The International Chamber of Commerce (ICC) sat down with Incoterms 2020 Drafting Group member, Bob Ronai, to learn more about the Incoterms rules drafting process and the upcoming launch of Incoterms 2020.
TC: Hello my name is Tim Conley. Welcome to a Day in the Life of the Incoterms® rules. ICC is the international body that drafts and maintains the Incoterms® rules. As part of this series and in anticipation for the launch of Incoterms® 2020, we are going to sit down and talk with some of the practitioners of the Incoterms® rules.
On today’s episode, I will be discussing the Incoterms rules with Bob Ronai. Over the past half century, Bob has devoted his life to international trade. From working directly on the docks with shippers to teaching classes on the proper use of the Incoterms rules – Bob has seen it all. Today, he’s a member of the Incoterms® 2020 Drafting Group and also a proud administrator of the highly successful INCOTERMS Linkedin Group. Hope you enjoy…
In your own words, what are the Incoterms® rules?
BR: What are they?
They’re rules for sellers and buyers, where they would typically and traditionally use three letter abbreviations, which have assumed certain meanings, but these meanings have been very variable over the years. The Incoterms® rules define the meanings of those three letters. Otherwise, you might use X, Y,and Z, or A, B, and C, and hope that both parties know what they mean. Without reference to Incoterms® 2010, Incoterms® 2020, then you simply have just three letters.
TC: What led you to start working with the Incoterms® rules? Briefly describe your background. Was this always something that you wanted to work in?
BR: I’ve been involved in international trade in the back office side of things for a little over five decades. It was probably around Incoterms® 2000 that I started getting really interested because I was doing training seminars actually from 1991 in Australia on the back office – on documentation and so forth – so I had to find out really what Incoterms were about. Then when Incoterms® 2000 came out, I did a series of training seminars – without any reference to ICC – just looking at the book and analysing it and doing the training. When Incoterms® 2010 was being written, I had through our national committee some input. Then, when 2010’s publication for the ICC Guide on Transport and the Incoterms® rules was mooted, I heard about that and put my hand up as a contributor. Gradually, the large number of contributors fell off until it was Emily [O’Connor] running it, three lawyers from Europe, and me. I would constantly say: but, that’s not how it works guys. That might be it in Europe, but it’s not how it works elsewhere. I’m going to make sure that the Incoterms rules reflect more closely what actually happens out there – not what European lawyers think happens.
TC: What are some of the hurdles that you face as a member of the Incoterms 2020 Drafting Group and that the Incoterms 2020® Drafting Group in general faces and how did you overcome them over this process?
BR: The biggest hurdle is the process. In that, we had to dissect Incoterms® 2010, make suggested improvements, then disseminate them to the national committees, and then wait. We got hundreds of responses. The Incoterms® rules are universal. They are not single country, or single customs union-type problems. You can’t isolate the problem to the EU. It has to be does it affect somebody in Ghana? Does it affect somebody in Bangladesh? Or in the United States? Or in Argentina? They have to be universal.
TC: That’s from the perspective of an Incoterms® 2020 Drafting Group member, but you mentioned previously that you had been running trainings in Australia before becoming a member of the Incoterms® 2020 Drafting Group. Could you share a story, or an experience, from that point in your career, where your experience with the Incoterms rules helped a company from facing a costly decision or mistake?
BR: Yes, quite a few times actually, especially when I had financial controllers in my groups. I would explain that, for example, that in CIF, the seller would be insuring for the buyer’s risk and that importers, therefore, should not be saying on the annual visit to their insurance broker: “OK, so what were your imports for the year?” and then happily paying a premium on all of those imports when they actually did not have to insure it because there is already CIF from the seller. And, ditto with FOB and CFA – using that in the common way- that a seller may have felt that they do not need to import goods because it’s the other guy’s risk. What happens if the other guy actually doesn’t pay and your cargo is sitting on the wharf at the other end of the world at risk?
In fact, I used as an actual example, where a client had an open marine policy and it was only for one route. They had taken out an open marine policy and said to their broker, “where are you shipping to?” and they told them. Then, they had a different shipment. Different route. The container ship broke off in two off the Middle East. All cargo was lost. The insurance company denied liability. We had using their online system obtained a certificate of insurance using that policy. When I asked for the copy of the policy…it said it was only for this particular destination, unless subsequently amended. By issuing the certificate for this other destination, they had subsequently amended it. The client then took it to their lawyer, who got $100,000 out of the insurance company. It’s a necessity to understand the Incoterm rules that you are selling under or buying under and where liabilities change.
TC: People oftentimes just associate the Incoterms® rules with importers and exporters, but obviously, there are other communities. You just mentioned a few. Bankers need to know these rules, insurance companies to an extent need to know these rules.
BR: Yeah, the biggest problem I think is that most people see the Incoterms rules as a price point. Give me your FOB price. Give me your CFR price. Give me your Ex-works price. Give me your CPT price…without understanding that behind that there are liabilities, responsibilities, and costs – but not just costs. This is one of the things that I will be emphasising during my training seminars – that it’s not just costs. If you look at most of the charts that are out there on the internet, especially from freight forwarders, they are always about cost.
