INCOTERMS 2000 First published by the ICC in 1936 ICC (International Chamber of Commerce) Official Rules for the Interpretation of Trade terms. Purpose is to provide a set of international rules for the interpretation of the most commonly used trade terms. These describing where risks lie between seller and buyer, responsibilities of each party and place of transfer of ownership. International Commercial Terms (INCOTERMS) Must say, “as per ICC 2000” or “Incoterms 2000” for it to be enforceable.

International Commercial Terms (Incoterms) What are Incoterms ? International Commercial Terms (Incoterms) First formulated by the ICC in 1936 A set of standardized guidelines that parties in different countries (and different legal environments) use for structuring the logistical elements of selling and buying goods. the risks and costs between the seller and the buyer via determining a specific place and time for delivery of the goods. Revision - 1990, 2000, and now the 2010 revision, applied from 1st Jan 2011. 2 2

What are Incoterms ? 3 3

Incoterms – Purpose and Scope Pricing terms, shipping terms, sales terms Define the rights and obligation of the parties to the contract of sale with respect to the delivery of goods sold. Provides a clear, universal set of standards for multi-lingual, multi-cultural, “multi-legal” usage -- very practical and based on business practices (not legal principles and abstract ideas) Specifies which party -- either the seller or the buyer -- has the obligation (to arrange and cover any costs) for (transport) carriage, (cargo) insurance, and (trade) compliance.

Payment Terms + Incoterms = Terms of Sale Incoterms are not Payment Terms (although payment timing is commonly tied to the event of delivery). Payment Terms + Incoterms = Terms of Sale 5 5

Four Groups of Incoterms Less Control More Control 1) “E” group 2) “F” group 3) “C” group 4) “D” group Seller Buyer More Control Less Control 6

Incoterms 2010 – What’s New? New Layout – Divided into two distinct sections Any Mode Terms: DDP, DAP, DAT, CIP, CPT, FCA, EXW Waterway/Maritime Terms: FOB, FAS, CFR, CIF As opposed to 2000 version that began with EXW and progressed to DDP – Least to most risk 11 Terms (Down from 13) DAF, DES, DDU, & DEQ have been removed and replaced by DAP & DAT respectively 7 7

Any Mode Terms EXW FCA CIP and CPT DAP, DAT and DDP 8 8

Sea and Inland Waterway Transport Terms FAS FOB CFR CIF 9 9

EXW EX WORKS (…named place) The “E”-term is the term in which the seller’s obligation is at its minimum. Seller delivers when goods placed at disposal of buyer Not obligated to put goods on truck, but usually does help anyway.

Incoterms 2010 The “F” –terms require the seller to deliver goods for carriage as instructed by the buyer. FCA FAS FOB Note: insurance and freight are responsibilities of buyer.

F Terms – General Considerations Main Carriage contracted by buyer Less work for seller, but less control over documents For documentary payment terms For US Exporters, EEI (Electronic Export Information) filings are typically done by forwarder Compliance – Documentation required 12 12

FCA FREE CARRIER (named place) Seller delivers when goods, cleared for export, to the carrier nominated by the buyer at a named place. Term may be used irrespective of the mode of transport. Seller obligated to load goods on arriving vehicle if it arrives at the seller’s premises. Seller not obliged to unload goods from his vehicle. Seller responsible for loading truck if at premises, but if delivered any other place they do not have to load it. Buyer at risk at this point.

FAS -FREE ALONGSIDE SHIP (…named port of shipment) Seller delivers when goods, cleared for export, are placed alongside the vessel Seller obliged to clear goods for export. The buyer bears all costs and risks of loss or damage to the goods from that moment. Terms can be used for sea or inland waterway transport only. Used to be the buyer who was responsible to clear the goods for export. Logic – it’s easier for those in home country to clear.

FOB – FREE ON BOARD (…named port of shipment) Seller delivers when goods, cleared for export, pass the ship’s rail at the named port of shipment. The buyer bears all costs and risks of loss or damage to the goods from that point. Term can be used for sea or inland waterway transport only. If intent is not to deliver goods across the ship’s rail, use FCA If not using sea, FCA should be used. Do not use FOB unless something unusual happens at the loading of ship. This is the oldest term and it is overused.

Incoterms 2000 The “C” –terms require the seller to contract for carriage at his expense – to a specified point. CFR CIF CPT CIP Note: carriage/freight is responsibility of exporter.

C Terms – General Considerations Most advantageous for seller Main Carriage contracted by seller Most control over documents More work for exporter than F Terms Under C Rules, buyers are responsible for the goods during the main carriage even though the seller has made the arrangements for main carriage 17 17

CFR – COST AND FREIGHT (…named port of destination) Seller delivers when goods, cleared for export, pass the ship’s rail at the named port of shipment. The seller pays the costs and freight necessary to bring goods to port of destination, but the buyer bears the risk of loss and additional costs occurring after delivery. Term can be used for sea or inland waterway transport. If intent is not to deliver goods across the ship’s rail, use CPT Mostly on commodities. Seller bears costs until delivery, but buyer bears the risks at that time.

