Incoterms and Fob Contracts
INCOTERMS
Standard terms of contract have been in use for many years, although their precise definition may vary from country to country. The international chamber of commerce (ICC) set out to overcome the problems of conflicting national laws by establishing a standard set of trade terms and definition that offers ‘neutral’ rules and practices. When one party or the other does not want to stick itself to the lines and procedures of the other, a reference to Incoterms is the answer.
By referring to such terms, both parties can be sure that their legal relations are grounded in a fair and reasonable international standard based upon the following principles.
The terms were drawn from the most current practices of international trade so that they could be adopted by the greatest possible number of traders.
Where there were major differences in current practices, Incoterms would provide for the minimum liability on part of the seller, leaving it to the parties to provide for greater liabilities in their contracts if they so desired.
References to the customs of a particular trade or port were kept to a minimum, although it was impossible to avoid them completely.
The Incoterms first set out in 1936 were subsequently revised in 1953, 1967, 1980, 1990 and 2000.
1990 Revision: The main reason for 1990 revision of INCOTERMS was the desire to adapt terms to the increasing use of electronic data interchange (EDI). A further reason for the revision arose from changed transportation techniques, particularly the unitization of cargo in containers, multimodal transport and roll-on/roll-off traffic with road, vehicles and railway wagon in “short-sea”.
2000 Revision: The Incoterms 2000 take account of the recent spread of customs-free zones, the increased use of electronic communications in business transactions. The revision ensures that Incoterms 2000 respond to business needs everywhere.
Incoterms 1990 vis-à-vis Incoterms 2000: Incoterms 2000 when compared with incoterms 1990 may appear to have effected few changes. However, substantive changes have been made in two areas.
- The customs-clearance and payment of duty obligations under FAS and DEQ and
- The loading and unlading obligations under FCA.
The Structure of Incoterms
In Incoterms 1990 and Incoterms 2000, the terms are grouped in basically four different categories; namely:-
1. “E” – terms Ex Works where-under the seller only makes the goods available to the buyer at the seller’s own premises.
2. “F” – terms FCA, FAS, and FOB whereby the seller is called upon to deliver the goods to a carrier appointed by...