Incoterms 2011

Incoterms 2010
A Special Presentation by

The Louisiana District Export Council and
the U. S. Export Assistance Center of New
Orleans
1

Incoterms 2010

Presented by:
Bill Cummins
Executive Director
Global Trade Services
J. P. Morgan Chase

2
Who publishes and
copyrights Incoterms?
3
1 2 3
14%
86%
0%
1. The World Trade Organization
2. The Interstate Commerce Commission
3. The International Chamber of Commerce
Incoterms address the legal
transfer of title for goods.
4
1 2
43%
57%
1. True
2. False
Incoterms can be used for the
transfer of both goods and
services?
5
1 2
30%
70%
1. True.
2. False.
How excited are you to be learning
about Incoterms 2010?
6
1 2 3 4
33%
11%
22%
33%
1. Very Excited!
2. Somewhat excited.
3. Just glad to be out of the
office.
4. My boss made me do it.
Incoterms 2010

In todays presentation, we will address --

The International Chamber of Commerce and
its role in international trade.
The significance of the new shipping terms.
What the new Incoterm rules are, why some
were changed and what Incoterms are not.
Whats the likely future impact of the new
Incoterms on business practices.
7
Incoterms 2010

DISCLAIMER:

I am Not an Incoterm Expert, A Practitioner Only
I am Not an Attorney (no legal advice given!)
I am Not a CPA

AND I AM NOT FRANK REYNOLDS!
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Incoterms 2010
Who is FRANK J. REYNOLDS?

See page 122 of Incoterms 2010 (the book)
Frank is a long-time international marketer, industry
consultant and (prolific) author on intl trade
Associated with the USCIB and the U. S. rep to the ICC on
Incoterms (2000 and 2010); the only non-lawyer on the ICC
committee for shipping terms.
He is the USA guru on International Commercial Terms!
His seminars are largely sold-out, one day programs (and
expensive); but highly recommended!

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Incoterms 2010
Who is FRANK J. REYNOLDS?

President, Intl Projects, Inc.
Tel: 419 865 6201
Email: FJR424@aol.com
Based in Toledo, Ohio
Does freelance consulting
For a listing of his seminars, go to
www.iccincoterms2010.org

10
Incoterms 2010

Other Resources on Incoterms

Buy Franks book, a great resource --

I ncoterms For Americans

Also, coming out in early 2011 will be The Guide to I ncoterms
by the ICC (very basic, pictorial guide; excellent desk reference book
with lots of pictures!), authored by Jan Ramberg

The ICC Wall Chart for those who need a handy cheat sheet (and see
copy at end of this presentation)

The latter two items are ICC publications and available from
www.iccbooksusa.com
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Incoterms 2010

What is the International Chamber of Commerce (ICC)?

Founded in 1919 (in Paris)
Representatives from over 120 countries
Represents the views of the Private Sector on the practical elements of
conducting international trade and investment.
Very highly regarded and viewed as having legitimacy and authority in
most countries; a knowledgeable and reliable resource on intl trade.
Key services include Intl Court of Arbitration, ICC Chamber of
Commerce Network.
Works closely with the WTO and the U.N., and G20
Has a large framework of working committees that address key sectors
and makes available rules and guidelines in areas as Finance, IT,
Transportation and more . . . .
See page 126 of your book

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Incoterms 2010

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 emphasis is on delineating (in a sales transaction of tangible goods)
the risks and costs between the seller and the buyer via determining a
specific place and time for delivery of the goods.
For decades, the ICC just revised Incoterms as needed (as in early 80s
replacing C& F with CFR ) but has been on a 10 year cycle since 1990,
then 2000, and now the 2010 revision.
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Incoterms 2010


International Commercial Terms (Incoterms)

With the 2010 version, the word Incoterms becomes a registered
trademark of the International Chamber of Commerce in Paris.
(And I understand they intend to aggressively protect this mark!)

And for the first time these terms are now referred to as RULES

Will be in some 36 (or more) languages
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Incoterms 2010


Abbreviated in a three letter format, and the abbreviations are always in
English.

Typically quoted with a specific geographic location of delivery, as Ex
Works Sellers Plant (500 Annunciation Street, New Orleans, LA USA)
or can be as simple as FOB Any USA Port (but usually best to be specific
as you can).
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Incoterms 2010
Why revise Incoterms beginning 2011?

