Introduction to Incoterms 2000

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INTRODUCTION


1. PURPOSE AND SCOPE OF INCOTERMS
The purpose of Incoterms is to provide a set of international rules for the interpretation of the
most commonly used trade terms in foreign trade. Thus, the uncertainties of different interpretations
of such terms in different countries can be avoided or at least reduced to a considerable degree.

Frequently, parties to a contract are unaware of the different trading practices in their respective
countries. This can give rise to misunderstandings, disputes and litigation with all the waste of time
and money that this entails. In order to remedy these problems the International Chamber of
Commerce first published in 1936 a set of international rules for the interpretation of trade terms.
These rules were known as ≪Incoterms 1936≫. Amendments and additions were later made in
1953, 1967, 1976, 1980, 1990 and presently in 2000 in order to bring the rules in line with current
international trade practices.

It should be stressed that the scope of Incoterms is limited to matters relating to the rights and
obligations of the parties to the contract of sale with respect to the delivery of goods sold (in the
sense of ≪tangibles≫, not including ≪intangibles≫ such as computer software).
It appears that two particular misconceptions about Incoterms are very common. First, Incoterms
are frequently misunderstood as applying to the contract of carriage rather than to the contract of
sale. Second, they are sometimes wrongly assumed to provide for all the duties which parties may
wish to include in a contract of sale.
As has always been underlined by ICC, Incoterms deal only with the relation between sellers
and buyers under the contract of sale, and, moreover, only do so in some very distinct respects.
While it is essential for exporters and importers to consider the very practical relationship
between the various contracts needed to perform an international sales transaction - where not only
the contract of sale is required, but also contracts of carriage, insurance and financing - Incoterms
relate to only one of these contracts, namely the contract of sale.
Nevertheless, the parties' agreement to use a particular Incoterm would necessarily have
implications for the other contracts. To mention a few examples, a seller having agreed to a CFR -
or CIF -contract cannot perform such a contract by any other mode of transport than carriage by
sea, since under these terms he must present a bill of lading or other maritime document to the
buyer which is simply not possible if other modes of transport are used. Furthermore, the document
required under a documentary credit would necessarily depend upon the means of transport intended
to be used.
Second, Incoterms deal with a number of identified obligations imposed on the parties - such as
the seller's obligation to place the goods at the disposal of the buyer or hand them over for
carriage or deliver them at destination - and with the distribution of risk between the parties in
these cases.
Further, they deal with the obligations to clear the goods for export and import, the packing of
the goods, the buyer's obligation to take delivery as well as the obligation to provide proof that the
respective obligations have been duly fulfilled. Although Incoterms are extremely important for the
implementation of the contract of sale, a great number of problems which may occur in such a
contract are not dealt with at all, like transfer of ownership and other property rights, breaches of
contract and the consequences following from such breaches as well as exemptions from liability in
certain situations. It should be stressed that Incoterms are not intended to replace such contract
terms that are needed for a complete contract of sale either by the incorporation of standard terms
or by individually negotiated terms.
Generally, Incoterms do not deal with the consequences of breach of contract and any
exemptions from liability owing to various impediments. These questions must be resolved by other
stipulations in the contract of sale and the applicable law.
Incoterms have always been primarily intended for use where goods are sold for delivery across
national boundaries: hence, international commercial terms. However, Incoterms are in practice at
times also incorporated into contracts for the sale of goods within purely domestic markets. Where
Incoterms are so used, the A2 and B2 clauses and any other stipulation of other articles dealing
with export and import do, of course, become redundant.
2. WHY REVISIONS OF INCOTERMS?
The main reason for successive revisions of Incoterms has been the need to adapt them to
contemporary commercial practice. Thus, in the 1980 revision the term Free Carrier (now FCA) was
introduced in order to deal with the frequent case where the reception point in maritime trade was
no longer the traditional FOB-point (passing of the ship's rail) but rather a point on land, prior to
loading on board a vessel, where the goods were stowed into a container for subsequent transport
by sea or by different means of transport in combination (so-called combined or multimodal
transport).
Further, in the 1990 revision of Incoterms, the clauses dealing with the seller's obligation to
provide proof of delivery permitted a replacement of paper documentation by EDI-messages provided
the parties had agreed to communicate electronically. Needless to say, efforts are constantly made to
improve upon the at the seller's own premises (the ≪E≫-term Ex works); followed by the drafting
and presentation of Incoterms in order to facilitate their practical implementation.
3. INCOTERMS 2000
During the process of revision, which has taken about two years, ICC has done its best to invite
views and responses to successive drafts from a wide ranging spectrum of world traders,
represented as these various sectors are on the national committees through which ICC operates.
Indeed, it has been gratifying to see that this revision process has attracted far more reaction from
users around the world than any of the previous revisions of Incoterms. The result of this dialogue
is Incoterms 2000, a version which when compared with Incoterms 1990 may appear to have
effected few changes. It is clear, however, that Incoterms now enjoy world wide recognition and
ICC has therefore decided to consolidate upon that recognition and avoid change for its own sake.
On the other hand, serious efforts have been made to ensure that the wording used in Incoterms
2000 clearly and accurately reflects trade practice. Moreover, substantive changes have been made in
two areas:
? the customs clearance and payment of duty obligations under FAS and DEQ; and
? the loading and unloading obligations under FCA.
All changes, whether substantive or formal have been made on the basis of thorough research
among users of Incoterms and particular regard has been given to queries received since 1990 by
the Panel of Incoterms Experts, set up as an additional service to the users of Incoterms.
4. INCORPORATION OF INCOTERMS INTO THE CONTRACT OF SALE
In view of the changes made to Incoterms from time to time, it is important to ensure that
where the parties intend to incorporate Incoterms into their contract of sale, an express reference is
always made to the current version of Incoterms. This may easily be overlooked when, for example,
a reference has been made to an earlier version in standard contract forms or in order forms used
by merchants. A failure to refer to the current version may then result in disputes as to whether
the parties intended to incorporate that version or an earlier version as a part of their contract.
Merchants wishing to use Incoterms 2000 should therefore clearly specify that their contract is
governed by ≪Incoterms 2000≫.
5. THE STRUCTURE OF INCOTERMS
In 1990, for ease of understanding, the terms were grouped in four basically different categories;
namely starting with the term whereby the seller only makes the goods available to the buyer at
the seller's own premises (the ≪E≫-term Ex works); followed by the second group whereby the
seller is called upon to deliver the goods to a carrier appointed by the buyer (the ≪F≫-terms FCA,
FAS and FOB); continuing with the ≪C≫-terms where the seller has to contract for carriage, but
without assuming the risk of loss of or damage to the goods or additional costs due to events
occurring after shipment and dispatch (CFR, CIF, CPT and CIP); and, finally, the ≪D≫-terms
whereby the seller has to bear all costs and risks needed to bring the goods to the place of
destination (DAF, DES, DEQ, DDU and DDP). The following chart sets out this classification of the
trade terms.

