The Confusion of Using Incoterms for Domestic Shipping

Dear Cathy:

We are confused about Incoterms. I know the Incoterms are for international transactions, but my company tries to use them for domestic transactions.

Our sales team tells our domestic customers that the terms are:

• FCA Des Moines = Customer accepts Risk/Liability, or
• FOB Destination = We accept Risk/Liability.

When we use FCA Des Moines, Iowa, for domestic sales, we use our trucks, but the customer takes all risk from the time it leaves our plant. I do not think this is right. Are the two terms that we are using correct?

Plus, we have been looking for the Uniform Commercial Code (UCC) on the internet and cannot find anything on it. I noticed that you had published articles on this and would like to know if there is a website on just domestic terms.

Please help us resolve this dispute. We are at a loss! What should we do next, and where do we go for information?

Confidentially signed,
Confused Exporter in Iowa!

Dear Confused Exporter in Iowa:

You are not alone; there is confusion in the world of trade terms. Part of the reason for the confusion is the well-publicized change in the UCC Code effective in 2003. However, none of the states deleted the shipping terms, that well-known term of F.O.B. and often stated as F.O.B. Origin or F.O.B. Destination.

In 2002, the National Conference of Commissioners on Uniform State Laws (NCCUSL) repealed the “Shipment Terms, F.O.B., F.A.S. and C.I.F.” from Part 3 of Article 2 of the UCC or Uniform Commercial Code.

The code is not law; it is a set of rules that guides state legislatures in forming and establishing law. Each state decides when it will amend its laws to reflect the amendment to the UCC by the NCCUSL. The Cornell University Law School website has a directory of Uniform Commercial Codes by state.

According to Franklin G. Snyder, Professor of Law at Texas Wesleyan University Law School who writes the ContractsProf Blog, there were only three states who considered revising their law. None of those states considered eliminating the Shipment Terms, F.O.B., F.A.S. and C.I.F.

It seems that your company has taken a mix and match approach to selecting your domestic terms. Avoid the mix and match approach; use domestic terms for domestic transactions to be consistent with the law adopted by your state and supporting case law.

If your firm does decide to use the Incoterms for domestic transactions, do so with supporting language in quotations and contracts that explicitly define your firm’s responsibilities and the buyer’s responsibilities.

My advice is use the Incoterms for international transactions; use the terms adopted by your state for domestic transactions.

All the best!
Cathy