Start Useful Documentation Incoterms-2000
Incoterms-2000

NEW INCOTERMS 2000 COMMENTS

In November 1997, the International Chamber of Commerce determined that Incoterms 1990 no longer adequately reflected trade practice and needed to be revised for the millennium. Accordingly, the first meeting of the Incoterms Revision Working Group was convened in March 1998.

This meeting lasted four days, and created a huge amount of recommendations, which the Incoterms Revision Drafting Group reduced to manageable proposals in two meetings during the summer. Copies were sent to the Working Group, which met again for three days to consider them in October '98. Once again, the Drafting Group at two meetings reduced their findings to proposals, and the results were sent to the ICC National Committees for additional comments in January 1999.

The response was record setting, and was again reduced to proposals by the Drafting Group. These now final proposals were put to the full ICC Commission on International Commercial Practice in June 1999. A final draft immediately followed its approval, and the results are before you now.

As you can see, the revision process took nearly two years, and benefited from the input of hundreds of foreign trade professionals from all parts of the world. Many points were not carried unanimously, and a few barely received a majority vote.

WHAT WAS CHANGED

There were four major changes from Incoterms 1990.

  1. The delivery responsibility (A4) of Free Carrier (FCA) was simplified from seven possible situations to two.
  2. The export clearance responsibility (A2 -B2) of Free Alongside Ship (FAS) was shifted from the buyer to the seller.
  3. The import clearance responsibility (A2 -B2) of Delivered Ex Quay (DEQ) was shifted from the seller to the buyer.
  4. The seller's former obligation under CFR and CIF to furnish the buyer with a copy of the charter party for shipments made under bills of lading indicating same has been abolished.

There were literally over one hundred minor changes resulting in more consistent language and more detailed footnoting which will make Incoterms 2000 much easier to use. For instance, how does owner handle a situation where "no obligation" appears in both the seller and buyer columns for the same task.

WHAT WAS NOT CHANGED

Although nearly half of the Working Group discussions focused on changing the notion of "ship's rail" as found in FOB, CFR and CIF, and despite the fact that no one is truly satisfied with this antiquated concept, no change was made. The reason was simple, no acceptable alternative could be found. About half the group was committed to moving the "risk cost" transfer further into the vessel, making the seller responsible for successful stowage.

However, that was considered to present too much risk especially in FOB with a buyer designated vessel. The other half of the group wanted to move the "cost risk" point ashore, to somewhere before the ship's rail. However, that point is already covered by FAS, or by the Omni-modal terms FCA, CPT and CEP. A third opinion is that the ship's rail (or its equivalent for liquid, bulk or gas cargoes) does serve a purpose with charter shipments which often lack the automated materials handling equipment found with liner shipments. Finally, after many hours of heated debate, and appeals to the ICC's National Committees, the decision was taken that warts and all, the "ship's rail" concept is at least well known throughout the world. Sometimes, the devil you know is better than the devil you don't.

FAS almost died. In fact, the Working Group voted it out of existence one afternoon. However, it was brought back to life by a second poll the following day, as it does have some use in charter shipping.

The proposal to kill DAF resulted in a deadlock vote at the Working Group level, and only a slim majority of National Committee votes saved it. Actually, this term has very little use, as either FCA or DDU border location will accomplish the same result.

Significant time was devoted to changing the Incoterms position that minimum cover satisfies the seller's insurance obligation under CIF and CIP Obviously, this coverage is insufficient for most shipments of any value. However, no change was made for two reasons:

  1. Goods are often sold while in transit under the CIF term. It was decided that subsequent buyers should be free to purchase their own coverage without being burdened by the higher cost of more adequate coverage placed by previous owners which would not benefit them.

  2. Some countries require that their citizens purchase marine cargo insurance from national insurers, Since many of these third world insurance companies provide doubtful coverage, it is often prudent to buy the minimum coverage possible from them at the lowest cost and obtain more reliable coverage elsewhere.

Some other interesting proposals that didn't carry included restricting the "marine only" trilogy of FOB, CFR and CIF to charter shipments and its converse, requiring the use of the "omnimodal" trilogy of FCA, CPT and CIP for liner shipments.

There was strong support for handling unloading and loading costs for DDU and DDP in the same manner as for the now simplified FCA. However, this was defeated, as there is far more involved in breaking down consolidated shipments with multiple shippers and/or consignees than is consolidating them.

 

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