the “Content Library” on the PARCEL website (parcelindustry.com). Your questions are welcome at brent@transportlawtexts.com.
First, when using Incoterms 2000, one must be very conscience of the exact meaning of the 13 terms to make sure the appropriate one is used. They are very precise in nature. This is completely different than the way the UCC terms of sale are used where people in the industry routinely modify them to create a term such as “F.O.B. Origin, Freight Prepaid & Charge Back”. The additional language is not defined in the UCC or in a state statute; rather they are “defined” by industry usage. Put another way, everything after “F.O.B. Origin” in this example is only business slang.
Second, Incoterms 2000 are not laws. This means, amongst other things, that the parties must agree to use them in a contract or purchase order or similar document. They also have to specify which version. Accordingly, a sale or purchase contract should have language such as “the terms of sale herein are Incoterms 2000” or “governed by Incoterms 2000”.
Third, when one uses F.O.B. Origin or Destination terms in domestic transactions, the term used will determine when title passes. However, the use of an Incoterm standing alone does NOT determine passage of title and, accordingly, the passage of title must be separately and specifically addressed in a document such as a sales contract or purchase order.
Fourth, one Incoterm is F.O.B. This Incoterm has an entirely different meaning than when the term F.O.B. is used domestically. In both instances, the letters stand for “Free on Board”. However, the Incoterm F.O.B. is only to be used for shipping by ocean, whereas in the United States the F.O.B. terms are used for any mode. Similarly, the Incoterm “CIF” has a different meaning than “CI&F” under the UCC.
Fifth, the latter point leads to the conclusion that one has to be very careful not to intentionally or inadvertently mix or confuse the use of Incoterms and the terms derived from the UCC. It has been my observation that the terms of sale based on the UCC are the most commonly used terms for transactions within the United States and Incoterms 2000 are the most commonly used terms for international transactions. However, the most important consideration is that all parties involved in a transaction know (1) which set of terms is being used and (2) know what the terms mean and how to use them.
All for now!
Brent Wm. Primus, J.D., is the CEO of Primus Law Office, P.A., the Senior Editor of transportlawtexts, inc., and is the co-author of the text U.S. Domestic Terms of Sale and Incoterms 2000 and Uniform Commercial Code vs. Incoterms 2000. Previous columns, including those of William J. Augello, may be found in the “Content Library” on the PARCEL website (parcelindustry.com). Your questions are welcome at brent@transportlawtexts.com.