CIF – COST, INSURANCE AND FREIGHT (…named port of destination) Seller delivers when goods, cleared for export, pass the ship’s rail at the named port of shipment. The seller pays the costs and freight necessary to bring goods to port of destination, but the buyer bears the risk of loss and additional costs occurring after delivery. The seller procures marine insurance, against buyer’s risk of loss. Seller is required to obtain insurance only on minimum cover. Term can be used for sea or inland waterway transport. If intent is not to deliver goods across the ship’s rail, use CIP. Buyer may want to supplement with own insurance. Same as CFR except insurance. Must have bill of lading.

CPT – CARRIAGE PAID TO (…named place of destination) Seller delivers the goods, cleared for export, to the carrier. The seller pays the costs of carriage necessary to bring goods to named destination, but the buyer bears the risk of loss and additional costs occurring after delivery. Term may be used irrespective of mode of transport. Can be used for every means of transport, therefore not bill of lading.

CIP – CARRIAGE AND INSURANCE PAID TO (…named place of destination) Seller delivers the goods, cleared for export, the the carrier. The seller pays the costs of carriage to named destination, but the buyer bears the risk of loss and additional costs occurring after delivery. The seller procures insurance against buyer’s risk of loss. Seller is required to obtain insurance only on a minimum cover. Term may be used irrespective of mode of transport.

D Terms – General Considerations “Arrival” Terms Main Carriage contracted by seller Seller responsible for goods until delivered (“arrived”) to specified location on the buyer’s side Not particularly advantageous if you’re looking for early revenue recognition 22 22

Incoterms 2000 The “D” –terms require the seller to take the goods all the way to destination at the border or within the country of import. DAF DES DAT DEQ DAP DDU DDP C-terms – shipment D-terms – destination, buyer clears goods for import.

What happened to DAF, DES and DDU? These three terms have been replaced by one term DAP (Delivered at Place) DAF (Delivered at Frontier) – Rarely used and limited to ground transport DES (Delivered Ex-Ship) – Limited to water shipments only DDU (Delivered Duty Unpaid) – Not appropriate for domestic shipments since duty was implied DAP can be used with any mode of transport – domestic or international 24 24

What happened to DEQ? DEQ (Delivered Ex-Quay) replaced by DAT (Delivered at Terminal) DEQ required the seller (shipper) to unload at the quay DEQ was limited to water transport DAT Requires the seller to unload at the quay, terminal, or warehouse Can be used with any mode of transport 25 25

DAT (Delivered at Terminal) Any mode (arrival) term – replaces DEQ Seller obtains export clearance and handles export compliance documentation Seller packages goods for transport and pays for all transportation costs to a named destination terminal Seller pays for unloading at the named destination (dock, warehouse, etc.) terminal on buyer’s side 26 26

DAP (Delivered at Place) Any mode (arrival) term Seller obtains export clearance and handles export compliance documentation Seller packages goods for transport and pays for all transportation costs to a named destination place on the buyer’s side Buyer responsible for unloading goods at the named place – this is the main difference b/t DAP and DAT 27 27

DAP (Delivered at Place) Continued Buyer responsible for import clearance and on carriage (if any) No insurance specified Freight Prepaid – Seller pays – Need to incorporate freight charges into invoice to buyer Seller must provide appropriate documentation for release of goods on buyer side This is important if on a L/C – flow of documents 28 28

DDP (Delivered Duty Paid) Continued Risky for exporter – dealing with foreign customs Buyer typically responsible for unloading at the point of delivery Insurance not specified Freight Prepaid – Seller pays – Need to incorporate freight and insurance charges into invoice to buyer An importer under DDP is not necessarily the importer of record since they are not clearing goods through Customs – this may affect Duty Drawback 29 29

Incoterms 2010 Chart Any Mode Terms Control of Costs Main Carriage Cost Risk of Costs Departure, Freight Collect EXW (Ex-Works) Buyer Main Carriage Freight Collect FCA (Free Carrier) Main Carriage Freight Prepaid CIP (Carriage & Insurance Paid To) Seller CPT (Carriage Paid To) Arrival, Freight Prepaid DAT (Delivered at Terminal) DAP (Delivered at Place) DDP (Delivered Duty Paid) 31 31

International Transport Documents

International Transport Documents BILL OF LADING International Transport Documents

Transport Documents

Terms of Payment in EXIM Advance Payment Export on Consignment Basis Open account Documentary Collection- Document against payment, Document against acceptance Letter of Credit