w.e.f 01 JANUARY 2011

What are INCOTERMS® Rules? INCOTERMS® Rules are the standard sets trading terms and conditions, designed to simplify communication and prevent misunderstanding between traders.

Three major issues between B and S WHO WILL DO WHAT “ TASK’ COST …..WHO WILL PAY WHAT WHO WILL HAVE THE “TECHENICAL” OWNERSHP WHEN

Division of Cost Transfer of Risk How does it help? Cost of Transport, Insurance and Loading & Unloading Charges Point of Risk and Responsibility transfer from Seller to Buyer

Division of Cost Transfer of Risk How does it help? Cost of Transport, Insurance and Loading & Unloading Charges Point of Risk and Responsibility transfer from Seller to Buyer

What Incoterms are ‘INCOTERM’, is an abbreviation of International commercial terms and is a term of the contract of sale (not contract of carriage) Contract of sales and not the contract of carriage: 1. cost 2. risk 3. Task/ responsibility INCOTERMS were first published by the ICC in 1936 and subsequently revised in 1953, 1967, 1980, 1990 ,2000 and 2010 Applicable for tangible goods only

11 Incoterms divided into 4 groups Groups of Incoterms 11 Incoterms divided into 4 groups Group Term Expansion Significance E - Departure EXW Ex Works F – Main carriage unpaid FCA FAS FOB Free Carrier Free Alongside Ship Free on Board Signifies that the seller must hand over the goods to a nominated carrier free of risk and expense to the buyer C – Main carriage paid CFR CIF CPT CIP Cost and Freight Cost, Ins & Freight Carriage Paid To Carriage & Ins Paid To Signifies that the seller must bear certain Costs even after the critical point for the division of the risk of loss of or damage to the goods has been reached D – Arrival DAT DAP DDP Delivered at Terminal Delivered at a Place Delivered Duty Paid Signifies that the goods must arrive at a stated Destination

Incoterms® 2010 In the second class , the point of delivery and the place of destination , are both PORTS

HIGHEST RISK TO IMPORTER HIGHEST RISK TO EXPORTER Risk profile of Incoterms LEAST RISK TO IMPORTER HIGHEST RISK TO IMPORTER HIGHEST RISK TO EXPORTER LEAST RISK TO EXPORTER DDP EXW

TERMS FOR ANY MODE OR MODES INCOTERMS 2010 TERMS FOR ANY MODE OR MODES

Ex-Works (EXW)

EXW – EX WORKS (…..named Place) The Seller fulfils his obligation to delivery when S has made the goods available at his premises (i.e. works, factor, warehouse, etc.) to the buyer. will not contract for any transportation Seller deliver the goods to a carrier appointed by buyer. Once collected by buyer , sellers responsibility ends not responsible for loading the goods on vehicle provided by the Buyer Not responsible for clearing the goods for export, unless otherwise agreed. 12 12 12

EXW – EX WORKS (…..named Place) The buyer Take delivery of goods at the seller’s premises make arrangement at his own cost and risk to bring the goods to the desired destination. Arrange for clearance at the sellers country also Arrange export license and pay for export duties Arrange insurance 13 13 13

Free Carrier (FCA)

FCA – FREE CARRIER (…..named Place) The Seller - to hand over the goods, cleared for export, into the charge of the carrier, at the named place or point. carrier named by the buyer to complete export, customs formalities and pay all duties and costs until handing over of goods GOODS NOT LOADED Provide evidence of delivery of goods to the carrier 15 15 15

FCA – FREE CARRIER (…..named Place) The Buyer Nominate carrier and Make arrangement at his own cost and risk to cover transport of goods to his own premises Responsible for all after the goods have been handed over by the seller to the appointed carrier This term may be used for any mode of transport, including multimodal transport. 16 16 16

Carriage Paid To (CPT)

(…..named place of destination) CPT – CARRIAGE PAID TO (…..named place of destination) The seller has the same obligation as under CFR. CPT term may be used for any mode of transport including multimodal transport whereas CFR can only be used for sea and inland waterway transport. contract for the carriage and must pay the costs and freight necessary to bring the goods to the named port of destination Deliver the goods into the custody of the first carrier Obtain export licence and pay export taxes and fees Furnish to the buyer the invoice and the usual transport document 18 18 18

