Introduction to Incoterms May 17, 2012

Incoterms® 2010

• Background • Purpose

• General Notes

• Important changes for 2010 • What Incoterms don’t do

Incoterms® – History & Background

INternational COmmercial TERMS

• Published by the International Chamber of Commerce (ICC), located in France

• ICC issued first Incoterms in 1936

• 11 terms of shipment and delivery in Incoterms 2010 (13

terms in Incoterms 2000)

• Effective 1/1/2011 – ICC publication #715

Purpose: Provide Common Ground in

International Trade

• Provide an internationally accepted definition of:

• The responsibilities of the Buyer & Seller

• The allocation of delivery costs

• The assumption of delivery risks

• Created to adapt to the most contemporary commercial practices

• Should be referred to as ‘Rules’

• Translated into different languages

General Notes

• Incoterms divide Costs, Risks, and Responsibilities between the Buyer and Seller

• Written to reflect rather than dictate trade practice

• Terms of sale must be negotiated in conjunction with the terms of payment

• Incoterms focus on the Seller’s delivery obligations

• Incoterms can be modified as long as the Buyer and

Seller agree and it is documented

• Effective date of January 1st_{, 2011 does not invalidate}

older versions; they can still be used as long as the

Important Changes for 2010

• Incoterms 2010 contains 11 terms of delivery • DAF, DES, DDU and DEQ have been removed

• DAP and DAT are new and have been added

• Container arrival costs (i.e., THC and other destination charges) are not expressed

• Exact cost transfer points need to be addressed elsewhere in the contract

• DAT is the only term that specifically tasks the seller with unloading

Incoterms

do not

...

• Dictate the terms & conditions of carriage • Convey title to/point of sale of goods

• Address revenue recognition

• Include all of the duties of the Buyer/Seller in a transaction

• Automatically apply (you must specify) • Deal with a breach in contracts

• Speak about payment disputes between the

Incoterms

are not

...

• Law - Incoterms must be specified in sales contracts in order to apply.

This is normally done by citing the current Incoterms version in sales quotations and purchase orders.

• All-inclusive - Detailed situations beyond the

Recommended Usage

E Group-EXW

EX WORKS…named place of delivery (usually Seller’s premises)

• Transport mode: All

Recommendation: the use of EXW is

questionable, except as a starting point for a more appropriate Incoterm.

F Group-FCA

FREE CARRIER…named place of delivery (usually Seller’s premises or a Buyer appointed carrier

terminal on the Seller’s side) • Transport Mode: All

FREE ALONGSIDE SHIP… named port of shipment • Transport Mode: Vessel

Recommendation: Consider FOB which at least provides a definitive delivery document

• Seller’s cost and risk end when goods are placed alongside the vessel nominated by the Buyer at the named port of shipment.

FREE ON BOARD… named port of shipment • Transport Mode: Vessel

Recommendation: For containerized shipments, consider FCA, showing the carrier’s terminal at the port as designated place.

• Seller’s cost and risk end when the goods are delivered on board the vessel nominated by the Buyer.

Door Pre-Carriage Carrier Port Customs Delivery

Group F

Free Alongside Ship

C Group-CFR

COST AND FREIGHT… named port of destination • Transport Mode: Vessel

Recommendation: for containerized shipments, consider CPT, showing the destination port or an inland location on the Buyer’s side

• Seller’s risks for loss and damage ends when the goods are on board the vessel.

C Group-CIF

COST INSURANCE AND FREIGHT…named port of destination

• Transport Mode: Vessel

Recommendation: for containerized shipments, consider CIP, showing the destination port or an inland location on the Buyer’s side

• Seller’s risks of damage or loss ends when goods are on board the vessel

• Seller must contract for and pay the costs and freight necessary to bring the goods to the named port of

C Group-CPT

CARRIAGE PAID TO… named place of destination • Transport mode: All

Recommendation: ideal for containerized shipments

• Seller’s risk ends when goods are delivered to the carrier or another person nominated by the Seller at an agreed place

• Seller must contract for the costs of carriage necessary to bring the goods at the named place of destination

• Sellers: for delivery at inland locations on the Buyer’s side, use this only with door, port, or airport to door transportation.

• Buyers: if the shipment is not on door-to terms, insist that the

C Group-CIP

CARRIAGE AND INSURANCE PAID TO…named place of destination

• Transport Mode: All

Recommendation: the best Incoterm available for sellers making containerized shipments

• Seller’s risk ends when goods are delivered to the

carrier, or another person nominated by the Seller at an agreed place

• Seller must contract for the costs of carriage necessary to bring the goods at the named place of destination

Door Pre-Carriage Carrier Port Customs Delivery

Group C

Cost and Freight

Maritime Only

Costs Risk

Seller Buyer

Seller Buyer

Cost, Ins. and Freight

Maritime Only CIF Costs Risk Seller Buyer Seller Buyer Carriage Paid To All Modes CPT Costs Risk Seller Buyer Seller Buyer

Carriage and Ins. Paid

All Modes

D Group-DAT

DELIVERED AT TERMINAL…named terminal at port or place of destination.

• Transport mode: All

Recommendation: when using DAT, specify as clearly as possible the terminal at the agreed port or place of

destination, as the risks to that point are for the account of the Seller.

• Seller’s risks ends once goods are unloaded from the arriving means of transport, and placed at the disposal of the Buyer, at a named terminal at port or place of destination.

• Seller must contract for the costs of carriage to the named terminal, at the agreed port or place of

D Group-DAP

DELIVERED AT PLACE…named place of destination.

• Transport mode: All

• Seller’s risks ends when goods are placed at the disposal of the Buyer on the arriving means of transport, ready for

unloading

Recommendation: when using this term, make clear which party is responsible for unloading, and any type of

on-carriage

D Group-DDP

DELIVER DUTY PAID…named place of destination

•

Transport mode: All

Door Pre-Carriage Carrier Port Customs Delivery

Group D

Delivered Duty Paid

All Modes

DDP

Closing Notes

Contract vs. Incoterms

Incoterms are a guide, the contract is a legally enforceable document.

Changes and modifications are allowed

Don’t over complicate, and document properly

Sales makes the deals, supply chain/logistics executes

Thank you!!

Our Import and Export 101 sessions are

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Contact Information

Adrienne Graddy

Corporate Director, Compliance Solutions 875 Devon Avenue

Elk Grove Village, IL 60007 Direct: 847-350-2156

Email: [email protected]