THE TOP TEN REASONS TO REVISE INCOTERMS!

10. Desire by the ICC to have a universal set of shipping terms that could be
used for domestic and well as international shipments.

16
17
Incoterms 2010


10. Desire by the ICC to have a universal set of shipping terms that could be used for
domestic and well as international shipments.

9. In the USA, the national council that oversees the Uniform Commercial Code
recommended the deletion of the section addressing shipping terms (the so-called
FOB terms), Article 2.319 through 2.324 (as a part of an overall review of the
UCC in 2004). Slowly, states are adopting this change (and some may adopt
Incoterms, most have so far done nothing). WHAT HAS LOUISIANA DONE?

18
Incoterms 2010



10. Desire by the ICC to have a universal set of shipping terms that could be used for domestic
and well as international shipments.

9. In the USA, the national council that oversees the Uniform Commercial Code
recommended the deletion of the section addressing shipping terms (the so-called FOB
terms), Article 2.319 through 2.324 (as a part of an overall review of the UCC in 2004).
Slowly, states are adopting this change (and some may adopt Incoterms, most have so far
done nothing). WHAT HAS ALABAMA DONE?

8. Also in the USA, the adoption of Sarbanes-Oxley requiring greater verification (and
liability to senior managers/board of directors) that financial reporting is accurate and in
regulatory compliance -- AND INCOTERMS CAN IMPACT REVENUE AND
PAYABLES RECOGNITION (WHY?)
Incoterms 2010


7. Desire by the Europeans to modify -- and simplify -- shipping terms reflecting
greater trade volumes within the EU.

19
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Incoterms 2010



6. The advent of the Chinese as a major player in world trade, their admission to
the WTO and their desire to have input into the ICC overall and, in
particular, input into the shaping of shipping terms (although the ICC is still
very euro centric and the Incoterms oversight committee members are
largely lawyers).

21
Incoterms 2010



6. The advent of the Chinese as a major player in world trade, their admission to
the WTO and their desire to have input into the ICC overall and, in
particular, input into the shaping of shipping terms (although the ICC is still
very euro centric and the Incoterms oversight committee members are
largely lawyers).

5. Increased inter-modalism in international trade and the need for
a broader scope of shipping terms to address land/ocean/air movements.
Incoterms 2010


4. Advent of International Financial Reporting Standards (IFRS) by European public
companies (and many larger private ones) with a corresponding push for a universal
standard on revenue and expense recognition primarily tied to point/time of delivery.

22
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Incoterms 2010



3. GAAP in the USA is under intl pressure to be in parallel with the Intl Financial
Reporting Standards (IFRS) -- not in our life times!

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Incoterms 2010



3. GAAP in the USA is under intl pressure to be in parallel with the Intl Financial
Reporting Standards (IFRS) -- not in our life times!

2. Significant desire by many Fortune 500 companies in the USA to have a standardized,
universal set of shipping terms for use within the USA (as well as internationally) that is
consistent with current business practices and modes of transport.

Incoterms 2010


THE NUMBER ONE REASON TO REVISE INCOTERMS!

1. To assist the Obama Administration -- and Don van de Werken -- in its Export
Initiative to DOUBLE exports in five years (State of the Union Address,
February 2010) !

25
Incoterms 2010

Why are Incoterms relevant (and for whom)?

Determining exactly when and where
delivery occurs is important, why?

26
27
Incoterms 2010

Delivery is when responsibility (but not necessarily legal title) for the
goods transfers from the seller to buyer, and with that event there are
material implications for the seller and for buyers regarding the transfer
of risk and cost.

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Incoterms 2010


In a typical ocean shipment, such questions are inherent in putting together a sale --

Who shoulders the responsibility (costs & risk) from the sellers
warehouse to the port?
Who handles . . . export clearance & U. S. govt compliance requirements (who is the
exporter of record)?
Then, who handles the transport from the dock to on board the vessel?
As the vessel crosses the ocean to the destination port?
Unloading at the destination?
Customs clearance at the destination (who is the importer of record)?
Who pays any import duties (and in what currency)?
Inland transportation to the buyer?