(…..named place of destination) CPT – CARRIAGE PAID TO (…..named place of destination) The Buyer Accept delivery of goods when they are delivered to the first carrier and when the invoice , if customary, the usual transport docts are tendered to him. This term is used for air or ocean containerized shipments 19 19 19

Carriage and Insurance Paid To (CIP)

CIP – CARRIAGE AND INSURANCE PAID TO (…..named place of destination) The Buyer Accept delivery of the goods when they are delivered to the first carrier and when the invoice, the cargo insurance policy( certificate) and the usual transport document are tendered to him This term is used for air or ocean containerized shipments 21 21 21

CIP – CARRIAGE AND INSURANCE PAID TO (…..named place of destination) The seller has the same obligation as under CIF. contract for the carriage must pay the costs and freight necessary to bring the goods to the named port of destination Obtain export license and pay export taxes and fees , if required Obtain Contract for the insurance of the goods during the carriage and pay the insurance premium Furnish to the buyer the invoice , the usual transport document and a transport insurance policy However, this term can be used for any mode of transport including multimodal transport whereas CIF could be used only for sea and inland waterway transport. 22 22 22

Delivery at Terminal (DAT)

DAT – DELIVERED AT TERMINAL .....named port or place of destination) TAILORED FOR CONTAINER TRANSPORT FREIGHT CONDITIONS INCLUDE ENTIRE HANDLING CHARGES NEGOTIATED BY TRANSPORT COMPANIES AND PORT AUTHORITIES – “TRMINAL IN TERMINAL OUT “ The Seller seller fulfils his obligation to deliver when the goods are delivered to the buyer UNLOADED at the named place of desination. The seller has to bear the risks and costs, including duties, taxes and other charges for delivery of goods Obtain export licence and pay export duties , taxes and fees Not responsible to clear the goods for import, pay any import duty Carry out export custom formalities Provide docts to enable the buyer to take delivery at the named place 24 24 24

Delivery at Place (DAP)

DAP – DELIVERED AT PLACE .....named place of destination) The Seller seller fulfils his obligation to deliver 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 desination. The seller has to bear the risks and costs, including duties, taxes and other charges for delivery of goods Obtain export licence and pay export duties , taxes and fees Carry out export custom formalities and not import customs Provide docts to enable the buyer to take delivery at the named place 26 26 26

Delivery Duty Paid (DDP)

DDP – DELIVERED DUTY PAID .....named port of destination) The Seller seller fulfils his obligation to deliver when the goods have been made available at the named place in the country of importation. not unloaded but cleared for import The seller has to bear the risks and costs, including duties, taxes and other charges for delivery of goods duly cleared for importation. Obtain import licence and pay import duties , taxes and fees Carry out custom formalities Provide docts to enable the buyer to take delivery at the named place 28 28 28

DDP – DELIVERED DUTY PAID .....named port of destination) The Buyer get the goods unloaded Pay unloading charges take delivery of goods This term can used irrespective of mode of transport but if destination is on board a vessel or on the quay then DES or DEQ should be used . This term should not be used if seller is unable directly or indirectly to obtain the import licence 29 29 29

DDP – DELIVERED DUTY PAID .....named port of destination) The Buyer get the goods unloaded Pay unloading charges take delivery of goods This term can used irrespective of mode of transport . This term should not be used if seller is unable directly or indirectly to obtain the import licence 30 30 30

TERMS FOR SEA AND INLAND WATERWAY TRANSPORT INCOTERMS 2010 TERMS FOR SEA AND INLAND WATERWAY TRANSPORT

Free Alongside Ship (FAS)

FAS – FREE ALONGSIDE SHIP The Seller - obligations over when the goods have been placed alongside the vessel , on the quay or in lighter at the named port of shipment. Complete export and clearance requirement Does not include charges for loading the goods on board. Seller deliver the goods to a carrier appointed by buyer. Provide an ‘ALONGSIDE” receipt make arrangement with a shipping co for transport of goods . 33 33 33

FAS – FREE ALONGSIDE SHIP The Buyer Nominate carrier and make arrangement with a shipping co for transport of goods and pay the freight Obtain export licence an dpay export taxes and fees if required has to bear all costs and risks of loss or damage to the goods from that moment Used for Ocean shipments that are NOT containerized popular in the break-bulk shipments and with the importing countries using their own vessels This term can only be used for sea and inland waterway transport. 34 34 34