INCOTERMS 2000
Group E
Departure EXW Ex Works


Group F
Main carriage unpaid FCA Free Carrier (... named place)


FAS Free Alongside Ship (...named port of shipment)


FOB Free On Board (... named port of shipment)


Group N
Main carriage paid CFR Cost and Freight (... named port of destination)


CIF Cost, Insurance and Freight (... named port of destination)


CPT Carriage Paid To (... named place of destination)


CIP Carriage and Insurance Paid To (... named place of destination)


Group D
Arrival DAF Delivered At Frontier (... named place)


DES Delivered Ex Ship (... named port of destination)


DEQ Delivered Ex Quay (... named port of destination)


DDU Delivered Duty Unpaid (... named place of destination)


DDP Delivered Duty Paid (... named place of destination)




Further, under all terms, as in Incoterms 1990, the respective obligations of the parties have been
grouped under 10 headings where each heading on the seller's side ≪mirrors≫ the position of the
buyer with respect to the same subject matter.
6. TERMINOLOGY
While drafting Incoterms 2000, considerable efforts have been made to achieve as much
consistency as possible and desirable with respect to the various expressions used throughout the
thirteen terms. Thus, the use of different expressions intended to convey the same meaning has
been avoided. Also, whenever possible, the same expressions as appear in the 1980 UN Convention
on Contracts for the International Sale of Goods (CISG) have been used.

"shipper"
n some cases it has been necessary to use the same term to express two different meanings
simply because there has been no suitable alternative. Traders will be familiar with this difficulty
both in the context of contracts of sale and also of contracts of carriage. Thus, for example, the
term ≪shipper≫ signifies both the person handing over the goods for carriage and the person who
makes the contract with the carrier: however, these two ≪shippers≫ may be different persons, for
example under a FOB contract where the seller would hand over the goods for carriage and the
buyer would make the contract with the carrier.

"delivery"
It is particularly important to note that the term ≪delivery≫ is used in two different senses in
Incoterms. First, it is used to determine when the seller has fulfilled his delivery obligation which is
specified in the A4 clauses throughout Incoterms. Second, the term ≪delivery≫ is also used in the
context of the buyer's obligation to take or accept delivery of the goods, an obligation which
appears in the B4 clauses throughout Incoterms. Used in this second context, the word "delivery"
means first that the buyer "accepts" the very nature of the "C"-terms, namely that the seller fulfils
his obligations upon the shipment of the goods and, second that the buyer is obliged to receive the
goods. This latter obligation is important so as to avoid unnecessary charges for storage of the
goods until they have been collected by the buyer. Thus, for example under CFR and CIF contracts,
the buyer is bound to accept delivery of the goods and to receive them from the carrier and if the
buyer fails to do so, he may become liable to pay damages to the seller who has made the contract
of carriage with the carrier or, alternatively, the buyer might have to pay demurrage charges resting
upon the goods in order to obtain the carrier's release of the goods to him. When it is said in this
context that the buyer must "accept delivery", this does not mean that the buyer has accepted the
goods as conforming with the contract of sale, but only that he has accepted that the seller has
performed his obligation to hand the goods over for carriage in accordance with the contract of
carriage which he has to make under the A3 a) clauses of the "C"-terms. So, if the buyer upon
receipt of the goods at destination were to find that the goods did not conform to the stipulations in
the contract of sale, he would be able to use any remedies which the contract of sale and the
applicable law gave him against the seller, matters which, as has already been mentioned, lie
entirely outside the scope of Incoterms.
Where appropriate, Incoterms 2000, have used the expression‎ ≪placing the goods at the disposal
of≫ the buyer when the goods are made available to the buyer at a particular place. This
expression‎ is intended to bear the same meaning as that of the phrase "handing over the goods"
used in the 1980 United Nations Convention on Contracts for the International Sale of Goods.

"usual"
The word "usual" appears in several terms, for example in EXW with respect to the time of
delivery (A4) and in the "C"-terms with respect to the documents which the seller is obliged to
provide and the contract of carriage which the seller must procure (A8, A3). It can, of course, be
difficult to tell precisely what the word "usual" means, however, in many cases, it is possible to
identify what persons in the trade usually do and this practice will then be the guiding light. In this
sense, the word "usual" is rather more helpful than the word "reasonable", which requires an
assessment not against the world of practice but against the more difficult principle of good faith
and fair dealing. In some circumstances it may well be necessary to decide what is "reasonable".
However, for the reasons given, in Incoterms the word "usual" has been generally preferred to the
word "reasonable".

