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Ontario International Transport and logistics Section 8: Incoterms2010.

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Presentation on theme: "Ontario International Transport and logistics Section 8: Incoterms2010."— Presentation transcript:

1 Ontario International Transport and logistics Section 8: Incoterms2010

2 The INCOTERMS What is an INternational COmmercial TERM ? Since 1936, terms used by the member countries of the International Chamber of Commerce (ICC). Latest revision was in The INCOTERMS are a tentative for mutual agreement between two (2) parties with standardized interpretations. The INCOTERMS are recognized worldwide when incorporated in a commercial agreement.

3 WHY THE INCOTERMS® 2010 DOMESTIC USE: The INCOTERMS are also used more and more in national and domestic transactions (where no borders are involved). Example: European Union, Canada, USA, etc. USA: Desire of the USA to harmonize their commerce with the rest of the world by using the INCOTERMS internationally… and nationally.

4 WHY THE INCOTERMS® 2010 ELECTRONIC DOCUMENTATION: Use of the electronic documents as official documents, with acknoledgement of parties. SECURITY requirements at loading and unloading sites, at terminals, on route. Disapearing of the crane movement in the risk aspect.

5 THE INCOTERMS  Determines the obligations of the parties: A: The SELLER must... B: The BUYER must... ROLE 1: Stipulates who is responsible of: Organizing transportation, insurance, loading and delivery.

6 THE INCOTERMS ROLE 2: Establish transfer on who:. Pays for transportation;. Assumes risk of cargo while in transit. _______________  The choice of INCOTERMS will depend on the sellers tolerance to risk: ‘I am ready to go to...’

7 The INCOTERM should be part of the conversation in the negociation! The INCOTERMS are not laws and do not transfer the cargo ownership. Once indicated, the INCOTERM is part of the agreement and has legal power.

8 The INCOTERM should be part of the conversation in the negociation! The INCOTERM should be mentioned right at the start, in the negociation phase between the seller and the buyer. Then, be part of the agreement and\or the purchase order. Example: ‘The rule of Incoterm chosen is DAT Antwerp, Incoterms® 2010’. It is not an obligation to use an INCOTERM. However, if complications would occur in transit, this would avoid disputes and the famous...‘I thought that..’

9 DIFFERENCES: INCOTERMS 2000 and INCOTERMS® 2010 SIMPLIFIED: Now 11 INCOTERMS instead of 13, which 7 for all modes of transport and 4 for the maritime / waterways transportation. 4 Incoterms disappears and are replaced by 2 new ones: DAT replaces DEQ, while DAP replaces DAS, DES, DDU.

10 DIFFERENCES: INCOTERMS 2000 and INCOTERMS® 2010 INCOTERMS still regrouped in 4 groups:  Group E: Departure = EXW  Group F: Main Carriage Unpaid = FCA, FOB, FAS  Group C: Main Carriage Paid = CIP, CPT, CIF, CFR  Group D: Deliver = DAT, DAP, DDP In the official INCOTERMS ®2010 book, obligations from the seller are clearly identified by articles A-1 to A-10, while the obligations from the buyer, just like a mirror, are identified by articles B-1 to B-10

11 Complete informations and interpretations are found in the book published by The International Chamber of Commerce ICC Publication No. 715E, 2010 Edition

12 DETERMINIG THE SHARE OF RESPONSIBILITIES  A1: General obligations from the seller, as the preparation of paper or electronic documentation  A2: Licenses, authorizations, security fees and other formalities  A3: Transport contract and insurance  A4: Delivery  A5: Risk transfer  B1: General obligations from the buyer  B2: Licenses, autorizations, security fees and other formalities  B3: Transport contract and insurance  B4: Taking posession  B5: Risk transfer

13 DETERMINING THE SHARE OF RESPONSIBILITIES  A6: Share of costs (Avoiding double charges $)  A7: Buyer notice  A8: Documentation to prepare and submit  A9: Visual verification, security, packaging, labelling, bracing  A10: Support at transaction, informations  B6: Share of costs (Avoiding double charges $)  B7: Seller notice  B8: Proof of delivery, paper or electronic  B9: Visual inspection of the merchandize  B10: Support at transaction, informations

14 The 11 Incoterms ® RULES FOR ALL MODES OF TRANSPORT 4 RULES FOR OCEAN AND WATER WAYSTRANSPORT EXW Ex-Works FAS Free Alongside Ship FCA Free Carrier FOB Free On Board CPT Carriage Paid To CFR Cost and Freight CIP Carriage and insurance Paid To CIF Cost, Insurance, Freight DAT Delivery at Terminal DAP Delivery at Place DDP Delivered Duty Paid

15 WHICH INCOTERM TO USE TO REDUCE RISK? Origin: Where is the merchandise coming from? City? Region? Interior transportation (inland)? Destination: Where is the merchandise going? Port? Interior transportation? Client? Warehouse? Which types of transportation will be used? Ocean? Air? Rail? Road? Multimodal? Necessary handling? Manual? Lift truck? Crane? What is the merchandise? Heavy? Fragile? Perishable? Value $? Wrapping?

