Professional Documents
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Incoterms 2010
What do the Changes Mean?
Initially created in 1936 by the International Chamber of Commerce (ICC) and have been periodically revised (Incoterms 2010 is the 8th revision) Incoterms are generally good for approximately 10 years ~ not a magic number, but historically about accurate
Incoterms reflect world-wide trade practices, as practices change, Incoterms are revised
Incoterms 2010 were written by the ICC, represented by 8 individuals from various countries/areas of the world
Met 11 times in person Received over 2000 suggestions in first request Refined suggestions over 4 proposals Controlling source document is written in British English and will be translated into 35+ languages over the next year.
Incoterms 2010 will begin January 1, 2011, but you dont have to use them on that date Available worldwide through 100 International Chamber of Commerce National Committees
The terms arent law; no laws that require their use and are not all inclusive Country neutral they dont favor one country over another Self-contained all information that determines responsibility and risk are in one place
Definitions..
Key Definitions
Incoterms 2010 Training
What is Delivery? As defined in Incoterms 2010, it is used to indicate where the risk of loss of or damage to the goods passes from the seller to the buyer. It is not always:
When the goods arrive in your customers hands or When the goods leave your dock Defined the same in all countries
Transportation Definitions
Incoterms 2010 Training
Main Carriage:
Domestic: subsequent transportation beyond pre-carriage International: transportation from the point of departure on the sellers side to the arrival pint on the buyers side
On-carriage:
Domestic: subsequent transportation beyond main carriage International: transportation from the arrival pint on the buyers side
Transportation Definitions
Incoterms 2010 Training
Door to Door
Contract of carriage that includes pre-carriage, main-carriage and oncarriage by the same carrier
Type of Transportation?
Incoterms 2010 Training
Company A
Company B
Door to Door one contract for all carriage (pre-, main, and on-carriage)
Type of Transportation?
Incoterms 2010 Training
Company A
Omni-modal: Used with terms that use all modes of transportation (truck, airplane, vessel, train) Marine-restricted: Terms that only apply to carriage by vessel Shipment Contract: sales/purchase contract where the sellers responsibility ends when goods are handed over to the first carrier Arrival Contract: sales/purchase contract where sellers responsibility ends when goods have arrived at agreed place
Who furnishes the goods? Who packages the goods in a manner suitable for shipment (export)? Who moves the goods from the sellers factory to a port, airport, or border crossing in the sellers country? Who arranges for export clearance in the sellers country (if applicable)? Who arranges for main carriage (international transportation) from the departure port to the arrival port? Who pays for main carriage? Who insures the shipment? Who arranges for import clearance? Who pays import duties? Who pays for on-carriage from the arrival port to the delivery destination? Who arranges and pays for country-specific documentation (e.g., consular invoices, inspection reports, licenses)?
Divides up tasks, responsibilities, costs and risks to deliver goods from seller to buyer
If used correctly, no duplication of effort between seller & buyer Acts as signposts for who needs to have additional contracts (i.e., with vessel steamship line, inland trucking company, etc.) to complete transaction If something goes wrong, clearly defines responsibilities based on where the goods were in the transportation chain of delivery
NOT Do
EXW Ex Works FCA Free Carrier FAS Free Alongside Ship FOB Free On Board CFR Cost and Freight CIF Cost, Insurance & Freight CPT Carriage Paid To CIP Carriage & Insurance Paid To DEQ Delivered Ex Quay DES Delivered Ex Ship DAF Delivered at Frontier DDU Delivered Duty Unpaid DDP Delivered Duty Paid Marine Restricted
EXW Ex Works FCA Free Carrier FAS Free Alongside Ship FOB Free On Board CFR Cost and Freight CIF Cost, Insurance & Freight CPT Carriage Paid To CIP Carriage & Insurance Paid To DAT Delivered At Terminal DAP Delivered At Place DDP Delivered Duty Paid
Omni-Modal
F-Group Terms
Incoterms 2010 Training
Seller/ Exporter Handles Export Clearance Handles Pre-carriage Named Place on Sellers Side
Buyer/ Importer Contracts for Main Carriage In charge of Carrier (and usually forwarder) selection Control over Freight Costs Control of Documentation
