Negotiating With Your Supplier:: Terms To Protect Your Company

6
Negotiating with Your Supplier:

Terms to Protect Your Company
Empower Your Supply Chain Seminar

Incoterms: Negotiating with Your Supplier
What are Incoterms?

• 11 Terms of shipment and delivery for use in contracts for B2B sales/purchase goods
• Developed by the International Chamber of Commerce
• Effective as of January 1, 2011
What Use is Most Effective?

• Always use in the Abbreviated Form – i.e. “CIF”
• Accompanied by a Precise Geographic Place – i.e. “50 United Avenue, Anycity, IL USA”
• Lists the Current Version of Incoterms: “Incoterms 2010”.
Are Incoterms Part of International Law?

No. In fact, they must be specified in order to apply.
What is the Purpose of Incoterms?

• Division of: Costs, Risks and Responsibilities between sellers and buyers.
• Greatly reducing the potential for seller-buyer misunderstandings.
Incoterms: Negotiating with Your Supplier Empower Your Supply Chain Seminar
Incoterms: Useful Definitions
Pre-Carriage
Inland transportation on the seller’s side.
a. International: from the place where the shipment starts to the departure point on seller’s side.
b. Domestic: from the place where the shipment starts to subsequent carriage.
Main Carriage
a. International: transportation from the point of departure on the seller’s side to arrival point on
buyer’s side.
b. Domestic: subsequent transportation beyond pre-carriage
On-Carriage
a. International: transportation from the arrival point on the buyer’s side.
b. Domestic: subsequent transportation beyond main carriage.
Incoterms: Overview of F-Terms
International Use: The buyer contracts for main carriage. They are therefore in charge of
carrier and usually also forwarder selection.
Transfer
of Risk
Seller’s Disadvantage: Buyer’s Advantage:

 Buyer’s appointed forwarder should  Control of Main Carriage
file Electronic Export Information (EEI)  Frequent carrier selections offer
HOWEVER lower freight costs
 The seller is tasked with filing Export  Responsible for 10+2 reporting
Clearance
Example of FOB (Free On Board)
SHIPMENT/DELIVERY TERMS
FOB Port of Shanghai, China, Incoterms 2010
MERCHANDISE TOTAL US$ 20,000.00

Export Packing 250.00
Pre-carriage to port 500.00
Terminal Handling 150.00
Incoterms: Overview of C-Terms
International Use: The seller contracts for main carriage and is in charge of forwarder
selection.
Transfer
of Risk
Seller’s Advantage: Buyer’s Disadvantage:

 They are in the position to give  Must be an experienced buyer to
instructions to carrier and forwarder obtain low freight costs
THEY appoint.  Risk of responsibility for condition of
 Export reporting is a seller responsibility goods while in transit
 Position to negotiate favorable freight  Supplier is responsible for 10+2
rates reporting.
Example of CIF (Cost, Insurance & Freight)
CIF Port of Tacoma, USA, Incoterms 2010

Main Carriage 3500.00
Insurance 135.00
Incoterms: Overview of D-Terms
International Use: The seller contracts for main carriage and is in charge of
carrier/forwarder selection.
Transfer
of Risk

 Contract for transportation  Risk is far less than with C-Group rules
 Export reporting  Suppliers provide 10+2 reporting
 No control over freight
Example of DAP (Delivered At Place)
DAP 50 United Avenue, Anycity, WI, USA Incoterms 2010

Main Carriage 3500.00
Delivery 450.00
Insurance 135.00
Example: EXW (ExWorks)
Immediate Transfer
of Risk

 Only requirement is to provide  Coordination of origin inland
goods when promised. transportation
 Filing of export declarations
 Responsible for all origin & destinations
charges
Buyer Advantage: Control of Goods Door to Door Using Nominated Logistics Partner
Example: EXW (ExWorks)
EXW 200 Overseas Lane, Shanghai, China Incoterms 2010
Incoterms & Insurance
 Know the point in transit at which the seller has fulfilled its obligation so that risk
of loss has passed to the buyer
 Control the insurance locally, buy on FOB or CFR and sell on CIF
 Exposure to countless financial risks when cargo is not insured
Incoterms & Insurance
 Recovering losses from the carrier’s limited liability:

 Air - $20.00 per kg
 Ocean - $500 per shipping unit
 Protect your financial interest with “All Risk” insurance coverage

 Protects against physical loss or damage to the cargo from external causes
 Insurance is calculated by C + I + F + 10% value
 $0.58 per $100 value
 $10,000 (merch) + $4,000 (freight) + $81.20 (insurance) = $15,489.32 (policy amount)
Incoterms: Full Overview

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Negotiating with Your Supplier:

Empower Your Supply Chain Seminar

What are Incoterms?

What Use is Most Effective?

Are Incoterms Part of International Law?

What is the Purpose of Incoterms?

Seller’s Disadvantage: Buyer’s Advantage:

MERCHANDISE TOTAL US$ 20,000.00

Seller’s Advantage: Buyer’s Disadvantage:

MERCHANDISE TOTAL US$ 20,000.00

Seller’s Advantage: Buyer’s Disadvantage:

MERCHANDISE TOTAL US$ 20,000.00

Seller’s Advantage: Buyer’s Disadvantage:

MERCHANDISE TOTAL US$ 20,000.00

 Exposure to countless financial risks when cargo is not insured

 Recovering losses from the carrier’s limited liability:

 Protect your financial interest with “All Risk” insurance coverage

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