Understanding Incoterms 2010

Significant changes were made to the Incoterms 2010 earlier this year by the International Chamber of Commerce.  These changes impact the rights and obligations of importers in Canada and across the world, specifically regarding who will pay for the carriage of the goods and the point at which risk passes between the parties.

What are Incoterms?

International Commercial Terms, known as “Incoterms”, are internationally accepted terms which establish the responsibilities of exporters and importers.  They essentially address who does what; who pays for what and when; and identifies when the risk in the goods passes form seller to buyer.  They also address issues such as insurance, export and import clearances.

Incoterms are accepted by governments, legal authorities and businesses worldwide for the interpretation of most commonly used terms in international trade.  As long as both parties are signed to the UN Convention, the Incoterms will provide the legal backbone to settling any disputes.

What are the changes?

The recent changes to the Incoterm rules include the deletion of four existing terms and their replacement with two new terms.

The four Incoterms which were deleted are the: Delivered at Frontier (DAF); Delivered Ex-Ship (DES); Delivered Ex-Quay (DEQ); and Delivered Duty Unpaid (DU).  The deleted terms have been made redundant by the two new more straightforward rules: Delivered at Terminal (DAT) and Delivered at Place (DAP).

The changes are intended to address the changes that have occurred in global trade and the increasing obligations of traders in new areas such as supply chain security.

How will this affect me?

It is crucial to agree on an Incoterm at the start of a negotiation/quotation of a sale, as it will affect the costs and responsibilities involved in shipping, insurance and tariffs.

Using the correct Incoterms clarifies the contracts you have with your suppliers or customers.  These terms should also be used on any paperwork linked to the contract, such as invoices or statements. Failing to state that you are using Incoterms 2010 could result in a dispute.

For businesses that have standard printed forms it is advisable to review these forms and replace with the new terms.  While it is still possible to use the old terms, it may cause confusion and potential delays or disputes.

Want to find out more?

To find out more about how Incoterms can be beneficial to your Canadian import business, attend the Are You Thinking of Importing or Importing Regulations for Small Business seminar lead by Small Business BC’s import expert Sandra Light.

Alternatively you can book a consultation appointment with Sandra who will help register your business for import from creating your import account to advising on the implications of HST.  Contact us now for more information at 604-775-5525 or toll free on 1-800-667-2272.

Photo by Daniel Ramirez.