Incoterms 2010


Determining exactly when and where delivery occurs is important, why?

Impact on legal contracts --

Level One: Sales Contract / Purchase Order

Sublevel of Impacted by Incoterms:
Transport Contract(s)
Insurance Policies (Cargo, Liability)
Letter of Credit
Finance Contracts
Other ?
29
Incoterms 2010


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.

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Incoterms 2010


AND NOW . . . a set of rules that are
designed for both domestic and international
transactions!

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Incoterms 2010

For Whom are Incoterms Now
Relevant?

NO LONGER relevant for just the
import/export logistics department!

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Incoterms 2010

For Whom are Incoterms Relevant -- NOT just the import/export logistics
department, right?

Salespersons and Sales Support Staff (Domestic
& International)
Logistics Staff (Domestic & International)
Legal Dept/Outside Counsel
Finance Managers
Accountants/CPAs
Bankers
Freight Forwarders
Customs House Brokers
Other (as Purely Domestic Freight Companies)?
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Incoterms 2010

What Incoterm Rules Dont Do :

As we addressed earlier . . . by themselves, Incoterms do
NOT address transfer of legal title of the goods.

Rather, title passage is usually addressed in the
sales/purchase contract or, if not, by default it is addressed
by sovereign (local) law.

FYI . . . in most transactions, passage of legal ownership
from the seller to the buyer usually requires two events:

Delivery + Payment = Title Transfer
34
Incoterms 2010

What Incoterm Rules Dont Do (Continued) :

By themselves, Incoterms are not law and do NOT
automatically apply to every sales transaction of tangible
goods.

The parties must specify that their transaction is subject to
Incoterms 2010.

If silent, the default in the USA is the UCC for domestic
transactions (Yipes!).

Or, for cross border transactions, the (USA) default may be
the UCC or, in some instances, the UN Convention on the
Sale of Goods (CISG) to which the USA is a party (similar
to treaty status).
35
Incoterms 2010

What Incoterm Rules Dont Do (Continued) :

By themselves, Incoterms do not determine revenue
or expense recognition in financial statements.

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Incoterms 2010

By themselves, Incoterms do not determine revenue
or expense recognition in financial statements . . .

GAAP in the USA, the Intl Financial Reporting
Standards (IFRS) and other national accounting
standards address this issue -- - however, when and
where delivery occurs is often an integral part of
determining revenue/expense recognition in the sale
of tangible goods (other elements which may affect
revenue recognition include control over the goods,
who has ultimate risk for the goods, seller buy-back
provisions and such).
37
Incoterms 2010


By themselves, Incoterms do not specify how
goods are to be packed for shipment or how
the goods are to be loaded and stowed onto
transport equipment (as in a container, on a
truck, rail car, aircraft, ocean vessel, etc.).
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Incoterms 2010


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

Payment Terms + Incoterms = Terms of Sale
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Revising Incoterms - the
process (dont look!)
Decision to undertake the revision by the
ICC Incoterms oversight committee in
November 2007 in Stockholm (too much
wine served at dinner?)
Met 11 more times (no alcohol allowed!)
130 countries submitted input with over
2000 individual comments/requests for
changes.
40
Revising Incoterms (a camel
made by a committee?)
Private sector input, mainly lawyers;
government representatives were excluded.
The ICC committee developed a working
draft, went through 4 revisions, formal
adoption by the full ICC was September
2010
(see pages 119 - 123 for mug shots and bios)
41
Revising Incoterms, the 2010
revision . . .
Result: -- Reduced number from 13 to 11
-- Domestic and Intl Usage
-- Clarified some ambiguities (e.g.
the ships rail?)
-- A simpler, more user-friendly
set of (voluntary) rules.
42
Revising Incoterms, the 2010
revision . . .
Result: Added some specific definitions for clarity --