"charges"
With respect to the obligation to clear the goods for import it is important to determine what is
meant by ≪charges≫ which must be paid upon import of the goods. In Incoterms 1990 the
expression‎ ≪official charges payable upon exportation and importation of the goods≫ was used in
DDP A6. In Incoterms 2000 DDP A6 the word ≪official≫ has been deleted, the reason being that
this word gave rise to some uncertainty when determining whether the charge was ≪official≫ or
not. No change of substantive meaning was intended through this deletion. The ≪charges≫ which
must be paid only concern such charges as are a necessary consequence of the import as such and
which thus have to be paid according to the applicable import regulations. Any additional charges
levied by private parties in connection with the import are not to be included in these charges, such
as charges for storage unrelated to the clearance obligation. However, the performance of that
obligation may well result in some costs to customs brokers or freight forwarders if the party
bearing the obligation does not do the work himself.

"ports", "places", "points" and "premises"
So far as concerns the place at which the goods are to be delivered, different expressions are
used in Incoterms. In the terms intended to be used exclusively for carriage of goods by sea -such
as FAS, FOB, CFR, CIF, DES and DEQ - the expressions ≪port of shipment≫ and ≪port of
destination≫ have been used. In all other cases the word ≪place≫ has been used. In some cases,
it has been deemed necessary also to indicate a ≪point≫ within the port or place as it may be
important for the seller to know not only that the goods should be delivered in a particular area
like a city but also where within that area the goods should be placed at the disposal of the buyer.
Contracts of sale would frequently lack information in this respect and Incoterms therefore stipulate
that if no specific point has been agreed within the named place, and if there are several points
available, the seller may select the point which best suits his purpose (as an example see FCA A4).
Where the delivery point is the seller's "place" the expression‎ ≪the seller's premises≫ (FCA A4)
has been used.


"ship" and "vessel"
In the terms intended to be used for carriage of goods by sea, the expressions ≪ship≫ and ≪
vessel≫ are used as synonyms. Needless to say, the term ≪ship≫ would have to be used when it
is an ingredient in the trade term itself such as in ≪free alongside ship≫ (FAS) and ≪delivery ex
ship≫ (DES). Also, in view of the traditional use of the expression‎ ≪passed the ship's rail≫ in
FOB, the word ≪ship≫ has had to be used in that connection.