16 (Incoterm) FCA How to draft an Incoterm? A complete Incoterm includes an anglophone acronym of 3 letters. Ideally, MUST be followed of precisions concerning place of delivery or destination (Location) 1234,Park Avenue,Montréal (Specific instructions), Incoterms®2010 Indicates the responsibilities of the parties involved i ii. iii. Indicates the place of transfer of responsibilities Additional informations (optional) + Incoterms®2010

17 Multi-Modal Incoterms

18 EXW FCA CPT CIP DAT DAP DDP EXWFCA DDP CPT CIP DAP DAT CO$T Douane INCOTERMS MULTIMODAL TRANSPORTATION (7) RISK Douane

19 EXW Ex-Works The seller makes the goods available at his premises. The buyer is responsible for all charges. Example: EXW plant Boucherville, QC, Incoterms®2010

20 EXW (Ex-Works) * Suggested for domestic shipments COSTPAID byRISK by Loading at origin Buyer Local transport Buyer Local transport contract Buyer Documentation Seller*Buyer Export fees and docs Buyer Loading at carriers terminal Buyer Cargo insurance Optionnal International transport Buyer Terminal fees Buyer Customs clearance Buyer Import fees and taxes Buyer Destination local transportation Buyer

21 PARTICULARS for EXW ICC suggest to avoid when there is an export passage formality. Prioritize it for domestic transportation. Support to the buyer: Like indicated in A2 / B2: ‘Where applicable, the seller must provide the buyer, at the buyer’s request, risk and expense, assistance in obtaining pany export licence (ex. B- 13 for Canada), or other official authorization necessary for the export of the goods (ex. controlled goods for defence products in Canada).

22 PARTICULARS for EXW Delivery: Like stipulated in A4: In the case of the Incoterm used ‘EXW company dock, Southampton, UK’, where the seller has multiple locations: ‘If no specific point has been agreed, within the named place of delivery, and if there are several points available, the seller may select the point that best suits its purpose. The seller must deliver the goods on the agreed date or within the agreed period.

23 EXERCICE: EXW no 1 Example: SELLER – Loading the cargo The trucker arrives at your plant to pick up the cargo of it’s customer. Once verifications done (ID + proof of pick-up), you indicate the driver that he/she has to load the cargo him/herself. Q1. By indicating this, does the seller respect the Incoterm? Q2. If your shipping personnel helps the driver by loading and the lift truck fall on the side and damages the cargo, who is responsible? Q3. What precautions / indications can you give your shipping department to be compliant and protect my interest?

24 EXERCICE: EXW no 1 - ANSWERS Example: SELLER – Loading the cargo The trucker arrives at your plant to pick up the cargo of it’s customer. Once verifications done (ID + proof of pick-up), you indicate the driver that he/she has to load the cargo him/herself. Q1. By indicating this, does the seller respect the Incoterm? YES Q2. If your shipping personnel helps the driver by loading and the lift truck fall on the side and damages the cargo, who is responsible? BUYER Q3. What precautions / indications can you give your shipping department to be compliant and protect my interest? IDENTIFYING SKIDS / PALLETS

25 FCA FREE CARRIER The seller hands over the goods, cleared for export, into the custody of the first carrier (named by the buyer) at the named place. Example: FCA, 1234 Manheim, Munchen, GE, QC, Incoterms®2010

26 FCA (Free Carrier) *Suggested by ICC for export COST for FCAPAID by:RISK by: Loading at originSeller Local transportSeller* Local transport contractSeller DocumentationSeller- Export fees and docsSeller- Unoading at carriers terminalBuyer Cargo insuranceOptionnal International transportBuyer Terminal feesBuyer Customs clearanceBuyer Import fees and taxesBuyer Destination local transportationBuyer

27 PARTICULARS FCA Minimal obligation for international exchanges. The seller hands over the goods, cleared for export, into the custody of the first carrier (named by the buyer) at the named place. Can be more than one place. Specify. Guidance note, p.25: ‘If the parties intend to deliver the goods at the seller’s premise, they should identify INDICATE THE ADDRESS of those premises as the named place of delivery. If, on the other hand, the parties intend the goods to be delivered at another place, they MUST identify a different specific place of delivery’.

