Executive Director – NAFL UAE Interpretation & Application By Shankar Subramoniam Executive Director – NAFL UAE

Incoterms - International Commercial Terms Published by International Chamber of Commerce (ICC) Purpose – to provide a set of international rules for the interpretation of the most commonly used terms in trading. They tell the parties what to do with respect to Responsibility related to carriage of goods from Seller to Buyer Export and import clearance Division of costs and risk Key elements to contracts of Sale Impacts on the contract of carriage Do not deal with Title or Payment INCOTERMS – International commercial terms Terms of Sale and not terms of carriage First version of INCOTERMS in 1936 Seven revisions done (1957, 1967, 1976, 1980, 1990, 2000, 2010)

Incoterms & Contracting practice Incoterms standardises contracting practice by Use of generally recognised key words Agreeing on most common understanding of such key words Avoiding misunderstandings in the use of them Problems remain because Commercial practice is inconsistent Variation of the key word may not be appropriate or clear The Incoterm is not sufficiently precise for that transaction The parties inadvertently choose the wrong term

Sea & Inland waterway only Incoterms 2010 The main divisions Any mode of Transport Sea & Inland waterway only Group E Departure EXW EX Works Group F Main Carriage Unpaid FCA Free Carrier FAS Free Alongside Ship FOB Free On Board * often (incorrectly) referred to as C&F, CNF, C+F etc. Group C Main Carriage Paid CPT Carriage Paid To CIP Carriage & Insurance Paid to CFR Cost and Freight * CIF Cost, Insurance & Freight Group E : Seller only makes goods available to the Buyer at Seller’s own premises. Group F : Seller is called upon to deliver the goods to a carrier appointed by the Buyer. Group C : Seller has to contract for carriage, but without assuming the risk of loss or damage to the goods or additional cost due to events occurring after shipment. Group D : Seller has to bear all costs and risks needed to bring the goods to the destination. Set1 : EXW, FCA, CPT, CIP, DAT, DAP, DDP : can be used in cases where a ship is used for part of the carriage. Set 2 : FAS, FOB, CFR, CIF : The point of delivery and the place to which the goods are carried to are both Ports. All mention of the ship’s rail as the point of delivery has been omitted. They are ‘delivered’ when they are ‘on board’ the vessel. Group D Arrival DAT Delivered At Terminal DAP Delivered At Place DDP Delivered Duty Paid

Obligations SELLER BUYER General Obligations 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. General Obligations Licences, authorisations, security clearances and other formalities Contracts of carriage and insurance Delivery Taking Delivery Transfer of risks Allocation of costs Notices to the Buyer Notices to the Seller Delivery Document Proof of Delivery Checking – Packaging – Marking Inspection of goods Assistance with information and related costs

Incoterms EXW Key Points : Minimum obligation for the Seller. 2010 Key Points : EXW Minimum obligation for the Seller. Delivery : Placing goods at disposal of Buyer at Seller’s premises or at another named place. Evaluate using FCA if Seller has to load on to Buyer’s vehicle. Seller must not use where more export ‘control’ is required or in safety-sensitive operations. Buyer should not use EXW if they cannot obtain export clearance. EX WORKS (...named place of delivery) Transport : Sea - conventional Sea - containerised Road Rail Air Combinations Seller delivers when he places the goods at the disposal of the Buyer at the Seller’s premises or another named place (i.e. works, factory, warehouse) not cleared for export and not loaded on any collecting vehicle. HSE implication of Buyer’s loading vehicle. Minimum obligation for the Seller Suitable for domestic trade, for international FCA is more appropriate. Buyers should not use EXW if they cannot directly or indirectly obtain export clearance.

Incoterms FCA Key Points : 2010 Key Points : FCA Covers all modes of transport incl. multimodal Delivery Seller’s premises : Load on Buyer’s vehicle Other places : Placed at disposal of Buyer (unloading by Buyer). Seller’s costs can be negotiated as part of the ‘delivery’ obligations Seller is responsible for the Export clearance No obligations on the Seller for freight and/or insurance unless requested. FREE CARRIER (...named place of delivery) Transport : Sea - conventional Sea - containerised Road Rail Air Combinations Seller delivers the goods, cleared for export, to the carrier nominated by the Buyer at the named place. The chosen place of delivery has an impact on the obligations of loading and unloading the goods at that place. If delivery occurs at Seller’s premises, Seller is responsible for loading (collections & container) If the delivery occurs at any other place, Seller is not responsible for unloading.

