The Incoterms 2010 and Incoterms 2020 revisions are of particular interest to companies in the United States (and their trading partners) for the following reasons.
Incoterms vs the Uniform Commercial Code
Trade practitioners in the U.S. will be aware that the terms FOB, CIF and so on are defined within the United States federal Uniform Commercial Code (UCC). First published in 1952, UCC covers many aspects of commercial contracts. It contains “shipment and delivery” provisions that have similar aims to those of the Incoterms rules.
Some UCC expressions have the same three-letter abbreviations as those within the Incoterms system; but their definitions are totally different. Notoriously, “FOB” can have a number of different meanings within UCC, most of which do not correspond with the ICC Incoterms FOB definition.
There is a crucial difference between UCC and the Incoterms rules
The Incoterms rules are by design independent of all legal systems – trading partners agree to incorporate a rule into their commercial agreements. However the UCC provisions must be adopted by each US state or territory.
In 2004, the situation was confused by publication of a major revision of UCC, abolishing many of these terms. However for reasons unrelated to the “shipment and delivery” provisions, this revision ran into huge opposition from many states. So in 2011 the sponsors withdrew these amendments.
There remain variations in the adoption of aspects of UCC by some US jurisdictions, to suit local conditions.
The logical solution to this confusion is to standardise on the use of ICC Incoterms rules for all transactions, whether domestic or international.
The recent Incoterms revisions has been drafted to make the interpretation of the rules very straightforward for domestic trades. For example, all obligations in respect of import or export procedures need only be considered ‘where applicable.’