INCOTERMS

I - INTRODUCTION
• For the international firm, customer locations and
sourcing opportunities are widely dispersed. The firm
can attain a strategically advantageous position only if
it is able to successfully manage complex networks,
consisting of its vendors, suppliers, other third parties,
and its customers.

• Logistics costs comprise between 10% and 30% of the

total landed costs of an international order. Thus,
international logistics is a competitive tool.

• Effective international logistics and supply-chain

management can produce higher earnings and greater
corporate efficiency.
II Basic goal of logistics: effective coordination of:

A – Materials Management:
timely movement of raw material parts, and supplies

into and through the firm;

B - Physical Distribution:
movements of the firm’s finished products to its
customers.
 III - SUPPLY MANAGEMENT
• A series of value-adding activities connect a company’s
supply side with its demand side

•This approach views the supply chain of the entire extended

enterprise, beginning with the supplier’s and ending with
consumers or end users

•Close collaboration with suppliers is required to develop a

just-in-time inventory system, which in turn may be crucial to
maintaining manufacturing costs at globally competitive
levels...

•In the U.S. 40% of shipments are under a just-in-time/quick

response regime
IV A–Differences between Domestic and International Logistics

¤ Distance
¤ Currency variation
¤ Border-Crossing Process (additional intermediaries)
¤ Transportation modes
¤ Packaging and Labeling requirements
¤ Infrastructure

B – International Transportation Issues

¤ Some countries may have excellent inbound and outbound

transportation systems but weak internal transportation
links.
¤New routes of commerce have opened up..
¤ Extreme variations also exist in the frequency of
transportation services.
C – Availability of Modes
¤ Ocean Shipping: liner service (regularly scheduled passage); tramp
service (available for irregular routes and scheduled on demand)

¤ Container ships, Roll-on-Roll-off (RORO)

¤ Air Shipping

D – Choice of Modes
¤ Predictability: tracking

¤ Transit Time..

¤ Noneconomic Factors
 V - INCOTERMS
• The responsibilities or ‘Terms of Trade or Sale’ of the
buyer and the seller should be spelled out as they relate to
what is and what is not included in the price quotation and
when ownership of goods passes from seller to buyer

• Incoterms:
-the internationally accepted standard definition for terms
of sale by the International Chamber of Commerce
-these were acronyms created in 1936 and revised in 1953,
1967, 1976, 1980, 1990 and 2000
-For eg. FCA Milwaukee, Wisconsin, USA, Incoterms
2000
UNDERSTANDING INCOTERMS

• Considerations to keep in mind

– Who has what responsibility?
– More importantly who pays for what?

• Knowing the terms correctly can be very beneficial..

• At the contract negotiation stage these issues need to

resolved
INCOTERM SRTATEGY

• Type of product sold

• Method of shipment

• Ability of either of the parties to perform tasks involved in shipment

• Amount of trust..

• Incoterm is exporters decision and integral part of export strategy

linked with customer service
INCOTERMS
A – Ex-works(EXW) :
• apply only at the point of origin for any merchandise
• It is easy for importer & difficult for exporter
• Variant of incoterm is possible
• Delivery hs to be at a mutual time
• Exporters responsibilities are to make goods available, packaging,
assist in export clearance & provide information to the importer..
• Importer is responsible for all aspects of shipment in an EXW –
clear goods for export, transportation, customs, insurance
B – Free Carrier (FCA):
• Applies only at a designated inland shipping point; multimodal,
container, air, rail, road
• Incoterm used for shipments of either full-container-loads (FCL) or
less than-container-loads (LCL)
• Exporter delivers goods to a carrier selected by importer
• Delivery takes place, either;
- point in incoterm refers to the exporters plant, then its at exporters expense
- point in incoterm refers to the carrier’s premises, then its at importers expense
• Exporter is in charge of packing, loading at times, clearing
merchandise for export and providing information
• Importer is responsible for arranging contract, insurance and
custom clearance
C – Free Alongside Ship (FAS):
• Exporter quotes a price for the goods, including charges for delivery of the
goods alongside a vessel at the port

• Mainly for ocean transportation

• Delivery officially takes place when the exporter has delivered the goods
alongside a ship designated by an importer (holding area stevedoring)

• Exporters responsibility is for packing of goods for export, transporting them

to the port, unloading them onto the quay/ holding area, clearing goods for
export, insurance and providing documents and assistance to the importer..

