Incoterms 2010 Explained for Vietnam Importers

Incoterms 2010 are eleven short trade terms that say who pays for transport, who carries the risk of loss, and who handles customs at each step of a sale. The International Chamber of Commerce (ICC) published them in September 2010, and they took effect on January 1, 2011. If you import into Vietnam, picking the right term can save you money and a lot of argument.

A term only applies if your contract says so. Write the term, the named place, and "Incoterms 2010," for example "FOB Hai Phong Incoterms 2010." The ICC says the term works best when the place or port is named as exactly as you can.

Source: ICC, Incoterms 2010 introduction and "How to use" notes (ICC text); ICC press release, September 16, 2010.

The eleven terms in two groups

The ICC sorts the terms into two groups. The first group works for any kind of transport, including trucks, trains, planes and containers. It has seven terms: EXW, FCA, CPT, CIP, DAT, DAP and DDP.

The second group is only for sea and inland waterway transport. It has four terms: FAS, FOB, CFR and CIF. Use these only when the goods travel by ship or barge from port to port.

For containers, the ICC notes that sellers usually hand the goods to the carrier at a terminal, not alongside the ship. In that case it points users to FCA instead of FAS.

Source: ICC, Incoterms 2010 text, introduction and guidance notes to FAS.

Where risk moves from seller to buyer

Risk is the question of who bears the loss if goods are damaged or lost. Here is where it passes under five common terms, as the ICC guidance notes describe them.

• EXW (Ex Works): The seller puts the goods at the buyer's disposal at its own premises. The buyer takes the cost and risk from that point. The seller does not have to load the goods or clear them for export.
• FCA (Free Carrier): The seller hands the goods to the carrier named by the buyer, and clears them for export.
• FOB (Free on Board): The risk passes when the goods are on board the vessel the buyer names at the port of shipment.
• CIF (Cost, Insurance and Freight): The risk also passes once the goods are on board at the port of shipment. The seller pays freight to the port of destination and buys insurance, but only minimum cover.
• DDP (Delivered Duty Paid): The seller bears all cost and risk to the named place in the buyer's country, and pays import duty and clears customs. The ICC calls it the maximum obligation for the seller.

Notice the catch with CIF and CFR. The seller pays for freight to the destination, but the risk has already passed to you at the port of shipment. If you want more than minimum insurance under CIF, agree it in writing or buy extra cover yourself.

Source: ICC, Incoterms 2010 text, guidance notes to EXW, FCA, FOB, CIF and DDP.

What is new compared with Incoterms 2000

The ICC cut the list from 13 terms to 11. Two new terms, DAT (Delivered at Terminal) and DAP (Delivered at Place), replace four older ones: DAF, DES, DEQ and DDU. Under DAT the goods are delivered unloaded at a named terminal. Under DAP they are delivered at a named place, ready for unloading.

For FOB, CFR and CIF, the old idea of risk crossing the ship's rail is gone. Delivery now happens when the goods are on board the vessel. The new rules also deal with security clearances and say more about insurance. The ICC also says the terms may now be used for domestic sales as well as international ones.

Source: ICC, Incoterms 2010 text, "Main features of the Incoterms 2010 rules"; ICC press release, September 16, 2010.

How Vietnam's Commercial Law fits in

Vietnam's Commercial Law of 2005 lets parties in a deal with a foreign side agree to apply international commercial practices. The limit is that they must not conflict with the basic principles of Vietnamese law (Article 5). The ICC itself warns that mandatory local law can override any part of a sale contract, including the chosen term.

The law also has default rules for risk. Unless the parties agree otherwise, risk passes to the buyer when the seller hands the goods to the first carrier, if the contract involves carriage and no delivery place is set (Article 58). Where a delivery place is fixed, risk passes when the goods are delivered there (Article 57). Naming an Incoterms term in your contract is a clear way to agree something different and exact.

The Vietnamese law text does not mention Incoterms by name. Ask a Vietnamese lawyer to check your contract wording. This is general information, not legal advice.

Source: Commercial Law No. 36/2005/QH11 of the National Assembly, Articles 5, 57 and 58 (English translation, luatvietnam.vn); ICC, Incoterms 2010 introduction.

Five checks before you sign

• Name the term, the place, and "Incoterms 2010" in the contract.
• Match the term to the transport. Do not use FOB or CIF for air freight or trucks.
• Ask who clears export and who clears import. EXW leaves export clearance to the buyer. DDP puts import clearance on the seller.
• Check the insurance. Under CIF, cover is only the minimum.
• Remember that the terms do not cover price, payment, or who owns the goods. The ICC says they do not deal with transfer of ownership. Write those points into the contract too.

If you are unsure, ask your freight forwarder to walk through one shipment, step by step, and mark who pays and who carries risk at each point.

Source: ICC, Incoterms 2010 text, introduction.

Sources

• ICC, Incoterms 2010 rules (official text, introduction and guidance notes): https://dejure.az/az/system/files/legislation/incoterms_2010_en_original.pdf
• ICC, "Incoterms 2010: revised trade rules for an inter-connected world," press release, September 16, 2010: https://iccwbo.org/news-publications/news/incoterms-2010-revised-trade-rules-for-an-inter-connected-world/
• Commercial Law No. 36/2005/QH11, English translation: https://english.luatvietnam.vn/law-no36-2005-qh11-dated-june-27-2005-of-the-national-assembly-on-commercial-17473-doc1.html