Why is it important to put the year 2010?

The Incoterms® rules are revised periodically (approximately every 10 years), so it is important to make sure you are working with the most recent valid version. The last Incoterms® rules revision was published in autumn 2010, became effective on 1 January 2011, and is referred to as Incoterms® 2010.

Are Incoterms® rules the law?

In most countries, the Incoterms® rules are NOT explicitly referred to in laws or statutes, so the Incoterms® rules are not ‘laws’ in the sense of rules that are developed by a government and are obligatory for all market participants.

Am I legally obliged to follow the Incoterms® rules?

Generally speaking, parties are not obliged to follow the Incoterms® rules, but rather the other way round: parties choose voluntarily to have the Incoterms® rules apply to their contracts (that is, parties voluntarily submit themselves to the Incoterms® rules, which are then binding as part of the contract of sale).

Does FOB include stowing and trimming? What are ‘stowing’ and ‘trimming’?

Stowing and trimming are operations that must be performed upon bulk commodities after they are loaded into a ship’s hold. The FOB seller is generally not responsible for stowing or trimming, which is why some buyers in some cases seek to explicitly bind the seller by adding the following formulation to the Incoterms® rule: ‘FOB stowed and trimmed’ See Q&A No. 38 on page 100 for more on stowing and trimming .

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Who pays for unloading costs under CIF?

If the unloading costs are for the seller’s account under the contract of carriage, then the costs are for the seller; if the costs are not included for seller’s account under the contract of carriage, then the costs are for the buyer.

What is the difference between FOB in a sale contract and FOB in a bill of lading?

The Incoterms® rules can be used only in contracts of sale, not in contracts of carriage or bills of lading. ICC strongly discourages the use of terms resembling the Incoterms® rules in contracts of carriage. When a term like ‘FOB’ is used in the context of a transport contract, it is meant to refer to the transport responsibilities of the carrier, and as a result the Incoterms® rules have no application (remember, the Incoterms® rules govern only the rights and responsibilities of sellers and buyers, and they do not at all govern the duties of carriers).

What is the difference between the Incoterms® rules, Liner terms and Charter party terms?

As stated in the Introduction, perhaps the single most common misunderstanding related to the Incoterms® rules involves confusing the contract of sale with the contract of carriage. Note the distinction:

  • Contract of sale – The Incoterms® rules are embedded in this contract, an agreement between the seller and the buyer. The contract terms deal with price, quality and delivery terms of the contract merchandise.
  • Contract of carriage – This contract is between the shipper and the carrier (or its agent). Depending on the contract of sale and the chosen Incoterms® rule, the shipper may be either the seller or the buyer. The carriage contract terms relate to the price of the carrier’s transport services (i.e. freight rates) and the extent of the carrier’s liability for goods delivered. It is in this context that we encounter ‘liner terms’, ‘charter parties’ and ‘charter party terms’.

The Incoterms® rules are not part of the contract of carriage, though the choice of Incoterms® rule may oblige the shipper to obtain a contract of carriage with particular conditions.

‘Liner terms’ – With ‘liner’ transport the shipper entrusts its goods to a ‘shipping line’ .

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Certain costs may be included in the freight (such as loading or unloading charges) charged by regular shipping lines – hence, ‘liner terms’. With liner terms, for example, discharging expenses are frequently included in the freight. Shippers should take care to ensure that the charges included in the liner terms accord with the shipper’s transport responsibilities under the given Incoterms® rule.

‘Charter parties’ – Another basic form of maritime transport is via charter party, under which the shipper hires a ship or part of a ship. In this context, ‘free in’ and ‘free out’ mean that the loading and unloading obligations are not included in the charter party hire.

Thus, when a seller under one of the ‘C’ group of Incoterms® rules has chartered a vessel on ‘free out terms’, he or she will have assumed the costs of loading and discharge vis-à-vis the ship owner. It will be in the seller’s interest to require the buyer to discharge the goods within a certain number of days (referred to as the ‘laytime’). Conversely, a ship owner may provide for a bonus (known as ‘dispatch money’) to the seller (when the seller is the charterer) for timely discharging, which the seller may pass on as an incentive to the buyer. The relationship between the charter party arrangement and the agreement between seller and buyer should be clarified in the contract of sale.