1. Carrier
2. Shipper
3. Delivery
4. Pre-carriage
5. Main Carriage
6. On-carriage

See Page 10 of your book . . . . 43
Incoterms and Sales
Contracts -- Key Elements !
-- Full (legal) name and address of parties
-- Good, practical description of the goods that can be
used to verify the customs classification
-- Shipping Instructions (and packing) & Insurance
-- Payment terms and currency
-- Incoterms
-- Passing of title (e.g., after delivery and payment)
-- Timing for events (latest shipment, etc.)
-- Applicable law and dispute resolution (as the ICC)
-- Duly signed by authorized parties
44
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
Includes explanation of terms used in the book
11 Terms (Down from 13)
DAF, DES, DDU, & DEQ have been removed and replaced by
DAP & DAT respectively
Graphics added to illustrate risk and obligation
45
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
46
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
47
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
For US Importers, F Terms facilitate ISF
(Importer Security Filing 10+2) reporting
48
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
US Importers must rely on their suppliers
forwarder to submit 10+2 documentation and US
Importers at risk during main carriage 49
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
50
D Terms
General Considerations Continued
For US Exporter more work than the F
Terms and greater risk than the C Terms
Seller agrees to deliver or make arrive at named location on the
buyers side
Potential for demurrage charges
For US Importers, again, the 10+2 filings
are handled by the vendors forwarder
Not the best term to use for L/C
transactions, since the BL or AWB do not
show actual arrival
51
Any Mode Terms
EXW
FCA
CIP and CPT
DAP, DAT and DDP
52
EXW (Ex-Works)
Any mode term
Least work for exporters/sellers
Popular among new exporters
Seller makes goods available for pickup
(including agreed packaging)
Is the packaging suitable for international
shipments?
53
EXW (Ex-Works) Continued
Buyer responsible for loading goods at
EXW place
How often does this actually happen?
If the seller is loading, who takes responsibility if damage occurs?
What document evidences of delivery? (No standard)

Buyer responsible for export and
compliance documentation
Seller must provide company info to buyers forwarder and how
does seller feel about that
All of this makes EXW less desirable

54
EXW and Letters of Credit
What happens if the buyer decides to instruct their
forwarder not to pick up the goods?
How irrevocable is your L/C?
What about custom made goods?
Whos managing the documentation and
presentation process?
Do you want your customers forwarder preparing
documents you need to draw on your L/C?
What is the L/Cs confirmed?
Diversion issues where will the goods end up?
55
FCA (Free Carrier)
Recommended as substitute for EXW
Seller must deliver the goods to the carrier
provided by the buyer at a named point on
the sellers side
If no point is named the seller can choose a point best suited for
them - the named point can be the sellers facility
Seller is responsible for:
Packaging, Loading, Pre-carriage (if any none if at sellers dock),
Export Clearance, and Compliance Documentation 56
FCA (Free Carrier) Continued
Seller not responsible for unloading on
buyers side
Buyer responsible for everything else after
loading
Insurance not specified
Freight Collect Buyer pays
57
CPT (Carriage Paid To)
Well suited for multimodal transport
Seller must clear goods for export including
export compliance documentation
Seller delivers goods, packaged for
shipment, to carrier for transport to a named
destination place on the buyers side
58
Continued
Seller pays all transportation costs to
specified delivery destination main
carriage
Risk passes to buyer when goods are delivered to carrier
Buyer typically responsible for unloading at
place of destination
Freight Prepaid Seller pays Need to
incorporate freight charges into invoice to buyer
59
CIP
(Carriage & Insurance Paid to)
Same as CPT except Insurance
Well suited for multimodal transport
Seller must clear goods for export including
shipment, to carrier for transport to a named
60
CIP (Carriage & Insurance Paid to)
Continued
Seller pays all transportation costs to specified
delivery destination main carriage
Risk passes to buyer when goods are delivered to carrier
Buyer typically responsible for unloading at place
of destination
Insurance is sellers obligation (minimum
coverage)
Freight Prepaid Seller pays Need to incorporate
freight and insurance charges into invoice to buyer

61
Any mode (arrival) term replaces DEQ
Seller obtains export clearance and handles
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
62
DAP (Delivered at Place)
Any mode (arrival) term
Seller obtains export clearance and handles
Seller packages goods for transport and
pays for all transportation costs to a named
Buyer responsible for unloading goods at
the named place this is the main
difference b/t DAP and DAT

63
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

64
DDP (Delivered Duty Paid)
Any Mode (arrival) term
Not suitable for domestic shipments
Seller arranges to pay for:
Transportation, Foreign duties, Export and Import Licenses, Export
Compliance Documentation
Seller clears goods through Customs in
foreign country for delivery to a named
place on the buyers side
May be foreign exchange risk
65
Continued
Risky for exporter dealing with foreign customs
Buyer typically responsible for unloading at the
point of delivery
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

