Acta Univ. Bohem. Merid.

2012, 15(2), 33-40, ISSN 1212-3285

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Incoterms 2010: The Newest Revision of Delivery Terms

Roberto Bergami1

Abstract: This paper considers the changes between the Incoterms 2000 and the Incoterms 2010
from a risk management perspective, and highlights the challenges that traders may encounter
when dealing with some of these terms. For example, the problematic FOB term and its use in con-
tainerisation is not likely to have been totally resolved, although the Incoterms 2010 have attempted
to ameliorate the situation. The new terms DAT (Delivered at Terminal) and DAP (Delivered at
Place) should be useful for cross border transactions within Customs Union blocs, such as the Eu-
ropean Union. The paper concludes that the new Incoterms 2010 provide improved definitions, and
more effectively contextualise the use of old terms that are out of synch with today’s modern prac-
tices. However, if traders continue to cling to their old habits and fail to update their delivery terms
and arrangements to reflect contemporary practices, much of the work and progress that the ICC
has put into this change process will be lost.
Key words: Incoterms 2010 · Delivery Terms · Risk Management

JEL Classification: F10 · F13

1 Introduction
This early paper focuses on the latest revision of delivery terms (that are part of trade terms): Inco-
terms 2010, effective from 1 January 2011. An historical perspective is provided first. This is fol-
lowed by comments about the application and limitations of Incoterms 2010, before discussing
some of the most important elements of these delivery terms, together with the challenges faced by
traders and their service providers in the adopting these terms. The paper concludes with recom-
mendations that include staff training as a means to reduce contract and performance risk in interna-
tional trade transactions.
Incoterms 2010 literature review
As Incoterms 2010 apply from 1 January 2011, it is not possible to provide an extensive literature
review as little has been published to date in these terms, as a body of knowledge is still developing,
particularly in relation to major changes. Literature of previous Incoterms editions (2000 and earli-
er) is not considered appropriate due to changes in the relative position of sellers and buyers over
successive editions. At the time of writing, apart from International Chamber of Commerce (ICC)
publications, there is dearth of literature on this topic. There are two short articles in trade maga-
zines (Reynolds, 2011; Thornley, 2010), that are very general in nature and, consequently, do not
particularly focus on any aspects of Incoterms 2010. The same comments apply to an article by
Barron (2011).
The article by Glitz (2011) focuses on legal aspects of Incoterms in a Brazilian context and,
therefore, has limited application outside that country. As the majority of references refer to Spanish

