Brief History of Incoterms

One of the first initiatives of the International Chamber of Commerce (ICC) to facilitate
international trade was to explore the understanding of trade terms in the 1920s and to
publish the results of their study in 1923. This first study was limited to six common trade
terms used by 13 different countries and was to be followed by a second published study in
1928 expanding the scope to the interpretation of trade terms used in more than 30
countries. The studies demonstrated disparities in the interpretation of the trade terms which
required further measures resulting in the first version of Incoterms in 1936.

At that time, trade terms involving carriage of goods focused on carriage by sea and reflected
the worldwide use of the terms FAS (Free Alongside Ship), FOB (Free on Board), C&F (Carriage
and Freight), CIF (Carriage Insurance and Freight), Ex-Ship and Ex-Quay.

Further revision of Incoterms was suspended during the Second World War and the work was
not resumed until the 1950s resulting in the 1953 version. A trade term for non-maritime was
added, namely FOR-FOT (Free On Raid-Free On Truck) as well as DCP (Delivered Costs Paid).
The words Free On Truck were found to be misleading as, semantically, they could refer to
any truck regardless of whether it was used in connection with rail or road transport. In fact,
the addition FOT only concerned railway transport. At this point, no version of Incoterms ever
referred to a trade terms specifically to be used only in connection with road transport.

In 1967, further trade terms were added addressing delivery at frontier (DAF) and delivery in
the country of destination (DDP). At this point the ICC decided to actively advertise their
interpretation of international sales terms (as opposed to other systems in use worldwide at
the time). Therefore, in 1968, at the first session of the Commission of the ICC, Incoterms
1953 were identified as an instrument of special importance with regards to the
harmonization and unification of the law of the international sale of goods. At its second
session (in 1969) the Commission requested the Secretary-General to inform the ICC that
Incoterms 1953 should be given the widest possible dissemination and to bring the views of
the Commission to the attention of the United Nations regional economic commissions.

Amendments to Incoterms continued to be made, with additional terms added in 1976 and
1980. In 1976 a particular term for air transport, FOB Airport, was added. The introduction of
this term was a reflection of the confusion relating to the interpretation of FOB. With a sea
freight shipment, the passing of the goods over the ships rail signified the point where risk
passed from the seller to the buyer. However, entry into an aircraft was not equally perceived
as a practical risk division point for goods to be carried by air. Instead, handling over the
goods to the air carrier was seen as the point where risk transferred. When the terms were
amended in 1980, although FOB Airport was not seen as the most useful of terms, it
nevertheless remained in the 1980s version of Incoterms.

However, it was in 1980 that Free Carrier term was introduced. The reason for this addition
had to do with the growth of the carriage of goods in containers signifying that the goods
were not actually received by the maritime carrier at the ships side but rather at some
reception point ashore. The goods could either move in a container loaded by the seller at his
premises and be transported to a port for loading on board a vessel, or be delivered to the
carrier at the port, for the carrier to stow in containers and load on board the vessel. Under
these conditions defining the point of transfer of risk as arrival onto the ship itself was seen
as inaccurate. Instead, the relevant point, as with FOB Airport, would be the point of
handling over the goods to the carrier. In order to further support that understanding, the
name of the term, when first introduced in the 1980 version, became Free Carrier with the
acronym FRC.

All these changes were merely amendments to the original Incoterms 1953 and it was only in
the late 1980s that the ICC decided to completely revise Incoterms 1953 in order to adapt
them to contemporary commercial practice and Incoterms 1990 were introduced.
There were numerous changes. The acronym FCR for Free Carrier was changed to FCA.
Since FCA could now be used for any form of transport, this meant that the trade terms FOR-
FOT and FOB Airport were now obsolete and could be removed. It was also at this point that
the concept of electronic documents (EDI) was introduced as part of the sellers duty to
provide proof of delivery and transport documents. The 1990 version of Incoterms had 13
individual terms - Ex-Works (EXW), Free Carrier (FCA), Free Alongside Ship (FAS), Free On
Board (FOB), Carriage and Freight (CFR), Carriage Insurance and Freight (CIF), Carriage paid
to (CPT), Carriage and Insurance paid to (CIP), Delivered at Frontier (DAF), Delivered Ex-Ship
(DES), Delivered Ex-Quay (DEQ), Delivered Duty Unpaid (DDU) and Delivery Duty Paid (DDP).

At its twenty-fifth session in 1992 the Commission considered a request of the Acting
Secretary-General of the ICC to endorse Incoterms 1990 for worldwide use. At that session,
the Commission was agreed that Incoterms 1990 had succeeded in providing a modern set of
international rules for the interpretation of the most commonly used trade terms in
international trade and decided to endorse Incoterms 1990. Therefore, Incoterms 1990 was
adopted by the ICC with a date of entry into force on 1st July 1990 and became available as
ICC publication no. 460.

When Incoterms came up for revision again in the late 1990s, it was difficult to see what
could be improved. There was some investigation with the FOB term in trying to find a
different point of transfer of risk, other than the ships rail (which was growing even more out
of date with each passing day), but in the end all attempts failed. There was also the concern
that since the risk passed over the ships rail, the trade terms FAS meant that the seller
escaped the obligation to clear the goods for export. This was changed and under Incoterms
2000 the export obligation became the sellers responsibility as opposed to the buyer with the
FAS term. A corresponding change was made in the clause DEQ, where, due to the fact that
the goods had to enter into the country of destination when landed on the quay, the seller
according to the previous versions of Incoterms had to arrange for import clearance. This
obligation became the buyers.

Another significant difference between Incoterms 2000 and 1990 was that the delivery
obligation under the FCA term was simplified. The 1990 version differentiated between the
means of transport and the named place of delivery. But under Incoterms 2000 the seller had
to always deliver to the carrier. If the agreed upon place of delivery is the sellers premises,
the seller was obliged to load the goods, otherwise the seller only had to make the goods
available.

Once we look at this history, it is easy to see why the changes between Incoterms 2000 and
Incoterms 2010 occurred. For example, the abolition of the ships rail as a point of transfer of
risk and responsibility had been considered over 10 years previously. Possibly the only
difference between the decision to change it being taken at the end of the first decade of the
21st century instead at the end of the last decade of the 20th century was that the concept
had become more acceptable in the meantime.

The same can be said of the removal of the phrases DAF, DES and DEQ. The last two date from
1936 effectively and since then the way we do business has changed enormously and both the
phraseology and what they stood for is no longer reflected current business practice.

And there is nothing to say that this process of refining and changing will not continue in the
future. For example, it will be interesting to see if the sea freight only terms of FAS, FOB,
CFR and CIF survive the next round of amendments.

Sources
Ramberg, Jan (Prof Ph.D)
Incoterms 2000 The Necessary Link between Contracts of Sale and Contracts of Carriage