"checking" and "inspection"
In the A9 and B9 clauses of Incoterms the headings ≪checking -packaging and marking≫ and
≪inspection of the goods≫ respectively have been used. Although the words ≪checking≫ and ≪
inspection≫ are synonyms, it has been deemed appropriate to use the former word with respect to
the seller's delivery obligation under A4 and to reserve the latter for the particular case when a ≪
pre-shipment inspection≫ is performed, since such inspection normally is only required when the
buyer or the authorities of the export or import country want to ensure that the goods conform
with contractual or official stipulations before they are shipped.
7. THE SELLER'S DELIVERY OBLIGATIONS
Incoterms focus on the seller's delivery obligation. The precise distribution of functions and costs
in connection with the seller's delivery of the goods would normally not cause problems where the
parties have a continuing commercial relationship. They would then establish a practice between
themselves (≪course of dealing≫) which they would follow in subsequent dealings in the same
manner as they have done earlier. However, if a new commercial relationship is established or if a
contract is made through the medium of brokers - as is common in the sale of commodities -, one
would have to apply the stipulations of the contract of sale and. whenever Incoterms 2000 have
been incorporated into that contract, apply the division of functions, costs and risks following
therefrom.
It would, of course, have been desirable if Incoterms could specify in as detailed a manner as
possible the duties of the parties in connection with the delivery of the goods. Compared with
Incoterms 1990, further efforts have been made in this respect in some specified instances (see for
example FCA A4). But it has not been possible to avoid reference to customs of the trade in FAS
and FOB A4 (≪in the manner customary at the port≫), the reason being that particularly in
commodity trade the exact manner in which the goods are delivered for carriage in FAS and FOB
contracts vary in the different sea ports.
8. PASSING OF RISKS AND COSTS RELATING TO THE GOODS
The risk of loss of or damage to the goods, as well as the obligation to bear the costs relating
to the goods, passes from the seller to the buyer when the seller has fulfilled his obligation to
deliver the goods. Since the buyer should not be given the possibility to delay the passing of the
risk and costs, all terms stipulate that the passing of risk and costs may occur even before
delivery, if the buyer does not take delivery as agreed or fails to give such instructions (with
respect to time for shipment and/or place for delivery) as the seller may require in order to fulfil
his obligation to deliver the goods. It is a requirement for such premature passing of risk and costs
that the goods have been identified as intended for the buyer or, as is stipulated in the terms, set
aside for him (appropriation).
This requirement is particularly important under EXW, since under all other terms the goods
would normally have been identified as intended for the buyer when measures have been taken for
their shipment or dispatch (≪F≫ - and ≪C≫-terms) or their delivery at destination (≪D≫-terms).
In exceptional cases, however, the goods may have been sent from the seller in bulk without
identification of the quantity for each buyer and, if so, passing of risk and cost does not occur
before the goods have been appropriated as aforesaid (cf. also article 69.3 of the 1980 United
Nations Convention on Contracts for the International Sale of Goods).
9. THE TERMS
9.1 The"E"- term is the term in which the seller's obligation is at its minimum:
the seller has to do no more than place the goods at the disposal of the buyer at the agreed
place - usually at the seller's own premises. On the other hand, as a matter of practical reality, the
seller would frequently assist the buyer in loading the goods on the latter's collecting vehicle.
Although EXW would better reflect this if the seller's obligations were to be extended so as to
include loading, it was thought desirable to retain the traditional principle of the seller's minimum
obligation under EXW so that it could be used for cases where the seller does not wish to assume
any obligation whatsoever with respect to the loading of the goods. If the buyer wants the seller to
do more, this should be made clear in the contract of sale.
9.2 The"F"- terms require the seller to deliver the goods for carriage as instructed by the buyer.
The point at which the parties intend delivery to occur in the FCA term has caused difficulty
because of the wide variety of circumstances which may surround contracts covered by this term.
Thus, the goods may be loaded on a collecting vehicle sent by the buyer to pick them up at the
seller's premises; alternatively, the goods may need to be unloaded from a vehicle sent by the seller
to deliver the goods at a terminal named by the buyer. Incoterms 2000 take account of these
alternatives by stipulating that, when the place named in the contract as the place of delivery is the
seller's premises, delivery is complete when the goods are loaded on the buyer's collecting vehicle
and, in other cases, delivery is complete when the goods are placed at the disposal of the buyer not
unloaded from the seller's vehicle. The variations mentioned for different modes of transport in FCA
A4 of Incoterms 1990 are not repeated in Incoterms 2000.
The delivery point under FOB, which is the same under CFR and CIF, has been left unchanged
in Incoterms 2000 in spite of a considerable debate. Although the notion under FOB to deliver the
goods ≪across the ship's rail≫ nowadays may seem inappropriate in many cases, it is nevertheless
understood by merchants and applied in a manner which takes account of the goods and the
available loading facilities. It was felt that a change of the FOB-point would create unnecessary
confusion, particularly with respect to sale of commodities carried by sea typically under charter
parties.
Unfortunately, the word ≪FOB≫ is used by some merchants merely to indicate any point of
delivery-such as ≪FOB factory≫, ≪FOB plant≫, ≪FOB Ex seller's works≫ or other inland points
-thereby neglecting what the abbreviation means: Free On Board. It remains the case that such use
of ≪FOB≫ tends to create confusion and should be avoided.
There is an important change of FAS relating to the obligation to clear the goods for export,
since it appears to be the most common practice to put this duty on the seller rather than on the
buyer. In order to ensure that this change is duly noted it has been marked with capital letters in
the preamble of FAS.
9.3 The ≪C≫-terms require the seller to contract for carriage on usual terms at his own
expense. Therefore, a point up to which he would have to pay transport costs must necessarily be
indicated after the respective ≪C≫-term. Under the CIF and CIP terms the seller also has to take
out insurance and bear the insurance cost. Since the point for the division of costs is fixed at a
point in the country of destination, the ≪C≫-terms are frequently mistakenly believed to be arrival
contracts, in which the seller would bear all risks and costs until the goods have actually arrived at
the agreed point. However, it must be stressed that the ≪C≫-terms are of the same nature as the
≪F≫-terms in that the seller fulfils the contract in the country of shipment or dispatch. Thus, the
contracts of sale under the ≪C≫-terms, like the contracts under the ≪F≫-terms, fall within the
category of shipment contracts.
It is in the nature of shipment contracts that, while the seller is bound to pay the normal
transport cost for the carriage of the goods by a usual route and in a customary manner to the
agreed place, the risk of loss of or damage to the goods, as well as additional costs resulting from
events occurring after the goods having been appropriately delivered for carriage, fall upon the
buyer. Hence, the ≪C≫-terms are distinguishable from all other terms in that they contain two ≪
critical≫ points, one indicating the point to which the seller is bound to arrange and bear the costs
of a contract of carriage and another one for the allocation of risk. For this reason, the greatest
caution must be observed when adding obligations of the seller to the ≪C≫-terms which seek to
extend the seller's responsibility beyond the aforementioned ≪critical≫ point for the allocation of
risk. It is of the very essence of the ≪C≫-terms that the seller is relieved of any further risk and
cost after he has duly fulfilled his contract by contracting for carriage and handing over the goods
to the carrier and by providing for insurance under the CIF- and CIP-terms.
The essential nature of the "C"-terms as shipment contracts is also illustrated by the common
use of documentary credits as the preferred mode of payment used in such terms. Where it is
agreed by the parties to the sale contract that the seller will be paid by presenting the agreed
shipping documents to a bank under a documentary credit, it would be quite contrary to the central
purpose of the documentary credit for the seller to bear further risks and costs after the moment
when payment had been made under documentary credits or otherwise upon shipment and dispatch
of the goods. Of course, the seller would have to bear the cost of the contract of carriage
irrespective of whether freight is pre-paid upon shipment or is payable at destination (freight
collect); however, additional costs which may result from events occurring subsequent to shipment
and dispatch are necessarily for the account of the buyer.
If the seller has to provide a contract of carriage which involves payment of duties, taxes and
other charges, such costs will, of course, fall upon the seller to the extent that they are for his
account under that contract. This is now explicitly set forth in the A6 clause of all "C"-terms.
If it is customary to procure several contracts of carriage involving transhipment of the goods at
intermediate places in order to reach the agreed destination, the seller would have to pay all these
costs, including any costs incurred when the goods are transhipped from one means of conveyance
to the other. If, however, the carrier exercised his rights under a transhipment -or similar clause -
in order to avoid unexpected hindrances (such as ice, congestion, labour disturbances, government
orders, war or warlike operations) then any additional cost resulting therefrom would be for the
account of the buyer, since the seller's obligation is limited to procuring the usual contract of
carriage.
It happens quite often that the parties to the contract of sale wish to clarify the extent to which
the seller should procure a contract of carriage including the costs of discharge. Since such costs
are normally covered by the freight when the goods are carried by regular shipping lines, the
contract of sale will frequently stipulate that the goods are to be so carried or at least that they are
to be carried under ≪liner terms≫. In other cases, the word ≪landed≫ is added after CFR or CIF.
However, it is advisable not to use abbreviations added to the ≪C≫-terms unless, in the relevant
trade, the meaning of the abbreviations is clearly understood and accepted by the contracting parties
or under any applicable law or custom of the trade.
In particular, the seller should not - and indeed could not, without changing the very nature of
the ≪C≫-terms - undertake any obligation with respect to the arrival of the goods at destination,
since the risk of any delay during the carriage is borne by the buyer. Thus, any obligation with
respect to time must necessarily refer to the place of shipment or dispatch, for example, ≪shipment
(dispatch) not later than...≫. An agreement for example, ≪CFR Hamburg not later than...≫ is really
a misnomer and thus open to different possible interpretations. The parties could be taken to have
meant either that the goods must actually arrive at Hamburg at the specified date, in which case
the contract is not a shipment contract but an arrival contract or, alternatively, that the seller must