1
Dr. Roberto Bergami
School of International Business, Centre for Strategic and Economic Studies, Faculty of Business and Law, Victoria Univer-
sity, Ballarat Road, Footscray, Vic, 3011, Australia.
Visiting Professor, Faculty of Economics, University of South Bohemia, Studentská 13, 370 05 České Budějovice, e-mail:
[email protected].
R. Bergami 34
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text, it is difficult to further analyse this author’s work. For contextual purposes, the following sec-
tion provides a brief historical perspective of Incoterms.
Incoterms: a brief historical perspective
Incoterms are an acronym for International COmmercial TERMS. These terms were developed by
the International Chamber of Commerce (ICC). Incoterms were first codified in a pre-Incoterms
edition of 1923 (International Chamber of Commerce, 2010), comprising of six terms: FOB (Free
On Board), FAS (Free Alongside Ship), FOT (Free On Truck), FOR (Free on Rail), Free Delivered
CIF (Cost Insurance and Freight) and C&F (Cost and Freight). These terms were subsequently re-
leased as the first revision of Incoterms in 1936. Although it is known that international commerce
had been taking place over several millennia, the problems faced by traders were the different inter-
pretations given to various delivery terms across the globe. Incoterms were introduced to address
the problem of interpretation, with the aim of bringing more certainty into commercial transactions
and reducing the number of disputes between sellers and buyers.
Shortly after the launch of Incoterms 1936, an alternative set of delivery terms was promulgated
in the USA – The Revised American Foreign Trade Definitions (RAFTD) of 1941. The original
American Foreign Trade Definitions were issued in 1919. The RAFTD were subsequently incorpo-
rated into the 1951 Uniform Commercial Code (UCC), where until 2004, the UCC “contained defi-
nitions of ‘terms of sale’ (also called ‘shipping and delivery terms’) in section 2-319 through 2-324”
(Petersen and Primus, 2008, p. 6).
Unlike Incoterms that are not a body of law, the USA terms were. The UCC created problems
for international traders, not so much because it was an alternative to the Incoterms, but because it
used the same abbreviations with completely different meanings. For example, the term FOB in
Incoterms is a departure term, that is, the seller fulfils their obligations prior to the goods leaving
from the agreed export port, whereas the RAFTD use the term FOB as an arrival term, meaning the
seller has extended obligations beyond the port of export. The FOB term as used in the context of
the RAFTD has several different Incoterms interpretations. It is not difficult to imagine confusion
between sellers and buyers.
Notwithstanding the existence of the RAFTD, Incoterms were regularly updated to reflect
changes in current practices on handling and delivery of goods. In fact Incoterms were updated in
1953, 1967, 1976, 1980, 1990, 2000 and 2010 (the current edition). Incoterms did not gain immedi-
ate global acceptance. In fact, in 1969 an unsuccessful attempt was made to have the Incoterms
(year 1953) endorsed by UNCITRAL, but the existence of the RAFTD appears to have prevented
that endorsement. However, over time Incoterms grew in popularity, to the point where they are
now the set of international delivery terms of choice recommended by UNCITRAL (1992, 2000),
for use in all international transactions involving the delivery of tangible goods.
In 2004, the UCC was amended and the delivery terms that had been embedded in USA legisla-
tion were removed, effectively allowing the Incoterms to become the definitive set of delivery terms
in contracts of sale. The Incoterms 2010, for the first time in their history, refer to themselves as
‘rules’ and may be used for domestic contracts, although this paper limits its discussion to interna-
tional applications. Interestingly, a recent survey of economists reports that nearly three quarters of
respondents agreed that “the government of their country should adopt the Incoterms rules into
national legislation (Plenk, J., G. Nerb and K. Abberger, 2010)”. It is argued here, that such recommen-
dations should not proceed, for they are likely to bring back the problem experienced with the USA
legislation mentioned above. It seems best if Incoterms remain voluntary. How the Incoterms 2010
may be applied to contracts and the limitations of these terms are discussed in the next section.
Incoterms 2010: The Newest Revision of Delivery Terms 35
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Incoterms 2010: application and limitations