C-Group Terms
Incoterms 2010 Training
Are considered to be Shipment Contracts Are considered Seller Friendly Seller/ Exporter Contracts for Main Carriage In charge of carrier (and usually forwarder) selection Handles pre-carriage Has control over freight costs In control of documentation Passes risk of loss (delivers) to Buyer prior main carriage Handles export clearance Buyer / Importer Named Place is on Buyers side Has risk of loss while goods are in transit with carrier selected and paid for by seller Must rely heavily on Seller for data elements required for ocean shipments such as Importer Security Filing (known as ISF or 10+2) If informed, should not consider C terms due to downside described
D-Group Terms
Incoterms 2010 Training
Seller may have revenue recognition issues since delivery occurs on arrival side, meaning revenue is recognized only upon arrival
Buyer/ Importer Named Place on Buyers side Must rely heavily on Seller for data elements required for ocean shipments such as Importer Security Filing (known as ISF or 10+2) Undertakes less risk than in C terms If inexperienced, or does not have good relationship with carriers, is served will by D terms
Named Place is generally Sellers Location (or where product initially ships from)
Delivery Seller delivers goods when placed at buyers disposal at the name place of delivery
Seller Risks Minimum obligation for seller; once packaged there is a loss of control over transportation movement, where package is finally received, how export or import documentation is presented to relevant governments Buyer Risks Buyer bears all costs and risks involved in taking the goods from the named place Carriage: Buyer responsibility to arrange for pre-carriage, main carriage, on-carriage Insurance: Neither party required to insure goods Export/Import Clearance: Buyer must handle all requirements, pay all associated duties and fees Note: Should NOT be used when the buyer cannot carry out export requirements directly or indirectly
Goods are packaged Goods are NOT LOADED on the collecting vehicle
Contract of Carriage: Buyer is responsible to make a contract of Carriage, however if requested or the buyer does not give instruction in due time, the seller may contract for carriage on usual terms at the buyers risk and expense. Risks: passes to buyer at point of delivery Insurance: Neither party required to insure goods Export Clearance: Handled by Seller
Associated Licenses can be obtained and maintained under US Law Automated Export System filings can be completed by Seller
Import Clearance: Handled by Buyer responsible for the customs formalities and any duties, fees, other charges due upon importation.
Delivery: Seller delivers goods to a carrier or another person nominated by the seller, at an agreed place, for transportation to the named destination on the Buyer's side, appropriately packaged Carriage: Seller chooses and pays cost of carriage to bring the goods to the named destination (the final location, not the destination port) Risks: Seller bears all risks and costs incurred until the goods are delivered to the first carrier on the Sellers side Export Clearance: handled by Seller Import clearance: Buyer responsibility for paperwork and all costs Insurance: Neither party required
Note: Risk of Loss passes on Sellers side to Buyer BUT Cost is Sellers responsibility to named location on Buyers side
Carriage and Insurance Paid To (CIP) + Named Place (on Buyers Side)
Incoterms 2010 Training
Delivery: Seller delivers goods to a carrier or another person nominated by the seller, at an agreed place, for transportation to the named destination on the Buyer's side, appropriately packaged Carriage: Seller pays cost of carriage to bring the goods to the named destination (the final location, not the destination port) Risks: Seller bears all risks and costs incurred until the goods are delivered to the first carrier on the Sellers side Export Clearance: handled by Seller Import clearance: Buyer responsibility for paperwork and all costs Insurance: Seller required to obtain minimum coverage
Note: Risk of Loss passes on Sellers side to Buyer BUT Cost is Sellers responsibility to named location on Buyers side
Replaces DEQ Term Delivery: Seller delivers goods to named destination terminal on Buyers side, packaged appropriately and unloaded Carriage:
Seller responsible for pre-carriage and main carriage Buyer responsible for on-carriage
Risks: Transfer from Seller to Buyer once goods are unloaded on buyers side at terminal Export Clearance: Seller Responsibility Import Clearance: Buyer Responsibility documentation and fees associated Insurance: Neither party required to insure
