APRIL 2011

Incoterms 2010new trading terms now in effect

Developments in international trade over the past 10 years have led the International Chamber of Commerce to replace the Incoterms 2000 rules with a new set of rulesIncoterms 2010. This change may have important consequences for businesses involved in both domestic and international trade.
What are Incoterms? Incoterms are a set of internationally recognised and widely-used delivery terms used in commercial transactions to define the tasks, costs, and risk involved in the delivery of goods from sellers to buyers, for example FOB (Free on Board) and CIF (Cost, Insurance, and Freight). A number of terms are available to choose from depending on the particular negotiated position of the parties. Use of the terms is intended to reduce or eliminate uncertainties arising from different interpretations of the terms used in different jurisdictions. Each term sets out the rights, obligations, and responsibilities of a buyer and the seller with respect to delivery of the goods. What are the changes? The following key changes were introduced by Incoterms 2010: The total number of Incoterms has been reduced from 13 to 11 due to the replacement of rules DAF, DES, DEQ, and DDU by two new rules that can be used irrespective of the agreed mode of transportDAT (Delivered at Terminal) and DAP (Delivered at Place). DDU (Delivery Duty Paid) was a widely-used term and contracting parties

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will need to give consideration to a suitable replacement. Under DAT the seller delivers when the goods, having been unloaded from the arriving means of transport, are placed at the buyers disposal at a named terminal at the named port or place of destination (similar to the previous DEQ rule). Under DAP the seller delivers when the goods are placed at the buyers disposal, but ready for unloading (similar to the previous DAF, DES, and DDU rules). There are now two classes of Incotermsterms for use in relation to any mode (or modes) of transport (EXW, FCA, CPT, CIP, DAT, DAP, DDP) and terms for use only in relation to sea and inland waterway transport (FAS, FOB, CFR, and CIF). In respect of FOB, CFR, and CIF, reference to the ships rail has now been deleted and replaced with the goods being delivered when they are on board the vessel. Although Incoterms have traditionally been used in international sales transactions, Incoterms 2010 formally recognises they can be applied for domestic as well as international transactions. Consequently, in a number of places the Incoterms 2010 state that the obligation to comply with export/import formalities exists only where applicable. Provision has been made for allocating responsibility for security-rated clearances and for the use of electronic records or procedures.

It is important to remember all contracts referring to Incoterms 2000 (or any earlier version) are still valid. However, when negotiating the terms of your next trading transaction it is essential to clearly specify the chosen version of Incoterms to avoid any dispute over which version of Incoterms applies. Additionally, the scope of the Incoterms covers delivery obligations only; they do not include other terms relating to the sale of goods (such as price, payment, transfer of ownership, and termination), which still need to be clearly recorded in the contract of sale. Start a conversation If you would like to discuss how Incoterms 2010 may affect your business, please contact Natalie Fennell or Chris Parke.

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If you need more information or would like to talk to one of our experts, please contact us.

Auckland David Lewis Partner DDI: +64 9 914 7263 FAX: +64 9 309 4276 david.lewis@kensingtonswan.com Nicholas Scott Partner DDI: +64 9 914 7264 FAX: +64 9 309 4276 nick.scott@kensingtonswan.com Chris Parke Partner DDI: +64 9 375 1157 FAX: +64 9 309 4276 chris.parke@kensingtonswan.com

Wellington Martin Dalgleish Partner DDI: +64 4 498 0827 FAX: +64 4 472 2291 martin.dalgleish@kensingtonswan.com David Shillson Partner DDI: +64 4 498 0890 FAX: +64 4 472 2291 david.shillson@kensingtonswan.com Rodney Craig Partner DDI: +64 4 498 0813 FAX: +64 4 472 2291 rodney.craig@kensingtonswan.com

2011 KENSINGTON SWAN The contents of this newsletter are for general information purposes only, and should not be acted upon without specific advice. Kensington Swan does not accept any liability other than to its clients, and then only in relation to specific requests for advice.