28 EXERCICE: FCA The seller is a sports clothing manufacturer in Sudbury, ON. The identified Incoterm in the transaction is FCA, Billy Transport, Incoterms®2010. Looking on the web, the seller sees that Billy Transport have offices in North Bay, Orilla and Mississauga. The seller delivers to Billy Transport in North Bay. Q1. Did the seller fulfilled it’s obligations stated by the chosen Incoterms? YES Q2. The buyer is not happy. He ‘assumed’ that the cargo would be available for his forwarder at the Toronto airport and asked Billy Transport to bring evertyhing to Mississauga and bill the seller. Is the buyer required to pay? NO As indicated at A4, page 28: If no specific point has been notified buy the buyer under B7 within the named place of delivery, and if there are several points available, the seller may select the point that best suit its purpose.

29 CPT CARRIAGE PAID TO The seller pays for carriage to the named point of destination, but risk passes when the goods are handed over to the first carrier. No insurance. Example: CPT warehouse Linde, Santiago, Chile, Incoterms®2010

30 CPT (Carriage paid to) COST for CPTPAID by:RISK by: Loading at originSeller Local transportSeller Local transport contractSeller DocumentationSeller- Export fees and docsSeller- Loading at carriers terminalSellerBuyer Cargo insuranceOptionnal International transportSellerBuyer Terminal feesSellerBuyer Customs clearanceBuyer Import fees and taxesBuyer Destination local transportationBuyer

31 CIP CARRIAGE AND INSURANCE PAID (named place of destination) Seller pays for carriage and insurance to the named destination point, but risk passes when the goods are handed over to the first carrier. Example: CIP Terminal, Hong Kong, Incoterms®2010

32 CIP (Carriage and insured paid to) COST FOR CIPPAID by:RISK by: Loading at originSeller Local transportSeller Local transport contractSeller DocumentationSeller- Export fees and docsSeller- Loading at carriers terminalSellerBuyer Cargo insuranceSellerBuyer International transportSellerBuyer Terminal feesSeller*Buyer Customs clearanceBuyer Import fees and taxesBuyer Destination local transportationBuyer

33 EXERCICE: CPT / CIP You are exporting electronic equipement by container from Shanghai, China to Liuk, Belgium, to your client warehouse. You DO NOT want to assume the risk of damage while in transit. Q1. Wich Incoterm(s) will you choose? Q2. If your client ask you to insure the cargo, witch Incoterm(s) are you going to use?

34 EXERCICE: CPT / CIP You are exporting electronic equipement by container from Shanghai, China to Liuk, Belgium, to your client warehouse. You DO NOT want to assume the risk of damage while in transit. Q1. Wich Incoterm(s) will you choose? CPT Liuk, Belgium, Incoterms®2010 Q2. If your client ask you to insure the cargo, witch Incoterm(s) are you going to use? CIP Liuk, Belgique, Incoterms®2010

35 DAT (New) DELIVERED AT TERMINAL Delivery occurs when the goods, once unloaded from the arriving means of transport, are placed at the disposal of the buyer at the named terminal. OCEAN TERMINAL Example: DAT Le Havre, France, Incoterms®2010

36 DAT (Delivery at Terminal) - Replaces DEQ COST for DATPAID by:RISK by: Loading at originSeller Local transportSeller Local transport contractSeller DocumentationSeller- Export fees and docsSeller- Loading at carriers terminalSeller Cargo insuranceOptionnal International transportSeller Terminal feesSeller Customs clearanceBuyer Import fees and taxesBuyer Destination local transportationBuyer

37 DAP (New) DELIVERED AT PLACE Delivery occurs when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. DESTINATION Example: DAP, 5 rue du collège, Lyon, France, Incoterms®2010

38 DAP (Delivery at Place) COST for DAPPAID by:RISK by: Loading at originSeller Local transportSeller Local transport contractSeller DocumentationSeller- Export fees and docsSeller- Loading at carriers terminalSeller Cargo insuranceOptionnal International transportSeller Terminal feesSeller Customs clearanceBuyer Import fees and taxesBuyer Destination local transportationSeller*

39 EXERCICE: DAT / DAP Q1. Who between the seller and the buyer should assume the terminal fees in DAT Incoterms®2010 ? Q2. Indicate the right Incoterms: You are exporting soap by container from Auckland, NZ to Montevideo, Uruguay. Your client will take care of the cargo at the terminal in the port of destination. A) Without assuming the risks of international transportation; B) By assuming the risk of international transportation; Q3. Witch Incoterm to use for a delivery by truck from Barrie, ON to Laredo, TX. DAT Laredo, TX or DAP Laredo, TX or DDP Laredo, TX?