TC: It’s an interesting point. We discussed this briefly, but being a practitioner of the Incoterms rules, how did you feel when you were serving of the Incoterms® 2020 Drafting Group, which I believe is mostly composed of lawyers, right? Were you able to bring some of these real-life experiences to the table?
BR: Oh yeah…oh yeah. From a personal observation, it’s the best, most fun, intellectual pursuit that I’ve had over the course of my career. From a practical side of things, I kept hammering that we had to write the Incoterms rules in plain English – not legal English – with a sentence structure in such a way that somebody who is not a native English speaker could understand them. This is the market for the publication of the Incoterms® rules. It’s not lawyers. Now, ICC says: “Yes, it’s written in plain language!” Absolutely, I would keep thumping it, and thumping it, and thumping it.
TC: It speaks volumes about how important each rule is…each comma…
BR: Absolutely, look we agonised over them.
TC: And that last story really solidifies the fact that this group spent so much time and long hours devoting your hours to the Incoterms® rules.
BR: Well, I reckon that each of us…probably…well, OK, my travel time was longer. I estimated at one point that including travel time for the conference in Paris and the conference in Beijing. I didn’t go to the two in London. I called in instead on Zoom. I estimated that my time involved has been some 800 hours…and it hasn’t stopped.
TC: Having been involved with the Incoterms rules for 800 hours…
BR: You have to be mad or dedicated…or both!
TC: As you mentioned, being a dedicated person that is actively involved in the INCOTERMS Linkedin Group and other online forums…
BR: You got be passionate…you got to be passionate. Look, I’m 73, I’m kinda semi-retired these days. I’m starting to wind back and I’ve had the time to do this. I’ve got a certain level of knowledge and I’ve got the choice to make: do I just say, “stuff up, I’m retiring guys, and you can all go to buggery”? Or, do I try to pass on some of the knowledge and experience, so that others can benefit. I’ve chosen to do that. That’s my choice. I feel a responsibility.
I’ve learnt from other people and I feel like I’ve got that responsibility to pass on that knowledge and experience because times have changed. I go back to the days, where a corporation would have a dedicated shipping department with somebody who knew what the hell was going on. When you would go down to the wharf sometimes and even get invited on the ship by the captain and have lunch with them. They were the good ole’ days as people would call it when the ship might be in port for three or four days.
Then, the containerisation took that away and the speed of operations, port security, and all of that stuff. I used to take my staff down to the wharf, by arrangement, and we would go on board the vessel to show my staff what the heck the thing was. That’s gone. A big effort with Incoterms® 2020that has been made by ICC is to get the word out. We were adamant in our very first meeting. We were saying guys this has to get out to more people. If it’s only going to get out to the same number of people, as Incoterms® 2010, then we are wasting our time. The intent of the Drafting Group from day one was this is important. Every trader should know about this.
We have got to get the word out because too many people are stumbling around in the dark using three letter abbreviations thinking they know what they mean and their trading partner using the same three letter abbreviation thinking they know what they mean. But, in actual fact, the two parties don’t know what each other means. It’s fine when nothing goes wrong, but when something goes wrong, then the arguments develop [and] somebody loses an argument. Incoterms® 2020, hopefully, will help people understand their obligations, responsibilities, and risks. [Incoterms® 2020] will help them avoid dispute because when both parties understand the definitions of the three letters – oh gee – suddenly you have some sweetness and light out there!
TC: Do you see the Linkedin group as a forum of active Incoterms users that can help you and others stamp out misinformation?
BR: Absolutely. Where else are you going to get close on 20,000 people reading about the Incoterms® rules? – only one forum. Where are you going to get that? There’s nowhere. So, let’s hope that Linkedin keeps going.
TC: Is there anything else you would like to say on the topic of the Incoterms® rules, or the Incoterms® 2020 Drafting Group in general? I’ll give you an open floor…
BR: The importance of the Incoterms rules have not been realised by the vast majority of traders out there. We have a huge responsibility to get the knowledge out. I’m very pleased to see the number of national committees that have already put their workshops up on the website. There’s stuff happening and it’s getting out there courtesy of the internet. I think that’s another benefit that Incoterms® 2020 has over Incoterms® 2010. The ubiquity of the intern – which wasn’t there for Incoterms 2010. We were still using faxes a lot. Now, everything is at our fingertips, on the internet, on our mobile phones. That’s a huge boon for ICC to get these rules out there and known by probably five to ten times the number of people that knew Incoterms® 2010.
I am very thankful for having the opportunity to be one of the members of the Incoterms® 2020Drafting Group. I treat it as a privilege and I treat it as having been that opportunity to indulge my passion to help craft a new set of rules with a new way of saying what these rules are. The non-legal way, that we have been able to craft [the Incoterms® rules] for the majority of users to understand easily what they are about and not to be confused by the language or the format.