The American response to the new Incoterms

The American response to the new Incoterms® DCInsight Vol. 17 No.4 October - December 2011 by Frank Reynolds In September 2011, ICC's US representative organization, the United States Council for International Business (USCIB), began its Incoterms® 2010 instruction program. By March 2011, nearly 3,000 persons attended its 37 fullday seminars throughout the country. In addition, other providers now offer programs ranging from full-day live seminars to one-hour webinars. While instruction quality varies, there's no doubt that US interest in Incoterms® 2010 far exceeds all others. Part of the reason is that this is the first revision since the deletion of the shipment and delivery terms formerly found in §2-319 through §2-324 of the US Uniform Commercial Code (UCC). Although contract law is state law, and the state-by-state adoptions to UCC changes proceed glacially, large US companies are embracing the advantages of a single set of shipment and delivery terms for their international and domestic trade. In fact, a number of very large companies are now changing their domestic purchasing protocols to request their vendors to use Incoterms® rules in their supply contracts. Don't look for changes tomorrow. Large companies require time to adjust their highly automated "back-office" processes as well as to provide instruction to domestic-only suppliers not already familiar with Incoterms® rules. This is reminiscent of the way e-commerce caught on here, spearheaded by Detroit's Big Three automakers. Once their suppliers caught on, they quickly imposed the same conditions on their vendors, creating a ripple effect down the supply chain. The good news is that this works to everyone's benefit, as Incoterms® 2010 rules are far easier to use than were the old confusing "FOB here, there and everywhere" UCC terms. Favourable comments A number of Incoterms® 2010 features and changes received very favourable comment. Probably the most important for American users are the definitions, particularly "delivery" found on page 10. We tend to use this word to mean arrival in everyday speech, a situation that agrees with only three (D-Group) of the eleven new rules. Removal of the "ship's rail" concept from FOB, CFR and CIF opened quite a few eyes. I am frequently asked, "What do you mean by the seller's obligation to load the ship?" I reply that if you do not know how to load a ship, you probably shouldn't be using these rules. Speaking of loading, there's one provision that I would like to have back. All rules except EXW require sellers to load collecting vehicles, while the "packaging" definition does not require them to properly stow shipping containers when these are used as collecting vehicles. The answer is that container stowage should be specified elsewhere in the sales/purchase contract, an important consideration for Americans, as we import huge quantities of containerized cargo on a door-to-door or door-to-port basis. Delivery at the first carrier with CPT and CIP provided another eye-opener. "Do you mean the very first carrier?" Yes, and this version went out of its way to explain this point. If that's not what you want to happen, modify the delivery point elsewhere in the sales/purchase contract. Cargo security coverage was well received. This is limited to obligating the parties to exchange information, which is the best we could do given the different security regulations in force and the fact that they are likely to morph as new threats appear. DAT and DAP The new Delivered at Terminal (DAT) term came at a very good time. Increasingly, carriers are reluctant to bring containers to locations that are distant from ports, and express this in the freight costs they offer. Further, large retailers are closely watching their inventories, and are often unwilling to take in full container loads of slower moving merchandise at each store or distribution center. Both concerns are served by transloading, the transfer of goods from containers to truckloads at arrival ports. Goods can be mixed and matched to fill trucks with different kinds of merchandise in smaller quantities per destination. As a by-product, it turns out that nearly three 40-foot container loads of some goods can fit into two 53 foot truck trailers. There was much concern about the exclusion of Delivered Duty Unpaid (DDU), until the virtues of Delivered At Place (DAP) were explained. Thereafter, there was no problem, and Americans now have a "duty-neutral" rule for our arrival sales contracts of imported goods in domestic trade. Conclusion I receive many inquiries and have yet to encounter anyone who cannot find an adequate replacement for a deleted rule in the new DAT and DAP. In fact, some of the most outspoken critics are now happily instructing their own courses on Incoterms® rules. The Drafting Group and a few other Incoterms® expert addicts have joined a task force to handle inquiries. The resulting constantly expanded Frequently Asked Questions (FAQ) section of the ICC website www.iccwbo.org should be ready soon. As a final thought, here's hoping that documentary credit examiners will cut us some slack concerning the newly required ® symbol following the word "Incoterms". Some documents are still produced on quaint machines called typewriters that have no such character. Frank Reynolds was the US Delegate to the Incoterms® 2000 and 2010 Revisions. His e-mail is FRJ424@aol.com