ship the goods at such a time that they would normally arrive at Hamburg before the specified date
unless the carriage would have been delayed because of unforeseen events.
It happens in commodity trades that goods are bought while they are at sea and that, in such
cases, the word ≪afloat≫ is added after the trade term. Since the risk of loss of or damage to the
goods would then, under the CFR- and CIF-terms, have passed from the seller to the buyer,
difficulties of interpretation might arise. One possibility would be to maintain the ordinary meaning
of the CFR- and CIF-terms with respect to the allocation of risk between seller and buyer, namely
that risk passes on shipment: this would mean that the buyer might have to assume the
consequences of events having already occurred at the time when the contract of sale enters into
force. The other possibility would be to let the passing of the risk coincide with the time when the
contract of sale is concluded. The former possibility might well be practical, since it is usually
impossible to ascertain the condition of the goods while they are being carried. For this reason the
1980 United Nations Convention on Contracts for the International Sale of Goods article 68 stipulates
that ≪if the circumstances so indicate, the risk is assumed by the buyer from the time the goods
were handed over to the carrier who issued the documents embodying the contract of carriage≫.
There is, however, an exception to this rule when ≪the seller knew or ought to have known that
the goods had been lost or damaged and did not disclose this to the buyer≫. Thus, the
interpretation of a CFR- or CIF-term with the addition of the word ≪afloat≫ will depend upon the
law applicable to the contract of sale. The parties are advised to ascertain the applicable law and
any solution which might follow therefrom. In case of doubt, the parties are advised to clarify the
matter in their contract.
In practice, the parties frequently continue to use the traditional expression‎ C&F (or N and F,
C+F). Nevertheless, in most cases it would appear that they regard these expressions as equivalent
to CFR. In order to avoid difficulties of interpreting their contract the parties should use the correct
Incoterm which is CFR, the only world-wide-accepted standard abbreviation for the term ≪Cost
and Freight (... named port of destination)≫.
CFR and CIF in A8 of Incoterms 1990 obliged the seller to provide a copy of the charterparty
whenever his transport document (usually the bill of lading) contained a reference to the
charterparty, for example, by the frequent notation ≪all other terms and conditions as per
charterparty≫. Although, of course, a contracting party should always be able to ascertain all terms
of his contract - preferably at the time of the conclusion of the contract - it appears that the
practice to provide the charterparty as aforesaid has created problems particularly in connection with
documentary credit transactions. The obligation of the seller under CFR and CIF to provide a copy
of the charterparty together with other transport documents has been deleted in Incoterms 2000.
Although the A8 clauses of Incoterms seek to ensure that the seller provides the buyer with ≪
proof of delivery≫, it should be stressed that the seller fulfils that requirement when he provides
the ≪usual≫ proof. Under CPT and CIP it would be the ≪usual transport document≫ and under
CFR and CIF a bill of lading or a sea waybill. The transport documents must be ≪clean≫,
meaning that they must not contain clauses or notations expressly declaring a defective condition of
the goods and/or the packaging. If such clauses or notations appear in the document, it is regarded
as ≪unclean≫ and would then not be accepted by banks in documentary credit transactions.
However, it should be noted that a transport document even without such clauses or notations
would usually not provide the buyer with incontrovertible proof as against the carrier that the goods
were shipped in conformity with the stipulations of the contract of sale. Usually, the carrier would,
in standardized text on the front page of the transport document, refuse to accept responsibility for
information with respect to the goods by indicating that the particulars inserted in the transport
document constitute the shipper's declarations and therefore that the information is only ≪said to be
≫ as inserted in the document. Under most applicable laws and principles, the carrier must at least
use reasonable means of checking the correctness of the information and his failure to do so may
make him liable to the consignee. However, in container trade, the carrier's means of checking the
contents in the container would not exist unless he himself was responsible for stowing the
container.
There are only two terms which deal with insurance, namely CIF and CIP. Under these terms
the seller is obliged to procure insurance for the benefit of the buyer. In other cases it is for the
parties themselves to decide whether and to what extent they want to cover themselves by
insurance. Since the seller takes out insurance for the benefit of the buyer, he would not know the
buyer's precise requirements. Under the Institute Cargo Clauses drafted by the Institute of London
Underwriters, insurance is available in ≪minimum cover≫ under Clause C, ≪medium cover≫ under
Clause A and ≪most extended cover≫ under Clause A. Since in the sale of commodities under the
CIF term the buyer may wish to sell the goods in transit to a subsequent buyer who in turn may
wish to resell the goods again, it is impossible to know the insurance cover suitable to such
subsequent buyers and, therefore, the minimum cover under CIF has traditionally been chosen with
the possibility for the buyer to require the seller to take out additional insurance. Minimum cover is
however unsuitable for sale of manufactured goods where the risk of theft, pilferage or improper
handling or custody of the goods would require more than the cover available under Clause C. Since
CIP, as distinguished from CIF, would normally not be used for the sale of commodities, it would
have been feasible to adopt the most extended cover under CIP rather than the minimum cover
under CIF. But to vary the seller's insurance obligation under CIF and CIP would lead to confusion
and both terms therefore limit the seller's insurance obligation to the minimum cover. It is
particularly important for the CIP-buyer to observe this: should additional cover be required, he
should agree with the seller that the latter could take out additional insurance or, alternatively,
arrange for extended insurance cover himself. There are also particular instances where the buyer
may wish to obtain even more protection than is available under Institute Clause A, for example
insurance against war, riots, civil commotion, strikes or other labour disturbances. If he wishes the
seller to arrange such insurance he must instruct him accordingly in which case the seller would
have to provide such insurance if procurable.
9.4 The ≪D≫-terms are different in nature from the ≪C≫-terms, since the seller according to
the ≪D≫-terms is responsible for the arrival of the goods at the agreed place or point of
destination at the border or within the country of import. The seller must bear all risks and costs
in bringing the goods thereto. Hence, the ≪D≫-terms signify arrival contracts, while the ≪C≫
-terms evidence departure (shipment) contracts.
Under the ≪D≫-terms except DDP the seller does not have to deliver the goods cleared for
import in the country of destination.
Traditionally, the seller had the obligation to clear the goods for import under DEQ, since the
goods had to be landed on the quay and thus were brought into the country of import. But owing
to changes in customs clearance procedures in most countries, it is now more appropriate that the
party domiciled in the country concerned undertakes the clearance and pays the duties and other
charges. Thus, a change in DEQ has been made for the same reason as the change in FAS
previously mentioned. As in FAS, in DEQ the change has been marked with capital letters in the
preamble.
It appears that in many countries trade terms not included in Incoterms are used particularly in
railway traffic (≪franco border≫, ≪franco-frontiere≫, ≪Frei Grenze≫). However, under such terms
it is normally not intended that the seller should assume the risk of loss of or damage to goods
during the transport up to the border. It would be preferable in these circumstances to use CPT
indicating the border. If, on the other hand, the parties intend that the seller should bear the risk
during the transport DAF indicating the border would be appropriate.
The DDU term was added in the 1990 version of Incoterms. The term fulfils an important
function whenever the seller is prepared to deliver the goods in the country of destination without
clearing the goods for import and paying the duty. In countries where import clearance may be
difficult and time consuming, it may be risky for the seller to undertake an obligation to deliver the
goods beyond the customs clearance point. Although, according to DDU B5 and B6, the buyer would
have to bear the additional risks and costs which might follow from his failure to fulfil his
obligations to clear the goods for import, the seller is advised not to use the DDU term in countries
where difficulties might be expected in clearing the goods for import.
10. THE EXPRESSION‎ ≪NO OBLIGATION≫
As appears from the expressions ≪the seller must≫ and ≪the buyer must≫ Incoterms are only
concerned with the obligations which the parties owe to each other. The words ≪no obligation≫
have therefore been inserted whenever one party does not owe an obligation to the other party.
Thus, if for instance according to A3 of the respective term the seller has to arrange and pay for
the contract of carriage we find the words ≪no obligation≫ under the heading ≪contract of
carriage≫ in B3 a) setting forth the buyer's position. Again, where neither party owes the other an
obligation, the words ≪no obligation≫ will appear with respect to both parties, for example, with
respect to insurance.
In either case, it is important to point out that even though one party may be under "no
obligation" towards the other to perform a certain task, this does not mean that it is not in his
interest to perform that task. Thus, for example, just because a CFR buyer owes his seller no duty
to make a contract of insurance under B4, it is clearly in his interest to make such a contract, the
seller being under no such obligation to procure insurance cover under A4.
11. VARIANTS OF INCOTERMS
In practice, it frequently happens that the parties themselves by adding words to an Incoterm
seek further precision than the term could offer. It should be underlined that Incoterms give no
guidance whatsoever for such additions. Thus, if the parties cannot rely on a well-established
custom of the trade for the interpretation of such additions they may encounter serious problems
when no consistent understanding of the additions could be proven.
If for instance the common expressions ≪FOB stowed≫ or ≪EXW loaded≫ are used, it is
impossible to establish aworld-wide understanding to the effect that the seller's obligations are
extended not only with respect to the cost of actually loading the goods in the ship or on the
vehicle respectively but also include the risk of fortuitous loss of or damage to the goods in the
process of stowage and loading. For these reasons, the parties are strongly advised to clarify
whether they only mean that the function or the cost of the stowage and loading operations should
fall upon the seller or whether he should also bear the risk until the stowage and loading has
actually been completed. These are questions to which Incoterms do not provide an answer:
consequently, if the contract too fails expressly to describe the parties' intentions, the parties may
be put to much unnecessary trouble and cost.
Although Incoterms 2000 do not provide for many of these commonly used variants, the
preambles to certain trade terms do alert the parties to the need for special contractual terms if the
parties wish to go beyond the stipulations of Incoterms.