• Importers responsibility of shipment is from point of delivery, port handling

charges, stevdoring, ocean and insurance costsunloading in port of arrival,
custom duties and Pre-Shipment Inspection
D – Free on Board (FOB):
• Applies only to vessel shipments, for any merchandise
• The seller quotes a price covering all expenses up to and
including delivery of goods
• The point at which responsibility shifts from exporter to
the importer is the Ship’s Rail
• Exporter is responsible for packaging the goods for export,
transporting them to the port, loading them onto the ship,
clearing goods for export, insurance and providing
documents and assistance to the importer..
• Importers responsibility is for arranging ocean transport,
ocean and insurance costs, unloading in port of arrival,
custom duties and Pre-Shipment Inspection
E – Cost and Freight (CFR):
• Seller quotes a price for the goods, including the cost of transportation to the
named port of disembarkation
• Point of delivery is the FOB point
• Exporter is responsible for packaging the goods for export, transporting them to
the port, loading them onto the ship,
pre-paid contract includes cost of unloading, clearing goods for export,
insurance and providing documents and assistance to the importer..
• Importers responsibility for goods is at the delivery point, c ocean and
insurance costs, unloading in port of arrival, custom duties and Pre-Shipment
Inspection
F – Cost, Insurance, and Freight (CIF):

• Price includes insurance, all transportation, and port charges,

documentation charges, freight fowarder fees, and other
insurance charges
• Exporters responsibility is for packing of goods for export,
paying for shipping, clearing goods for export and wherever
required pay for pre-shipment inspection..
• Importers responsibility is for the goods at the ship’s rail in the
port of departure, clearing customs and inland transportation
and pay for pre-shipment inspection
G – Delivery Duty Paid (DDP):
• Used for any merchandise and for any transport
• Choosing DDP is best in customer service
• The seller delivers the goods, with import duties paid,
including inland transportation from import point to the
buyers premises
• Variant to the term possible for VAT...
• Importer unloads goods at the delivery point
H. Carriage Paid to (CPT )

• Same as CFR, applied to goods in custody of carrier

• Delivery takes place in the city of the carrier
• Exporter gets a bill of lading which acts as a proof of delivery
• Exporter pays minimum- cover insurance
• Exporter is responsible for packaging, shipping goods to carrier, pre-
paying shipping costs to the city of destination and Pre-inspection
costs…
• Importer responsibility from the goods in the carrier, unloading goods
from carrier, clearing customs, paying inland transportation and pre-
shipment costs in the country of import
I. Carriage and Insurance Paid to (CIP)
• Applies for goods shipped by sea (not handled over to ships rail) or
containerised cargo by multimode transport
• Exporter pays minimum- cover insurance, can be maximum, amount
insured must be atleast 110% of the value of the goods
• Exporter gets a bill of lading which acts as a proof of delivery
• Exporter is responsible for packaging, transportation goods to city of
destination, clearing goods for export and Pre-inspection costs…
• Importer responsibility from the goods in the carrier, unloading goods
from carrier, clearing customs, paying transportation cost beyond city of
destination and pre-shipment costs in the country of import
J. Delivered at Frontier (DAF)
• For land transportation (rail, road)
• Delivery point is usually located at the border between the exporting
and importing country
• Merchandise is still loaded in the truck or rail roadcar on delivery
• Exporter is responsible for packaging, transportation goods to city of
destination, clearing goods for export, providing information to the
importer and Pre-inspection costs…
• Importer responsibility from the border city to the final destination,
clearing customs, and pre-shipment costs in the country of import
K. Delivered Ex Ship (DES)

• For ocean transportation, specially for bulk shipments

• Delivery takes place in the port of destination
• Exporters responsibility is till handling the goods till port
of destination, clear goods for export and pay pre shipment
charges
• Importer unloads goods, clear customs, shipment cost and
pre shipment charges in importing country
L. Delivered Ex Quay (DEQ)

• For ocean transportation & for any merchandise

• Used for bulk transport
• Exporters responsibility is till unloading goods from the
ship in the port of destination, unloading cost borne, clear
goods for export and pay pre shipment charges
• Importer unloads goods, clear customs, shipment cost and
pre shipment charges in importing country
M. Delivered Duty Unpaid (DDU)

• Place
• Used for any merchandise and for any mode
• Exporter delivers goods till the city of delivery
• Exporter is responsible for arranging and paying issues till
the delivery, packaging, transportation goods to city of
destination, clearing goods for export, providing
information to the importer and Pre-inspection costs…
• Importer responsibility from the destination, clearing
customs, custom duties and pre-shipment costs in the
country of import
N. Delivered Duty Paid (DDP)

• Used for any merchandise and for any mode

• Exporter delivers goods till the city of delivery &
goods are unloaded by the importer
• Exporter is responsible for arranging and paying
till the delivery, clearing goods for export, clearing
customs in importing country and bears all the
costs…
• Importer responsibility is only of receiving and
unloading
 Range of Responsibilities

EXW

DEQ
DDU
FOB

DDP
CFR
FCA

DES
DAF
FAS

CPT
CIF

CIP
Packing
Forwarder Fees
Loading at Origin Seller
Inland Freight
Port Charges
Export Clearance
Insurance
Ocean Freight
Charges at Foreign Port
Custom Clearance
Custom Duties
Buyer
Delivery to Destination
Incoterms 2000
• General/ Multi-modal/ Container
– FCA, CPT, CIP
• Maritime Only
– FAS, FOB, CFR, CIF, DES, DEQ
• Non-existent
– FOB Airport (now FCA)
– FOR/FOT - Free on Rail/Truck (now FCA)
– C&F - Cost and Freight (now CFR or CPT)