In order to regulate, limit and establish the obligations between international and national traders (buyers and sellers), INCOTERMS were created.
Therefore, INCOTERMS is the abbreviation of INternational COMmercial TERMs, which constitute an international trade standard, they allow the harmonization of contract practices. They were developed and written for the first time in 1936 by the CCI (International Chamber of Commerce) in Paris.
It should be noted that at the beginning, this principle was put in place by international traders, but later, it was adopted by people outside the trade by their simplicity in terms of relations between two parties.
Origins and Evolution of INCOTERMS
- In 1920, the International Chamber of Commerce (ICC) found that trading partners had different interpretations of trade terms. This led to the development by the ICC of uniform rules for the interpretation of trade terms.
The first version of the Incoterms dates from 1936. The aim was to standardize the commercial terms used for the transport of goods by sea (FOB: “Free on board”, Free on board; CIF: “cost, insurance and Freight”, cost, insurance and freight).
- In 1953, a second version, a more thorough revision. Originally (1953 edition), the presentation of Incoterms took into account the corresponding evolution of the seller’s obligations. In later editions, we temporarily put aside this presentation which was recovered in the 90s. At the time, there were 4 categories of Incoterms and 13 Incoterms, that is to say 13 acronyms which correspond to 13 standard sales contracts that the parties can choose when they conclude an international sales contract. In each of these contracts, there are obligations for the seller and for the buyer.
- In 1967, the DAF (“delivered at Frontier”) and DDP (“delivered duty paid”) incoterms appeared, according to which the buyer has only minimal liability.
- In 1976, the first Incoterm adapted to air transport appeared.
- In 1980, the CCI took into account the profound change in international transport brought about by the development of the container.
The last modifications are made in 2000
on January 1, 2011, Incoterms 2000 became Incoterms 2010. Incoterms designated by the letter D only contain 2 categories and next to the 4 traditional categories that remain, a subdivision has been introduced that is tostate the Incoterms applicable to all types of transport and those applicable to water transport (sea or river). Thus, there are only 11 categories left. This is due to some changes like:
- Deletion of Incoterms DAF / DES / DEQ / DDU
- Deletion of the notion of “passage of the rail”
- The clarification of the security controls of the goods, the taking of the necessary measures against terrorism with regard to the support of the corresponding formalities and costs.
- Creation of two new Incoterms:
- DAT: Delivered At Terminal – delivered to the agreed terminal – (replaces the DEQ and applies for all modes of transport);
- DAP: Delivered At Place – delivered to the named place of destination – (replaces DAF / DES / DDU).
There will henceforth be 11 Incoterms which are: DAT (Delivered At Terminal), DAP (Delivered at Place), EXW (Ex Works), FCA (Free Carrier), FAS (Free Alongside Ship), FOB (Free On Board), CFR (Cost and Freight), CIF (Cost, Insurance and Freight) ,CIP (Carriage and Insurance Paid to…), CPT (Carriage Paid to), DDP (Delivered, Duty paid).there are two other sources of very similar business terms, using the same three letter abbreviations but with some differences, which are:
- The “Revised American Foreign Trade Definitions” for which there is a version from 1941, and one from 1990;
- The “Universal Commercial Code” also of American origin.
The use of these terms is in the process of disappearing, the American authorities advise American exporters to use the Incoterms version ICC.
It should be noted that the Incoterms 2010 define, without any possible ambiguity, when and who is responsible for the insurance of the transport of goods.
Missions of INCOTERMS
Settle disputes between international traders, delimit their responsibilities, their respective obligations of a seller and a buyer, specifically with regard to loading, transport, type of transport, insurance and delivery, freight. INCOTERMS govern the question of “security of the goods” in particular, it determines the place of transfer of risks which also corresponds to the place of delivery of the goods. Until this place of transfer, the seller will have to bear the damage, the loss in the event of improper execution of the transport. From there, it is the buyer who will bear the damage.
INCOTERMS also regulate the issue of providing documents and information on goods (Bill of Lading, Waybill, Air Waybill) Who, seller or buyer must provide which documents? That is the problem.
It is therefore a question here of modifiable standards according to the evolution of world trade and which allows the buyer and the seller to engage quickly and unambiguously on the terms and conditions of the transaction.