As Incoterms 2010 are not a body of law, they must be specifically incorporated into the contract of
sale for these rules to apply, and this may achieved “through such words as [the chosen Incoterms
rule, including the named place, followed by] Incoterms 2010” (International Chamber of Com-
merce, 2010a, p. 5).
It should be noted that previous editions of Incoterms may be used, although this is not recom-
mended as earlier versions are unlikely to reflect current practices. Therefore, to avoid ambiguity, it
is important to specify the revision year to be incorporated into the contract of sale. This is a very
important consideration, especially where a new revision is being introduced, as is the case at the
time of writing this paper, when the international trade community is in a period of transition.
Whilst Incoterms 2010 will be progressively introduced into new contracts executed from 1 Jan-
uary 2011, there will also be a variety of contracts using Incoterms 2000, executed until 31 Decem-
ber 2010, the delivery for which will be concluded post 1 January 2011. Consequently, sellers and
buyers are likely to experience the concurrent use of Incoterms 2000 and Incoterms 2010 in the
workplace during this transition period.
Incoterms 2010 are a useful inclusion in an international contract of sale as they over-ride the
default position of Article 31 of the United Nations Convention on Contracts for the International
Sales of Goods (CISG) that requires the specification of a specific point of delivery. This is because
under each of the eleven Incoterms 2010, the point of delivery is one of the paramount stipulations.
Indeed the point of delivery under Incoterms 2010 is also the point of risk transfer and, depending
on the term chosen, it may also be the division of cost point.
Incoterms 2010 provide the basis for apportioning the rights, duties, obligations and responsibili-
ties of sellers and buyers on a mutually exclusive basis. These issues will be further discussed later
in this paper. The application of Incoterms 2010 to a contract is limited to that portion of the con-
tract that concerns itself with the delivery of the goods, that is the physical movement of the con-
signment from origin to destination and the matters associated with such movement, including bar-
rier clearance, documentation and security information, and contracts of carriage and insurance.
It is important to know that whilst Incoterms 2010 binds sellers and buyers through the contract
of sale, other contracts and arrangements formed to discharge the obligations of the seller and the
buyer are independent of third party contracts. Thus, if the responsibility for contracting for carriage
falls on the buyer, the contact of carriage will not bind the seller, because the seller is not a party to
it. These considerations form part of the decision making process that should take place at the nego-
tiating table during the pre-contractual phase. The relative costs to be borne by the seller, in particu-
lar, should influence the choice of term, because the further the delivery point from the sellers prem-
ises, the higher the finance costs of servicing the contract. Further discussion on this point is provid-
ed later in the paper.
Incoterms 2010 exclude aspects of the contract of sale. These are “the price to be paid or the
method of payment, the transfer of ownership of the goods, or the consequences of breach of con-
tract” (International Chamber of Commerce, 2010a, p. 6). There is also a further exclusion in the
definition of packaging where the Incoterms 2010 “do not deal with the parties’ obligations for
stowage within a container or other means of transport” (International Chamber of Commerce,
2010b, p. 11). The exclusion of packaging is particularly important in the context of the movement
of goods as neither sellers nor buyers have access to stowing cargo on means of conveyance, there-
fore, they cannot be held responsible for the actions of third parties, that is, the carriers. Container
packaging is also excluded, except for circumstances where the seller specifically agrees to pack, or
R. Bergami 36
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procure goods packed, inside a container. The most important elements of Incoterms 2010 and the
challenges of adopting and adhering to these rules are discussed in the next section.
The Incoterms 2010 challenges
A number of significant changes have been introduced by the Incoterms 2010, as shown in table 1.
The shaded cells in table 1 represent the terms removed from Incoterms 2000 that were replaced
with their equivalent in Incoterms 2010. It can be observed from table 1 that the number of terms
has been reduced from thirteen to eleven, but in so doing, four Incoterms 2000 were deleted and two
new Incoterms 2010 were added.
Table 1 Comparison of Incoterms 2000 and Incoterms 2010
Incoterms 2000 Incoterms 2010
Group E Ex Works (EXW) Any mode or Ex Works (EXW)
Group F Free Alongside Ship (FAS) modes of transport Free Carrier (FCA)
Free Carrier (FCA) (including multi- Carriage Paid To (CPT)
Free On Board (FOB) modal) Carriage and Insurance Paid to
(CIP)
Group C Cost and Freight (CFR) Delivered at Terminal (DAT)
Cost Insurance and Freight (CIF) Delivered at Place (DAP)
Carriage Paid To (CPT) Delivered Duty Paid (DDP)
Carriage and Insurance Paid to Sea and inland Free Alongside Ship (FAS)
(CIP) waterways
Group D Delivered at Frontier (DAF) transport inly Free On Board (FOB)
Delivered Ex Ship (DES) Cost and Freight (CFR)
Delivered Ex Quay (DEQ) Cost Insurance and Freight (CIF)
Delivered Duty Unpaid (DDU)
Delivered Duty Paid (DDP)
Source: International Chamber of Commerce (2010b), own research

Furthermore, whereas the Incoterms 2000 were categorised within four groups by cost, the Inco-
terms 2010 only have two categories based on the mode of transport to be used for the delivery of
the goods. Whilst most terms have remained unchanged, in a general sense, there has been a signifi-
cant change to the FOB term, and by implication, CFR and CIF.
Consistent with the message from the Incoterms 1990 and Incoterms 2000, the use of the terms
FOB, and by implication CFR and CIF, is not recommended for container traffic. This is simply
because the seller loses physical control over the consignment at a point prior to the goods reaching
the vessel. In fact, it is not unusual for ten lift-on and lift-offs to occur, through various third parties,
from the time the consignment leaves the seller’s premises until it is placed on board the vessel, as
shown in table 2. The number of movements may vary slightly. They may be reduced where the
seller does the container packing in-house, or they may be increased where port congestion warrants
the container being moved a number of times within the wharf apron, for operational reasons.
Incoterms 2010 introduce a new FOB risk transfer point that also applies to CFR and CIF trans-
actions. Although CFR and CIF require the seller to prepay freight charges at origin, the risk trans-
fer point is the same as for FOB.
The ship’s rail risk transfer point under FOB has been replaced in the Incoterms 2010, with a re-
quirement for the seller to “deliver the goods by placing them on board the vessel, pursuant to Arti-
cle A4 (International Chamber of Commerce, 2010b, p. 88). As this is a new principle, the precise
meaning of the words have not been tested in a court of law, however, the best definitions currently
available is that the seller does not complete their delivery obligation until the whole consignment
has been placed on board the vessel, but this does not extend to the goods being stowed or lashed on
Incoterms 2010: The Newest Revision of Delivery Terms 37
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board. In other words, as long as the goods have been placed on deck, delivery has been completed,
and this is not affected by subsequent cargo movements for carrier operational reasons.
Table 2 Possible cargo movement from the seller's premises to loading on board the vessel
Number of movements
Action
(lift-on and lift-off)
Loose cargo collected from sellers premises and taken to a container packing 2
depot
Container taken to freight forwarder 2