Incoterms CPT Key Points : 2010 Key Points : Delivery : Goods handed over to carrier or nominee at agreed place. Risk & cost transferred at different places. ** Seller contracts for the freight to a destination place , which can be a port OR an inland destination. Seller to clear goods for export. Discharging costs, except where included in the freight, are for the Buyer. CPT CARRIAGE PAID TO (...named place of destination) Transport : Transport : Sea - conventional Sea - containerised Road Rail Air Combinations Seller delivers the goods to the carrier or another person nominated by the Seller at an agreed place. Seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination. Risk and costs are transferred at two different places. The default position is that risk passes when the goods have been delivered to the first carrier at a point entirely of the Seller’s choosing and over which the Buyer has no control. Parties can agree for risk to pass at different point, but be explicit in the contract. Seller to clear the goods for export

Incoterms CIP Key Points : As CPT, except 2010 Key Points : As CPT, except Seller contracts for insurance (minimum cover) to the destination place , which can be a port OR an inland destination. Insurance is contracted and paid for on behalf of the Buyer. ** Risk passes to Buyer at first point of handover to Carrier CIP CARRIAGE AND INSURANCE PAID TO (...named place of destination) Transport : Transport : Sea - conventional Sea - containerised Road Rail Air Combinations

Incoterms DAT Key Points : Irrespective of mode of transport. 2010 Key Points : Irrespective of mode of transport. Delivery : Unloaded from arriving means of transport, placed at disposal of Buyer. Specify point within the Terminal / Port Do not use if Seller has to arrange transport further. Arrival dates become an issue (all ‘D’ terms) Seller’s risk upto destination !! DELIVERED AT TERMINAL (...named Terminal at Port or place of destination) DAT Transport : Transport : Sea - conventional Sea - containerised Road Rail Air Combinations

Incoterms DAP Key Points : Irrespective of mode of transport. 2010 Key Points : DELIVERED AT PLACE (...named Place of destination) Irrespective of mode of transport. Delivery : Placed at disposal of Buyer in arriving transport. Seller has no obligation to clear the goods for import. Arrival dates become an issue Note movement of Seller’s risk to destination !! DAP Transport : Transport : Sea - conventional Sea - containerised Road Rail Air Combinations

Incoterms DDP Key Points : Irrespective of mode of transport. 2010 Key Points : Irrespective of mode of transport. Delivery : Goods are cleared for import, placed at disposal of Buyer on the arriving transport. Maximum obligations for the Seller. Requires payment of all duties and taxes by the Seller, at import into the destination country. Seller should not use DDP if unable to obtain import clearance. DELIVERED DUTY PAID (...named place of destination) DDP Transport : Transport : Sea - conventional Sea - containerised Road Rail Air Combinations

Incoterms FAS Key Points : For sea or inland waterway transport. 2010 Key Points : For sea or inland waterway transport. Delivery : goods are placed alongside the vessel (quay/barge) nominated by Buyer. Costs for loading to main carrier are for the Buyer No obligations on the Seller for freight and/or insurance. For containers, FCA to be used. Seller to clear goods for export. FREE ALONGSIDE SHIP (...named port of shipment) FAS Transport : Sea - conventional Sea - containerised Road Rail Air Combinations

Situation …. Seller : Warehouse in Jebel Ali, 2 kms from Port Buyer : Customer in Kuwait Goods : Chemicals in drums Sale terms : FOB Jebel Ali Discharge port : Kuwait Who arranges contracts of carriage? Operations Container / Truck arranged by forwarder nominated by Buyer Seller loads goods onto the container at Seller’s premises Truck leaves for port and meets with accident en route. Container falls on the quay while loading on ship Container falls on the deck while loading

Incoterms FOB Key Points : For sea or inland waterway. 2010 Key Points : For sea or inland waterway. Delivery : Risk passes when the goods are delivered on board the vessel. Costs for loading are for the Seller. Seller is responsible for the Export formalities No obligations on the Seller for freight and/or insurance Right of access only for carrier’s receipt. Do not use for containers. FREE ON BOARD (...named port of shipment) FOB Transport : Sea - conventional Sea - containerised Road Rail Air Combinations If the parties do not intend to deliver the goods across the ship’s rails, the FCA term should be used. When selling containers on FOB, control is passed to the carrier or agent but Seller retains the risk. Seller must provide the Buyer at the Seller’s expense with the usual proof of delivery. Functions of B/L – Receipt of goods, Document of Title, evidence of contract of carriage.

Incoterms CFR Key Points : As FOB, except 2010 Key Points : COST AND FREIGHT (...named port of destination) CFR As FOB, except Seller contracts for the freight to the destination port on behalf of the Buyer. ** Discharge & transit costs, except where included in the freight, are for the Buyer No obligation on Seller to provide (where relevant) copy of Charter Party Seller has right of access of B/L Transport : Sea - conventional Sea - containerised Road Rail Air Combinations

Incoterms CIF Key Points : As CFR, except 2010 Key Points : CIF COST INSURANCE AND FREIGHT (...named port of destination) As CFR, except Seller contracts for insurance to the destination port . Insurance is contracted on behalf of the Buyer. ** Transport : Sea - conventional Sea - containerised Road Rail Air Combinations

On-line resources http://www.iccwbo.org/incoterms/ http://www.mantissa.co.uk http://www.linkedin.com/groups/INCOTERMS-3347103?trk=myg_ugrp_ovr http://navgath.blogspot.com/