EXW the added obligation for the seller to load the goods on the buyer's collecting vehicle;
CIF/CIP the buyer's need for additional insurance;
DEQ the added obligation for the seller to pay for costs after discharge.


In some cases sellers and buyers refer to commercial practice in liner and charter party trade. In
these circumstances, it is necessary to clearly distinguish between the obligations of the parties
under the contract of carriage and their obligations to each other under the contract of sale.
Unfortunately, there are no authoritative definitions of expressions such as ≪liner terms≫ and ≪
terminal handling charges≫ (THC). Distribution of costs under such terms may differ in different
places and change from time to time. The parties are recommended to clarify in the contract of sale
how such costs should be distributed between themselves.
Expressions frequently used in charterparties, such as ≪FOB stowed≫, ≪FOB stowed and
trimmed≫, are sometimes used in contracts of sale in order to clarify to what extent the seller
under FOB has to perform stowage and trimming of the goods onboard the ship. Where such words
are added, it is necessary to clarify in the contract of sale whether the added obligations only relate
to costs or to both costs and risks.
As has been said, every effort has been made to ensure that Incoterms reflect the most common
commercial practice. However in some cases - particularly where Incoterms 2000 differ from
Incoterms 1990 - the parties may wish the trade terms to operate differently. They are reminded of
such options in the preamble of the terms signalled by the word ≪However≫.
12. CUSTOMS OF THE PORT OR OF A PARTICULAR TRADE
Since Incoterms provide a set of terms for use in different trades and regions it is impossible
always to set forth the obligations of the parties with precision. To some extent it is therefore
necessary to refer to the custom of the port or of the particular trade or to the practices which the
parties themselves may have established in their previous dealings (cf. article 9 of the 1980 United
Nations Convention on Contracts for the International Sale of Goods). It is of course desirable that
sellers and buyers keep themselves duly informed of such customs when they negotiate their
contract and that, whenever uncertainty arises, they clarify their legal position by appropriate
clauses in their contract of sale. Such special provisions in the individual contract would supersede
or vary anything that is set forth as a rule of interpretation in the various Incoterms.
13. THE BUYER'S OPTIONS ASTOTHE PLACE OF SHIPMENT
In some situations, it may not be possible at the time when the contract of sale is entered into
to decide precisely on the exact point or even the place where the goods should be delivered by the
seller for carriage. For instance reference might have been made at this stage merely to a ≪range
≫ or to a rather large place, for example, seaport, and it is then usually stipulated that the buyer
has the right or duty to name later on the more precise point within the range or the place. If the
buyer has a duty to name the precise point as aforesaid his failure to do so might result in liability
to bear the risks and additional costs resulting from such failure (B5/B7 of all terms). In addition,
the buyer's failure to use his right to indicate the point may give the seller the right to select the
point which best suits his purpose (FCA A4).
14. CUSTOMS CLEARANCE
The term ≪customs clearance≫ has given rise to misunderstandings. Thus, whenever reference
is made to an obligation of the seller or the buyer to undertake obligations in connection with
passing the goods through customs of the country of export or import it is now made clear that
this obligation does not only include the payment of duty and other charges but also the
performance and payment of whatever administrative matters are connected with the passing of the
goods through customs and the information to the authorities in this connection. Further, it has -
although quite wrongfully - been considered in some quarters inappropriate to use terms dealing
with the obligation to clear the goods through customs when, as in intra-European Union trade or
other free trade areas, there is no longer any obligation to pay duty and no restrictions relating to
import or export. In order to clarify the situation, the words ≪where applicable≫ have been added
in the A2 and B2, A6 and B6 clauses of the relevant Incoterms in order for them to be used
without any ambiguity where no customs procedures are required.
It is normally desirable that customs clearance is arranged by the party domiciled in the country
where such clearance should take place or at least by somebody acting there on his behalf. Thus,
the exporter should normally clear the goods for export, while the importer should clear the goods
for import.
Incoterms 1990 departed from this under the trade terms EXW and FAS (export clearance duty
on the buyer) and DEQ (import clearance duty on the seller) but in Incoterms 2000 FAS and DEQ
place the duty of clearing the goods for export on the seller and to clear them for import on the
buyer respectively, while EXW -representing the seller's minimum obligation - has been left
unamended (export clearance duty on the buyer). Under DDP the seller specifically agrees to do
what follows from the very name of the term - Delivered Duty Paid - namely to clear the goods
for import and pay any duty as a consequence thereof.
15. PACKAGING
In most cases, the parties would know beforehand which packaging is required for the safe
carriage of the goods to destination. However, since the seller's obligation to pack the goods may
well vary according to the type and duration of the transport envisaged, it has been felt necessary
to stipulate that the seller is obliged to pack the goods in such a manner as is required for the
transport, but only to the extent that the circumstances relating to the transport are made known to
him before the contract of sale is concluded (cf. articles 35.1. and 35.2.b. of the 1980 United Nations
Convention on Contracts for the International Sale of Goods where the goods, including packaging,
must be ≪fit for any particular purpose expressly or impliedly made known to the seller at the
time of the conclusion of the contract, except where the circumstances show that the buyer did not
rely, or that it was unreasonable for him to rely, on the seller's skill and judgement≫).
16. INSPECTION OF GOODS
In many cases, the buyer may be well advised to arrange for inspection of the goods before or
at the time they are handed over by the seller for carriage (so-called pre-shipment inspection or
PSI). Unless the contract stipulates otherwise, the buyer would himself have to pay the cost for
such inspection that is arranged in his own interest. However, if the inspection has been made in
order to enable the seller to comply with any mandatory rules applicable to the export of the goods
in his own country, the seller would have to pay for that inspection, unless the EXW term is used,
in which case the costs of such inspection are for the account of the buyer.
17. MODE OF TRANSPORT AND THE APPROPRIATE INCOTERM 2000
Any mode of transport
Group E EXW Ex Works (... named place)
Group F FCA Free Carrier (... named place)
Group N CPT Carriage Paid To (... named place of destination)
CIP Carriage and Insurance Paid To (... named place of destination)
Group D DAF Delivered At Frontier (... named place)
DDU Delivered Duty Unpaid (... named place of destination)
DDP Delivered Duty Paid (... named place of destination)
Maritime and inland waterway transport only
Group F FAS Free Alongside Ship (... named port of shipment)
FOB Free On Board (... named port of shipment)
Group N CFR Cost and Freight (... named port of destination)
CIF Cost, Insurance and Freight (... named port of destination)
Group D DES DES Delivered Ex Ship (... named port of destination)
DEQ Delivered Ex Quay (... named port of destination)