Container taken to wharf and stored in marshalling area 2

Container moved to the loading stack 2

2
Container loaded on board
Source: International Chamber of Commerce (2010b), own research

In considering the FOB Incoterms 2010, it is not difficult to see that where maritime containers
are concerned, the seller carries a higher risk profile than necessary, and that the risk is retained
beyond the seller’s physical control of the goods. As shown in table 2, the seller would lose physical
control of the consignment once they release this to a third party at their premises. Therefore, the
term FOB has been limited to sea and inland waterways and not recommended for container traffic.
Instead, the term FCA should be used.
Under FCA, the seller delivers the goods at a named place – a specified point agreed to between
the seller and the buyer as part of the contract of sale. The named place may be anywhere between
the seller’s premises and the export wharf. Under FCA, the risk in transit transfers where the goods
are “delivered to the carrier or another person nominated by the buyer” (International Chamber of
Commerce, 2010b, p. 23). It should be noted that for the purpose of this paper risk in transit is de-
fined as all the risks that may occur during the journey of a consignment from origin to destination,
including the transportation, transit warehouse storage, transhipment and customs clearance points,
as determined by the chosen Incoterm.
If the consignment is to be made available at the seller’s premises, the seller has delivered
“when the goods have been loaded on the means of transport provided by the buyer” (International
Chamber of Commerce, 2010b, p. 24). Otherwise the seller delivers under FCA “when the goods
are placed at the disposal of the carrier or another person nominated by the buyer on the seller’s
means of transport ready for unloading” (International Chamber of Commerce, 2010b, p. 24). This
means that under FCA, the seller and the buyer may agree to the delivery point being the export
wharf, and if so, the risk in transit would transfer from seller to buyer when the consignment (con-
tainerised or not) is lifted from the delivery vehicle, and not once it is loaded on board. Therefore,
under FCA, the loading on board the vessel is done at the buyer’s risk. The same situation remains
unchanged for CPT and CIP contracts for, even though the seller prepays the charges to destination,
the risk in transit transfers on placing the consignment at the disposal of the first carrier involved in
the journey.
It is known that there are significant problems in getting traders to change from the established
routines to the more appropriate and correct use of Incoterms. It seems strange that the term FOB,
coined at least two hundred years before the era of containerisation (from the 1960’s), has been so
readily adopted and inappropriately applied to modern day container handling practices, as dis-
cussed earlier.
R. Bergami 38
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Perhaps one explanation for the popularity of FOB may be that in customs processes, declara-
tions for the valuation of goods may only be made at either the FOB or CIF value, pursuant to the
World Trade Organisation /World Customs Organisation Valuation Agreement. The majority of the
developed world uses the FOB term. However, border control activities, as important as they may
be, are neither concerned with contractual matters, nor risk transfer in transit. Consequently, cus-
toms authorities’ interests in this context, are limited to the declaration of a value for the purposes of
determining duties and taxes that may be payable on exportation or importation.
There is an additional problem with the use of FOB, and this is where the payment method cho-
sen is via a Documentary Letter of Credit (DLC). A DLC is an undertaking by the buyer’s bank to
pay the seller (beneficiary) so long as they present documents with data content that comply with
the requirements of the DLC. DLC operate under a special set of rules: Uniforms Customs and Prac-
tice for Documentary Credits, commonly abbreviated to UCP 600. The UCP 600 are developed by
the ICC. There are two fundamental principles that apply to DLC transaction that are of interest to
the discussion here. One is the principle of autonomy, pursuant to Article 4 of the UCP 600 that
state, in part, that a DLC “by its nature is a separate transaction from the sale or other contract on
which it may be based” (International Chamber of Commerce, 2006b, p. 20).
The separation of the contract from the method of payment is both one of practice and legality.
Given the banks are not a party to the commercial contract, they are not bound by it and they have
no responsibility for performance under it. This leads to the second (associated) principle, that is,
according to Article 5 of the UCP 500 that “banks deal with documents and not with goods, services
or performance to which the document may relate” (International Chamber of Commerce, 2006, p.
20). As can be observed, therefore, under a DLC transaction, there are two concurrent processes
operating. One is the commercial consideration created by the contract, and not of concern to the
banks, but of concern to the traders. The other is the payment arrangement through the DLC.