66
Sea and Inland Waterway
Transport Terms
FAS
FOB
CFR
CIF
67
FAS (Free Alongside Ship)
Sea and Waterway Term
Usually used for charter party transactions
(not liner containerized shipments)
Seller delivers the goods, commodity, or
product, packaged or prepared for export
alongside a vessel designated by the buyer
at a named place/port on the sellers side
Seller responsible for export clearance and
export compliance requirements
68
FAS (Free Alongside Ship)
Continued
Buyer responsible for:
Loading the vessel, Main carriage, Clearance
through Customs, On-carriage
Freight Collect Buyer pays

69
FOB (Free on Board)
Sea and Waterway Term (not to be confused with
UCC term FOB)
Incoterms 2010 will be used for both domestic and
international transactions
Seller delivers the goods packaged and prepared
for export, loaded on-board a vessel chosen by the
buyer, at a port on the sellers side
Seller is responsible for:
Export compliance requirements, Export Clearance, and
Pre-Carriage
70
FOB (Free on Board)
Continued
Over the ships rail is no longer used as a point to define
transfer of risk from seller to buyer
Buyer and seller should agree on what constitutes loaded on board
Different products loaded differently
Seller responsible for performance of carrier loading the ship even
though carrier is chosen by the buyer
Main carriage, Import clearance, and On-Carriage
Freight Collect Buyer Pays
Common Incoterm for L/C transactions
71
CFR (Cost and Freight)
shipment, to carrier for transportation to a
named destination port on the buyers side
Risk passes to buyer when goods delivered to carrier
Seller:
Chooses vessel, Pays costs for main carriage, and
handles export clearance and compliance requirements
72
CFR (Cost and Freight)
Continued
Vessel unloading, Import clearance, and On-Carriage
Freight Prepaid Seller pays Need to incorporate freight charges
into invoice to buyer

73
CIF
(Cost Insurance and Freight)
shipment, to carrier for transportation to a
named destination port on the buyers side
Risk passes to buyer when goods delivered to carrier
Seller:
Chooses vessel, Pays costs for main carriage, and
handles export clearance and compliance requirements
74
CIF
(Cost Insurance and Freight)
Continued
Vessel unloading, Import clearance, and On-Carriage
Freight Prepaid Seller pays Need to incorporate freight charges
into invoice to buyer
Insurance is sellers obligation (minimum coverage)

75
Incoterms 2010 Chart
Any Mode Terms Control of
Costs
Main Carriage
Cost
Risk of
Costs
Departure, Freight Collect
EXW (Ex-Works)
Buyer Buyer Buyer
Main Carriage Freight Collect
FCA (Free Carrier)
Buyer Buyer Buyer
Main Carriage Freight Prepaid
CIP (Carriage & Insurance Paid To)
Seller

Seller

Buyer

Seller Seller Buyer
Arrival, Freight Prepaid
Seller Seller Seller
76
Incoterms 2010 Chart
Sea, Inland Waterway
Transport Terms
Control of
Costs
Main Carriage
Cost
Risk of
Costs
Main Carriage Freight Collect
FAS (Free Alongside Ship) Buyer Buyer Buyer
FOB (Free on Board) Buyer Buyer Buyer
Main Carriage Freight Prepaid
CFR (Cost and Freight) Seller Seller Buyer
CIF (Cost, Insurance, and Freight) Seller Seller Buyer
77
Which of the following are
Any Mode Terms?
78
1 2 3 4 5
0% 0%
86%
0%
14%
1. EXW
2. FCA
3. CIP
4. DDP
5. All of the Above
Which of the following are only
Sea and Inland Waterway Terms?
79
1 2 3 4
0%
89%
0%
11%
1. FAS
2. FOB
3. CIF
4. All of the Above
Which Incoterm is recommended
as a substitute for EXW?
80
1 2 3 4
13%
0%
25%
63%
1. FOB
2. FCA
3. FAS
4. SOL
Incoterms are considered as Law
and are also used as Payment
Terms.
81
1 2
78%
22%
1. Very True.
2. Very False.

Incoterms 2011

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