18. THE RECOMMENDED USE
In some cases the preamble recommends the use or non-use of a particular term. This is
particularly important with respect to the choice between FCA and FOB. Regrettably, merchants
continue to use FOB when it is totally out of place thereby causing the seller to incur risks
subsequent to the handing over of the goods to the carrier named by the buyer. FOB is only
appropriate to use where the goods are intended to be delivered ≪across the ship's rail≫ or, in any
event, to the ship and not where the goods are handed over to the carrier for subsequent entry into
the ship, for example stowed in containers or loaded on lorries or wagons in so-called roll on - roll
off traffic. Thus, a strong warning has been made in the preamble of FOB that the term should not
be used when the parties do not intend delivery across the ship's rail.
It happens that the parties by mistake use terms intended for carriage of goods by sea also
when another mode of transport is contemplated. This may put the seller in the unfortunate position
that he cannot fulfil his obligation to tender the proper document to the buyer (for example a bill of
lading, sea waybill or the electronic equivalent). The chart printed at paragraph 17 above makes
clear which trade term in Incoterms 2000 it is appropriate to use for which mode of transport. Also,
it is indicated in the preamble of each term whether it can be used for all modes of transport or
only for carriage of goods by sea.
19. THE BILL OF LADING AND ELECTRONIC COMMERCE
Traditionally, the on board bill of lading has been the only acceptable document to be presented
by the seller under the CFR and CIF terms. The bill of lading fulfils three important functions,
namely:


