Comments on Incoterms 3000 First Draft

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18 March 2009

To: Canadian Chamber of Commerce

Dear Sirs,
As a member of ICC Commission of Commercial Law & Practice, I am glad to attach my comments on Incoterms 3000 First Draft.
Please forward it to ICC Commission Commercial Law & Practice that is responsible for the drafting before 10 APRIL 2009, the deadline date for consolidated comments.

EXW A7 Notice to the buyer

Line 160 Add “timely” after “sufficient notice”. “Sufficient” may refer to data contents only, not also referring to the time the notice is sent.

CIP A3 Contracts of carriage and insurance

Line 750 Add “CIP” before “110%” to specify that the minimum insured value should be 110% of CIP value, which is the cost of the goods at time of distress in the contemplated voyage.

CIP A4 Delivery

Line 755 Add “of destination” after “named place” for clarity because in CIP term, the seller has the obligation to deliver the goods to the named place of destination.

CIP
Notes for NC's on CIP

Seller-provided insurance with buyer-provided carriage:

Line 925 - 937
In D/A and D/P transactions, the buyer may refuse to take up the goods, often using quality dispute as an excuse, when the market price has fallen drastically on arrival of the goods. This is a risk that the seller has to take. With the hidden intent to refuse the goods in case of need, the buyer of course will not arrange any insurance coverage for the goods. Then in case the goods sustain loss or damage during transit, the seller will not be able to recover from the loss or damage if he does not arrange insurance coverage beforehand. Hence from risk management point of view, the seller has to arrange insurance coverage under these circumstances. For this reason, Incoterms 3000 has to be revised to make this possible under EXW, FCA, FCA, CPT, FAS, FOB, and CFR.

Under A3 in the above mentioned Incoterms 3000, we have to add that the seller may arrange insurance coverage to minimise his risk in case the goods are rejected by the buyer on arrival. Sometimes it may be too late to arrange any insurance coverage as the loss or damage is already made known to the seller at that time.

Under B3 we have to add a new provision so that the buyer who decides to take up the goods has the obligation to reimburse the seller for the insurance cost, if insurance has been arranged by the seller. The buyer may also arrange additional insurance coverage if this is deemed necessary.

In the present wording of B3 for the above quoted Incoterms 3000, the buyer has no obligation to reimburse the seller for the insurance coverage. If the buyer wishes to arrange insurance cover, he has to arrange insurance coverage separately. Then probably there will be a duplication in insurance coverage, that can be easily avoided by clear provisions in A3 and B3.

Since it is not desirable to create a new Incoterm C&I or CIN (Cost and Insurance) for reasons already explained by the Drafting Group in lines 926 - 937, the new additional provision suggested above should create a solution to cover the CIN situation.

FAS, FOB, CFR & CIF Maritime only terms

Lines 1477-79
The new provisions recommend that these maritime only terms should not be used for containerised sea transport. The Drafting Group appears to overlook the local practices in Asia.

Some goods from Guangdong, China stowed in containers may be shipped by inland waterways on board barges or boats to Hong Kong. Some goods stowed in containers from warehouses in Kowloon or Hong Kong will be placed on barges near the Kowloon or Hong Kong water fronts and the barges will be moved by tugboats to get alongside the small or medium size cargo ships anchored at the cargo loading and unloading zone in the Hong Kong port. The containers will be lifted on board the small or medium cargo ships by cranes provided either by the barge or by the small or medium sized cargo ship. This operation is commonly known as “mid-stream operations”. Hence in Hong Kong, FAS, FOB, CFR and CIF may also be used for transport of goods stowed in containers in mid-stream operations. Not all containers are loaded on board the gigantic cargo ships in container depots. Some containers may be loaded on board small cargo ships in mid-stream operations by barges. The explanation within line 1477 - 79 and equivalent lines in other maritime only terms must specify this exception to avoid such mid-stream operations being seen as a violation of the Incoterms 3000 provisions.

Typographical Error

In the document named “Revised Jan 2009 - J. Herre”, in the “Preliminary” section, on page 1, there is a typographical error under the table for DDU. On the second last line, the first “DES” should be “DEQ”.

T. O. Lee FAE, MCIArb, MITD

This document is the 1st episode of on Incoterms 3000.

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EXW	A7 Notice to the buyer
Line 160	Add “timely” after “sufficient notice”. “Sufficient” may refer to data contents only, not also referring to the time the notice is sent.
CIP	A3 Contracts of carriage and insurance
Line 750	Add “CIP” before “110%” to specify that the minimum insured value should be 110% of CIP value, which is the cost of the goods at time of distress in the contemplated voyage.
CIP	A4 Delivery
Line 755	Add “of destination” after “named place” for clarity because in CIP term, the seller has the obligation to deliver the goods to the named place of destination.
CIP	Notes for NC's on CIP Seller-provided insurance with buyer-provided carriage:
Line 925 - 937	In D/A and D/P transactions, the buyer may refuse to take up the goods, often using quality dispute as an excuse, when the market price has fallen drastically on arrival of the goods. This is a risk that the seller has to take. With the hidden intent to refuse the goods in case of need, the buyer of course will not arrange any insurance coverage for the goods. Then in case the goods sustain loss or damage during transit, the seller will not be able to recover from the loss or damage if he does not arrange insurance coverage beforehand. Hence from risk management point of view, the seller has to arrange insurance coverage under these circumstances. For this reason, Incoterms 3000 has to be revised to make this possible under EXW, FCA, FCA, CPT, FAS, FOB, and CFR. Under A3 in the above mentioned Incoterms 3000, we have to add that the seller may arrange insurance coverage to minimise his risk in case the goods are rejected by the buyer on arrival. Sometimes it may be too late to arrange any insurance coverage as the loss or damage is already made known to the seller at that time. Under B3 we have to add a new provision so that the buyer who decides to take up the goods has the obligation to reimburse the seller for the insurance cost, if insurance has been arranged by the seller. The buyer may also arrange additional insurance coverage if this is deemed necessary. In the present wording of B3 for the above quoted Incoterms 3000, the buyer has no obligation to reimburse the seller for the insurance coverage. If the buyer wishes to arrange insurance cover, he has to arrange insurance coverage separately. Then probably there will be a duplication in insurance coverage, that can be easily avoided by clear provisions in A3 and B3. Since it is not desirable to create a new Incoterm C&I or CIN (Cost and Insurance) for reasons already explained by the Drafting Group in lines 926 - 937, the new additional provision suggested above should create a solution to cover the CIN situation.

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