INCOTERMS 2000

1. Introduction

1.1 Due to changes in transportation and methods of payment the terms FOB, CFR and CIF have no legal status for the majority of shipments to and from South Africa. Many Importers and Exporters are trading at huge risk as they continue to use these obsolete terms. International Trade is complex by nature with many parties involved in physically moving cargo from the seller to the buyer. If, for any reason, they are lost or damaged, or through some other reason they are not delivered, the relationship between the parties can degenerate to such a degree that a lawsuit is brought.

1.2 In recent times Incoterms have been changed every 10years i.e. Incoterms 1980, 1990 and with effect from 1st January 2000, INCOTERMS 2000. This in itself has resulted in confusion and inconsistencies of application, either through plain disregard or through ignorance. Sellers and Buyers are therefore strongly urged to ensure that, through the negotiation process up to the time of placing the order, clear reference is made that the contract is made in terms of the chosen term if INCOTERMS 2000. The term chosen should be endorsed on the order and ultimately on the seller's invoice. This removes all doubt as to which rules and conditions apply to the contract of sale.

1.3 It is sometimes the case that international transactions are entered into without it being established in what terms the goods are being shipped, or without the respective parties specifying obligations and responsibilities before the shipment takes place. Many an importer and exporter (if they have survived) can testify to huge financial losses because of this.

1.4 How often does it happen that a local importer or exporter quotes selling prices to their customers only to find, with horror that the goods land at a far higher price than expected because they have not taken into account all the costs. The decision-makers and those who set pricing of goods sometimes feel that INCOTERMS are secret codes that have no real significance. As one person testified ' Oh I thought these were some kind of 'nick names' commonly used.' It is often the case that pricing is determined by pure guesswork resulting in disaster.

1.5 It is a fact that this world contains unscrupulous people who will exploit the ignorance of others for financial gain. This is very true in the world of 'international trade.' Importers and exporters are often not in a position to know what they should be paying for.

1.6 Agents, forwarders and carriers are indemnified against loss, damage, non-delivery, late delivery and will not accept liability for mistakes and omissions. Importers and exporters often trade with a sense of false security. It also assists the clearing and forwarding agent when the client knows exactly what terms they are contracted.

1.7 To avoid disputes and to safeguard each party's interests it is vital for the buyer and seller to clearly understand their respective responsibilities and risks. Ignorance often leads to financial loss and souring of relationships.

1.8 In today's trade, goods are normally placed in the care of forwarding agents (for very good reason) and while most agents are reputable mistakes do occur and incorrect charges are levied. An understanding of INCOTERMS 2000 places the importer and exporter in a position to check charges.

Important Note: The Customs and Excise Act uses INCOTERMS 2000 as its basis to assess the value on which customs duty and Vat is to be paid. At present in South Africa this is the "Transaction Value" adjusted to be the price of the goods plus all costs up to FOB Final Place of Export in Exporting Country. This is now inconsistent with the new revised Incoterms so great care must be taken to ensure that all dutiable charges are included when calculating the value on which duty and VAT is payable.