Free on Board (FOB)

FOB – (…..named port of shipment) The seller has the same obligation as under FCA. Deliver the goods on board Seller deliver the goods to a carrier appointed by buyer. Price is inclusive of ex works price , packing charges transportation charges etc until loading of goods on board. Provide export licence and pay export taxes, fees etc and pay also loading costs according to the custom of the port to the extent that they are not included in the freight Provide a clean on board receipt 36 36 36

FOB – (…..named port of shipment) The Buyer Nominate carrier Contract for the carriage and pay the freight. pay loading costs to the extent that they are included in the freight Pay unloading cost 37 37 37

Cost and Freight (CFR)

CFR – Cost and Freight(..named port of destinat) The seller- Seller must contract for the carriage and must must pay the costs and freight to bring the goods to the named port of destination Deliver the goods on board Obtain export licence and pay export taxes and fees Pay loading costs but the risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time the goods have been delivered on board the vessel, is transferred from the seller to the buyer when the goods pass the ship’s rail in the port of shipment. 39 39 39

CFR – Cost and Freight(..named port of destinat) The Buyer Accept delivery of the goods upon shipment , when the invoice and the bills of lading are tendered to him ; the bill of lading is deemed to “ represent the goods” pay unloading costs to the extent that they are not included in the freight This term is used for ocean shipments that are not containerized This term can only be used for sea and inland waterway transport. 40 40 40

Cost, Insurance and Freight (CIF)

CIF – (…..named port of destination)- International Carriage Paid by Seller The seller- must pay cost , insurance and freight contract for the carriage and deliver the goods on board must pay the costs and freight necessary to bring the goods to the named port of destination Obtain Contract for the insurance of the goods during the carriage and pay the insurance premium Pay loading costs but the risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time the goods have been delivered on board the vessel, is transferred from the seller to the buyer when the goods pass the ship’s rail in the port of shipment. 42 42 42

CIF – (…..named port of destination) The Buyer Accept delivery of the goods upon shipment , when the invoice, the cargo insurance policy( certificate) and the bills of lading are tendered to him ; the bill of lading is deemed to “ represent the goods” pay unloading costs to the extent that they are not included in the freight This term is used for ocean shipments that are not containerized This term can only be used for sea and inland waterway transport. 43 43 43

Incoterms-special points Insurance: There are only two terms which deal with insurance ie CIF and CIP. Under these terms seller is obliged to procure insurance for the benefit of buyer. In all other cases it is for the parties to decide them selves as to how to get covered. However seller must provide the buyer , upon request, with the necessary information for procuring insurance.

Incoterms-special points “Cleared for import in the country of destination”- seller is not responsible under any term except in the case of DDP. Seller is required to UNLOAD the goods from the arriving vehicle only in DAT. Should be clearly incorporated into contract of sale: FOB Mumbai ( name of place must), Incoterms 2010

What Incoterms aren’t? It’s not a Law. Incoterms must be specified in sales contracts in order to apply. This is normally done by citing the current Incoterms version in Pos and sales quotations Not all inclusive. Detailed situations beyond the scope of Incoterms must be covered elsewhere in sales contracts. It governs basically the responsibility btw S and B. Do not confuse with responsibilities btw Shipper , Carrier and Consignee under contract of carriage or with other contractual realtionships

What Incoterms don’t do Incoterms do not deal with What the S and B should do as matter of precaution in his own favour eg take out the insurance except in the case of CIF and CIP Consequences of breaches of contract Exemptions from liability owning due to various impediments Transfer of property rights in the goods Relief from obligations and exemptions from liability in case of unexpected events

FACTORS EFFECTING USE OF A PARTICULAR INCOTERM Status of the seller-Bargaining positions in the market Governmental conditions Bulk transaction

PRECAUTIONS WHILE USING INCOTERM Seller to refrain, wherever possible, from dealing in trade terms DDP where seller becomes responsible for the import customs clearance and/or payment of import customs duties and taxes and/or other costs and risks at the buyer's end. Similarly, it would be best for importers not to deal in EXW (Ex Works), which would hold the buyer responsible for the export customs clearance, payment of export customs charges and taxes, and other costs and risks at the seller's end.