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)

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 1 st Jan 2011.

What are Incoterms ?

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.

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

Four Groups of Incoterms

Less Control Seller More Control 1) E group 2) F group 3) C group 4) D group More Control Buye r Less Control

Incoterms 2010 Whats 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

Any Mode Terms

EXW FCA CIP and CPT DAP, DAT and DDP

Sea and Inland Waterway Transport Terms

FAS FOB CFR CIF

EXW EX WORKS (named place)

The E-term is the term in which the sellers obligation is at its minimum. Seller delivers when goods placed at disposal of buyer

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

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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 sellers premises. Seller not obliged to unload goods from his vehicle.

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.

FOB FREE ON BOARD (named port of shipment)

Seller delivers when goods, cleared for export, pass the ships 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 ships rail, use FCA

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

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CFR COST AND FREIGHT (named port of destination)

Seller delivers when goods, cleared for export, pass the ships 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 ships rail, use CPT

CIF COST, INSURANCE AND FREIGHT (named port of destination)

Seller delivers when goods, cleared for export, pass the ships 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 buyers 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 ships rail, use CIP.

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.

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 buyers 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 buyers side
Not particularly advantageous if youre looking for early revenue recognition

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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

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

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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
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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 buyers side
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 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 buyers side Buyer responsible for unloading goods at the named place this is the main difference b/t DAP and DAT 27

DAP (Delivered at Place)

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
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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
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Incoterms 2010 Chart

Any Mode Terms
Departure, Freight Collect

Control of Main Carriage Costs Cost

Risk of Costs

EXW (Ex-Works)
Main Carriage Freight Collect

Buyer Buyer Seller Seller Seller Seller Seller

Buyer Buyer Seller Seller Seller Seller Seller

Buyer Buyer Buyer Buyer Seller Seller Seller

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FCA (Free Carrier)

Main Carriage Freight Prepaid

CIP (Carriage & Insurance Paid To) CPT (Carriage Paid To)
Arrival, Freight Prepaid

DAT (Delivered at Terminal) DAP (Delivered at Place) DDP (Delivered Duty Paid)

International Transport Documents

International Transport Documents

BILL OF LADING

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