The requirements of the DLC dictate the types of documents and their data content, so payment
may be exercised by the bank. Where the container traffic is concerned, the bank may unwittingly
create problems for the seller in establishing an incorrect payment arrangement. This may be for
example, where the DLC shows FOB as the term of delivery, and further requires the presentation
of a transport document, typically a Bill of Lading (B/L).
The first problem is that the term FOB, as discussed before, is not suitable for container traffic.
The second problem is that under the term FOB “the seller has no obligation to the buyer to make
a contract of carriage” (International Chamber of Commerce, 2010b, p. 88). Yet, in order to obtain
payment, the seller may be ‘forced’ to comply with the banker’s requirement. The problem for the
seller in this circumstance is a blurring of the risk transfer point. We return, therefore, to the issue of
the correct delivery term. If the term FCA were to be used, the risk transfer point in container traffic
may be constructed in such a manner as to coincide with the physical loss of control over the goods,
something that cannot be done under FOB terms.
The two new terms that have been introduced replace previous delivery options. DAT replaces
the former DEQ. This is where delivery takes place at a nominated terminal. The word terminal has
been defined under Incoterms 2010 to include “any place, whether covered or not, such as a quay,
warehouse, container yard or road, road, rail or air cargo terminal” (International Chamber of
Commerce, 2010b, p. 53). Typically, in the context of international transactions, this will be a cus-
toms entry point. The seller is responsible for all costs and risks until the goods are delivered to the
terminal unloaded from the delivery vehicle.
DAP replaces the former DAF, DES and DDU. In DAP, the delivery point may be beyond the
terminal, however the seller has no import customs clearance obligations. With both DAT and DAP
Incoterms 2010: The Newest Revision of Delivery Terms 39
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it is too early to tell what problems may occur. It does not appear as though there are significant
differences between DAP and the terms it replaces, however, the situation under DAT is currently
unknown.
The Incoterms 2010 have introduced two clarifying clauses. One is the responsibility for the
provision of information for security purposes, in the context of customs and permit authorities
declaration and legislative compliance. Each term indicates who is responsible for border clearance,
but there is also an underlying requirement for the non-responsible party to assist with the process,
all be it at the responsible party’s expense, if charges are applicable. This highlights the need for
traders to adopt a co-operative rather than adversarial approach in their dealings.
The other clause deals with double payment of terminal charges. The responsibility for loading
and unloading goods from their carrying conveyances has now been worded in such a way that
a party will be responsible, or not, as the case may be, depending on the Incoterms 2010 chosen, to
the extent that such charges form part of the contact of carriage, or not, as the case may be. As an
example, in a CIP contract, the seller may have paid for the unloading of a container as part of the
contract of carriage. Upon arrival, the stevedore may attempt to charge for the unloading again. The
buyer, under such circumstances may unwittingly pay for these charges twice. The Incoterms 2010,
by virtue of their wording, encourage a dialogue between the trading parties to avoid circumstances
of double charging.
Conclusion
The Incoterms 2010 bring both good news for traders, and challenges too. By far the biggest obsta-
cle to their full adoption will be the mind-shift required to get traders and bankers using the correct
terms for the correct modes of transport. This will require a considerable education effort by all
involved in the transactions. The Incoterms have been designed for use as a standard application, so
it is important for their success, that they are understood with the same meaning by everyone. Inco-
terms 2010 try to induce clarity into transactions, by removing ambiguity over a number of the most
fundamental issues.
It is too early to be able to know how widely and how quickly these terms will be adopted, but it
is hoped that they will continue to increase in popularity and adoption because, if nothing else, Inco-
terms 2010 present opportunities for traders and their service providers to manage the risks associ-
ated with the movement of cargo. There is scope for more in-depth research into this topic in the
future, to discover whether any particular problems are being experienced in the field, and whether
these are similar across the globe, or whether they are localised to specific geographical areas or
industries. However, such research cannot be conducted until these terms have been in use for at
least two or three years, to allow for a more reasonable body of data to be gathered.

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R. Bergami 40
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