Incoterms counterpoint
Expert says ICC creates more confusion than it resolves with some Incoterms 2010 changes.
Incoterms 2010 hasn't even come into effect yet, but one expert said the International Chamber of Commerce' recently announced revisions add potential complications, rather than simplify matters.
Tom Cook, managing director with American River International and an international trade instructor with the World Academy, said in an October interview that by eliminating the use of the phrase 'ship's rail' for FOB (free on board) shipments, the ICC has created uncertainty about when the responsibility for goods passes from seller to buyer.
The Paris-based ICC, which develops and publishes Incoterms, changed the phrasing of FOB terms from 'ship's rail' to 'on board.'
'They've created an ambiguity without defining what 'on board' means,' Cook told American Shipper. On a roll-on/roll-off vessel, 'a trailer might be on board a ship but it's not necessarily secured. Does that satisfy the 'on board' requirement?'
Cook said he, his colleagues and others raised the issue with the ICC in Paris and never got a clear answer.
'It now needs to be more clearly defined in a sales agreement,' Cook said. 'To me that creates a conflict. There's a dependency by exporters and importers to rely on Incoterms, so Incoterms should be clearly understood. They shouldn't have to be defined further. It's going to put more of an onus on the seller or buyer. And it will create ambiguity, at least in the short term.'
Cook, who leads seminars on Incoterms, said the ambiguity creates problems for people like him and others who are supposed to teach importers and exporters.
'I have to deliver a message about how to use these things,' he said. 'Some of the changes I can't strictly interpret. They're still too new. There might have to be a court precedent. (In the Incoterms seminars) I can only stress what intent is there.'
Cook also quibbled with the ICC's decision to eliminate the DDU term in Incoterms 2010 (DDU, or delivered duty unpaid, was one of four terms eliminated).
'There were two clear choices to an exporter to ship overseas where they want to deliver to a final destination,' DDU and DDP (delivery duty paid, which has remained), Cook said. 'You can appreciate that on some products, there would be huge duties. Now you have to have contractual wording, instead of using a more descriptive Incoterm. Buyers and sellers should be able to depend on Incoterms that give them most of what they need.'
In place of the four eliminated terms, the ICC introduced two new ones ' DAT (delivered at terminal) and DAP (delivered at place) ' but Cook said the new terms are unneeded.
'I don't see the need for DAT and DAP,' he said. 'They already had terms that should have covered these areas. The new terms cover offloading and delivery into warehouse. That's added on to the responsibilities of a seller that they're not going to want to take in a foreign country. They want to deliver to a gateway. If I was advising exporters, I would never tell them to take on that responsibility.'
Cook also took umbrage at ICC's intent for Incoterms 2010 to be used more broadly on a domestic level.
The uniform commercial code 'tells us what FOB means domestically, and Incoterms tells us what they mean internationally, but there's little similarity,' he said. 'A person who's not experienced will take that to mean FOB domestically and internationally are the same, when that's not the case. They are very different. They've entered into some torrid waters. It's going to create confusion and some legal situations. People will say, 'I interpreted it this way and not that way.' When the whole goal was to make things simpler, I don't think they've accomplished that.'
Cook did have some kind words for the ICC when it comes to better defining the limits of Incoterms.
'There's always been an issue that Incoterms related to other aspects of a contract, when that's not true,' he said. 'They make it very clear that Incoterms don't address these issues, like title transfer, revenue recognition, insurance, and contractual disputes.
'A lot of companies would say that because of Incoterms, I don't have insurance risk. In reality, Incoterms has no direct reference to those issues. This book makes it clear those are separate issues in an international agreement,' Cook said.