40 EXERCICE: DAT / DAP Q1. Who between the seller and the buyer should assume the terminal fees in DAT Incoterms®2010 ? SELLER Q2. Indicate the right Incoterms: You are exporting soap by container from Auckland, NZ to Montevideo, Uruguay. Your client will take care of the cargo at the terminal in the port of destination. A) Without assuming the risks of international transportation; CPT, Montevideo, Uruguay, Incoterms®2010 B) By assuming the risk of international transportation; DAT, Montevideo, Uruguay, Incoterms®2010 Q3. Witch Incoterm to use for a delivery by truck from Barrie, ON to Laredo, TX. DAT Laredo, TX or DAP Laredo, TX or DDP Laredo, TX?

41 DDP DELIVERY AND DUTIES PAID This term means that the seller pays for all transportation costs and bears all risk until the goods have been delivered and pays the duties. Example: DDP client, Warsaw, Poland, Incoterms®2010

42 DDP (Delivery duty paid) The seller pays FOR EVERYTHING, including brokerage fees, the duties and the taxes!!! As sellers, use a freight forwarder to support you. You DON’T KNOW the players, the transporters, the culture and the business practices in the country of destination. Potential problems if permits, visas, etc, are required by the import country. Circumstances TO USE IT: might be useful for samples, low value or low volume merchandise.

43 4 Maritimes / Waterways Incoterms

44 FOB CIF CFR FAS CFR CIF CO$T Customs INCOTERMS EXCLUSIVE OCEAN (4) RISK Customs FAS FOB Origin port Destination port

45 FAS FREE ALONGSIDE SHIP (Name loading port) The seller must place the goods alongside the ship at the named port.

46 FOB FREE ON BOARD (Name loading port) The seller must themself load the goods on board the ship nominated by the buyer. Incoterm to use ONLY for transport by ocean or inland waterways. If the ‘crane loading’ movement doesn’t play a role, use FCA.

47 CFR, COST AND FREIGHT (named destination port) Seller must pay the costs and freight to bring the goods to the port of destination. CIF, COST, INSURANCE, FREIGHT (named port of destination) Seller must pay the costs and freight to bring the goods to the port of destination and must contract minimum insurance coverage for the buyer.

48 UCC TERMS (Uniform Commercial Codes)  Beside the Incoterms, there is in the United Sates different selling terms that can be used, such as the UCC terms.  Called ‘Terms of sale’ (Terms of sale), they define how we proceed at the sales. Just like the Incoterms, they specify the place where the seller delivers to the buyer, so where the risk is being shared.  All FOB = ‘Free on board’, meaning that the seller loads the transporter.  Still used intra-USA (50 states) and with Canada (called “the domestic market”).  Should be replaced by the Incoterms® 2010.

49 TERMES UCC (Uniform Commercial Codes): * Has often better rates. TERM OF SALEPays transport Chooses carrier Owns cargoMake claims FOB OriginBuyer FOB Origin, port paidSeller Buyer FOB Origin, port paid, re-billed SellerBuyer*Buyer FOB Destination, due port Buyer Seller FOB destination, port paid Seller FOB Destination, due port and authorized (re- billed) Buyer*Seller

50 What can happen to your cargo?

51 DIFFERENCE BETWEEN RESPONSIBILITY OF THE TRANSPORTER AND CARGO INSURANCE According to the Warsaw convention, the carriers responsibility is limited: _________________ Air:20$ USD / kg Ocean:500$USD / expedition units Road:4,41$CAD / kg Rail:0,92$CAD / lbs Warehousing:0,25$CAD / lbs _________________ This is why, in the majority of the cases, it’s good to protect shipments with additional cargo insurance. And pay attention, even if insurance is ‘included’ in CIF/CIP, verify that it’s adequate since it is minimal: Total lost Vs all risks.

52 WHY CARGO INSURANCE?  CIF / CIP: To respect the Incoterm as a seller  Protect my interests as a seller or as a buyer  Avoid arguments with transporters and clients and accelerate the claim process  By you forwarder or your insurance company  Always COUNT and manage your risk!  The insurable value of a shipment is defined as is: Value ($) indicated on the commercial statement + transport fees + 10 % + taxes (if applicable in country / territory)

53 IN CONCLUSION NEGOCIATION: The Incoterm must be part of the negociation right from the start IN WRITING: Must be marked on the agreement, the contract, the purchase order, your price lists (if applicable) RISKS: Reduce them to the minimum and use a good forwarder (develop a relationship) RESPONSIBILITY: The responsibility of the carriers is very limited INSURANCE: Calculate according to the value of your shipment and make sure that it’s ‘All risks’ PAYMENTS: Letter of credit


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