? proof of delivery of the goods on board the vessel;
? evidence of the contract of carriage; and
? a means of transferring rights to the goods in transit to another party by the transfer of the
paper document to him.


Transport documents other than the bill of lading would fulfil the two first-mentioned functions,
but would not control the delivery of the goods at destination or enable a buyer to sell the goods in
transit by surrendering the paper document to his buyer. Instead, other transport documents would
name the party entitled to receive the goods at destination. The fact that the possession of the bill
of lading is required in order to obtain the goods from the carrier at destination makes it
particularly difficult to replace by electronic means of communication.
Further, it is customary to issue bills of lading in several originals but it is, of course, of vital
importance for a buyer or a bank acting upon his instructions in paying the seller to ensure that all
originals are surrendered by the seller (so-called ≪full set≫). This is also a requirement under the
ICC Rules for Documentary Credits (the so-called ICC Uniform Customs and Practice, ≪UCP
≫;current version at date of publication of Incoterms 2000: ICC publication 500).
The transport document must evidence not only delivery of the goods to the carrier but also that
the goods, as far as could be ascertained by the carrier, were received in good order and condition.
Any notation on the transport document which would indicate that the goods had not been in such
condition would make the document ≪unclean≫ and would thus make it unacceptable under the
UCP.
In spite of the particular legal nature of the bill of lading it is expected that it will be replaced
by electronic means in the near future. The 1990 version of Incoterms had already taken this
expected development into proper account. According to the A8 clauses, paper documents may be
replaced by electronic messages provided the parties have agreed to communicate electronically.
Such messages could be transmitted directly to the party concerned or through a third party
providing added-value services. One such service that can be usefully provided by a third party is
registration of successive holders of a bill of lading. Systems providing such services, such as the
so-called BOLERO service, may require further support by appropriate legal norms and principles as
evidenced by the CMI 1990 Rules for Electronic Bills of Lading and articles 16-17 of the 1996
UNCITRAL Model Law on Electronic Commerce.
20. NON-NEGOTIABLE TRANSPORT DOCUMENTS INSTEAD OF BILLS OF LADING
In recent years, a considerable simplification of documentary practices has been achieved. Bills of
lading are frequently replaced by non-negotiable documents similar to those which are used for
other modes of transport than carriage by sea. These documents are called ≪sea waybills≫, ≪liner
waybills≫, ≪freight receipts≫, or variants of such expressions. Non-negotiable documents are quite
satisfactory to use except where the buyer wishes to sell the goods in transit by surrendering a
paper document to the new buyer. In order to make this possible, the obligation of the seller to
provide a bill of lading under CFR and CIF must necessarily be retained. However, when the
contracting parties know that the buyer does not contemplate selling the goods in transit, they may
specifically agree to relieve the seller from the obligation to provide a bill of lading, or, alternatively,
they may use CPT and CIP where there is no requirement to provide a bill of lading.
21. THE RIGHT TO GIVE INSTRUCTIONS TO THE CARRIER
A buyer paying for the goods under a ≪C≫-term should ensure that the seller upon payment is
prevented from disposing of the goods by giving new instructions to the carrier. Some transport
documents used for particular modes of transport (air, road or rail) offer the contracting parties a
possibility to bar the seller from giving such new instructions to the carrier by providing the buyer
with a particular original or duplicate of the waybill. However, the documents used instead of bills
of lading for maritime carriage do not normally contain such a barring function. The Comite
Maritime International has remedied this shortcoming of the above-mentioned documents by
introducing the 1990 ≪Uniform Rules for Sea Waybills≫ enabling the parties to insert a ≪
no-disposal≫ clause whereby the seller surrenders the right to dispose of the goods by instructions
to the carrier to deliver the goods to somebody else or at another place than stipulated in the
waybill.
22. ICC ARBITRATION
Contracting parties who wish to have the possibility of resorting to ICC Arbitration in the event
of a dispute with their contracting partner should specifically and clearly agree upon ICC Arbitration
in their contract or, in the event that no single contractual document exists, in the exchange of
correspondence which constitutes the agreement between them. The fact of incorporating one or
more Incoterms in a contract or the related correspondence does NOT by itself constitute an
agreement to have resort to ICC Arbitration.
The following standard arbitration clause is recommended by ICC: ≪All disputes arising out of
or in connection with the present contract shall be finally settled under the Rules of Arbitration of
the International Chamber of Commerce by one or more arbitrators appointed in accordance with the
said Rules.≫ http://gektor.web77.ru/eng/Incoterms/int.htm


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