Previously contained elements of DDU, DAF, DES terms Delivery: Seller delivers the goods to the buyer at the named place on the Buyers side, appropriately packaged, but not
unloaded
Carriage: Seller handles all carriage to named place on buyers side Risks: Transfer from Seller to Buyer once goods are delivered to the named place on buyers side Export Clearance: Seller handles Import Clearance: Buyer handles and pays associated costs Insurance: neither party required to insure
Delivery: Seller delivers goods to the Buyer, cleared for import on the arrival transportation, but not unloaded at the final destination Carriage: Seller handles all carriage to named place on Buyers side Risks: Transfer from Seller to Buyer once goods are delivered to the named place on the Buyers side Export Clearance: Seller Handles Import Clearance: Seller Handles & pays for any charges associated Insurance: Neither party required to provide
DDP Caveats
Incoterms 2010 Training
Should not be used if SELLER CANNOT clear goods in importing country NOT recommended if Buyer wants control of import documents and declarations to Customs DDP DOES NOT MEAN Buyer is absolved of all Customs Regulations & Responsibilities
Free Alongside Ship (FAS) + Named Place (alongside vessel at port on Sellers side)
Incoterms 2010 Training
Delivery: Seller delivers goods to Buyer alongside the vessel chosen by Buyer at the named port of shipment, packed appropriately Carriage:
Seller handles pre-carriage Buyer handles main carriage and on-carriage
Risks: Pass from Seller to Buyer once goods place alongside the vessel on Sellers side Insurance: Neither party required to insure goods Export Clearance: Seller Handles Import Clearance: Buyer is responsible for requirement and fees associated
Free On Board (FOB) + Named Place (loaded on vessel at a port on the Sellers side)
Incoterms 2010 Training
Delivery: Seller delivers goods to Buyer on board the vessel chosen by the Buyer at the named port of shipment, packaged for shipment Carriage:
Seller handles pre-carriage Buyer handles main carriage and on-carriage
Risks: Pass from Seller to Buyer once goods are placed on board the vessel on the Sellers side Insurance: Neither party is required to insure goods Export Clearance: Handled by Seller Import Clearance: Handled by Buyer
NOTE: Ships Rail is no longer part of Incoterms 2010. If using Marine Terms, Contract or PO must exactly state what on board the vessel means for the transaction where on the vessel is the container, item to be placed
Delivery: Seller delivers goods packaged for shipment on board the Seller-designated vessel at the port on Sellers side Carriage:
Seller handles pre-carriage and main carriage Buyer handles on-carriage following delivery to port on Buyers side
Risks: Passes from Seller to Buyer once goods are on board the vessel Insurance: Neither party required to insure goods Export Clearance: Handled by Seller Import clearance: Buyer is responsible for the customs requirements and associated costs (fees, duties, etc.)
NOTE: Even though risk passes from Seller to Buyer on Sellers side (once loaded per contract), Seller contracts for and pays freight necessary to bring goods to the named port on the Buyers side
Delivery: Seller delivers goods packaged for shipment on board the Seller-designated vessel at the port on Sellers side Carriage:
Seller handles pre-carriage and main carriage Buyer handles on-carriage following delivery to port on Buyers side
Risks: Passes from Seller to Buyer once goods are on board the vessel Insurance: Seller required to procure minimum coverage against Buyers risk of loss or damage to the goods during carriage Export Clearance: Handled by Seller Import clearance: Buyer is responsible for the customs requirements and associated costs (fees, duties, etc.) NOTE: Even though risk passes from Seller to Buyer on Sellers side (once loaded per contract), Seller contracts for and pays freight necessary to bring goods to the named port on the Buyers side Same as CPT + Insurance coverage
Basic Rule of Thumb: The more responsibility the Seller takes on, the more they must charge the Buyer. Example: What is the price the Seller should quote for 10 units to be shipped from Hilltown to Seattle?
$10,000 EXW, Johnsburg Factory $10,200 FCA, Carrier in Hilltown $10,600 CIP, Newark Airport $10,800 DAT, OHare Airport $12,000 DDP Seattle
Final Thoughts
Incoterms 2010 Training
All Incoterms 2010 can be used for domestic transactions. Some transportation charges are deducted upon import from dutiable value (reducing duties and fees) if specifically identified by Shipper
Questions?
Incoterms 2010 Training