Chapter 01

INCOTERMS 2000 / 2010 / 2020

Lecturer: Nguyen Dang Quang Huy (MSc.)
huyndq@uef.edu.vn
Contents – Chapter 1

01. INCOTERMS – Overall Introduction

02. 11 Rules of Incoterms 2010

03. Discussion questions & Exercises

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01
INCOTERMS - Overall Introduction
- What are Incoterms?
- The important of Incoterms
- What Incoterms do and do not cover?
- Some definitions for using Incoterms
- Incoterms 2000 & 2010
- Incoterms 2010 & 2020

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 International trade is confusing!
$ Who pays charges for…? $

$ $ $ $ $
$

Seller Buyer

$ $
$ $ $
$ $
Who bears risk of loss or damage?
$
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What does INCOTERMS mean?

INternational COmmercial TERMS

Issued by: ICC (International Chamber of Commerce)

INCOTERMS were first established in 1936 by the ICC in Paris, France.

The ICC recognized the need for a standard set of shipping terms that
could be used by international business people.

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Are they important?

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 What are INCOTERMS?

Incoterms rules define the responsibilities of Sellers and Buyers for the delivery of
goods under sales contracts for both domestics and international trade.

Incoterms are intended to be used as a set of Rules that each of the parties (Seller
and Buyer) can use to guide them through the shipping process.

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The important of INCOTERMS

• Set international rules for commonly used terms in foreign trade.

• Define obligations of both parties involved in the transaction.

• Determine the distribution and transfer of risks regarding goods delivered from seller to
buyer.

• State the clear sharing of expenses between the parties during transport.

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INCOTERMS cover…

1/ Help to shorten and simplify the content of a commercial contract but does not manipulate its
content.

2/ Help to indicate each contracting party’s costs, risks and obligations concerning these aspects of
delivery.

- Where the goods are delivered. (Place of delivery of the goods)

- The documents and customs formalities necessary for export and import procedures.

- When and where the risk is transferred from the Seller to the Buyer.

- Who will be responsible for hiring and paying for the transport?

- Who must arrange and pay for the insurance?

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 INCOTERMS do not cover…
• Apply to contracts for services.

• Price or payment method.

• Determine how title to the goods will be transferred. (Passing of title/ownership of the goods).

• Warranties (Protect a party from risk of loss)

• Define the remedies (~ resolutions) for breach of contract./ Consequences of breach of the
contract.

• Relief from obligations and exemptions from liability in case of unexpected events.

Incoterms are terms of the international contract of sales, not the contract of carriage.
Incoterms were developed by ICC to assist Buyers and Sellers in international trade, they are not “Law”

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11
The ever changing evolution of INCOTERMS…

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Updating INCOTERMS every 10 years – Is it necessary?
The necessity of updates:

 The rapid expansion of world trade.

 New trends in global transportation.

 The continuous changes in international market’s structure.

The same rules cannot be effectively applied in any circumstances

without considering the new factors and influences that might occur.

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 Three words that often caused confusion under INCOTERMS

Ownership
• “Delivery” can • Risk of ownership
occur in a • Incoterms (i.e. the need for
foreign Port. exclude cargo insurance).
ownership.

Delivery Risk

• These issues should be clarified in the Buyer and Seller’s “Sales Contract”.

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Three words that often caused confusion under INCOTERMS

DELIVERY
It is particularly important to note that the term “delivery” is used in two different senses in INCOTERMS
2010 Rules:

Determine when the seller has fulfilled this delivery obligation.

The buyer’s obligation to take or accept delivery of the goods.

Indicate where the risk of loss or damage to the goods passes

from the seller to the buyer.

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 Some definitions for using INCOTERMS
• “Delivery”: In common usage, “delivery” is the act of delivering something, while the “place of
delivery” is often the buyer’s place of business. In Incoterms 2010, however, “delivery” is the point
where “the risk of loss or damage passes from the seller to the buyer.” This is often the “named port
or place” but not necessarily the buyer’s place of business.

• “Pre-carriage”: The initial transport of goods from the seller’s premises to the main port or place
where main carriage begins. Usually by truck, rail, or inland waterway.

• “Main-carriage”: The primary transport of goods, generally for the longest part of the journey and
generally from one country to another. Usually by sea vessel or by airplane, but also by truck, rail,
or inland waterway.

• “Onward carriage (On-carriage)”: Transport from the port, terminal, or place of arrival in the
country of destination to the buyer’s premises. Usually by truck, rail, or inland waterway.

• “Multi-modal”: Use of more than one mode of transport (road, rail, sea, air) to transport goods (or
people) from origin to final destination.

• “Omni-modal”: Those terms that can be used for all transport modes.
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 INTERNATIONAL FREIGHT FLOWS - INCOTERMS 2010
2000

EXW FCA FOB

FAS
Supplier Inland freight Export customs

CPT CIF

CIP CFR

DDP
DAF DES
DDU DAT
DEQ
DAP
Buyer Inland freight Import customs
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 INTERNATIONAL FREIGHT FLOWS - INCOTERMS 2010

EXW FCA FOB

FAS
Supplier Inland freight Export customs

CPT CIF

CIP CFR

DDP
DAT
DAP
Buyer Inland freight Import customs
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Incoterms® 2000 vs 2010
• EXW – Ex Works
• EXW – Ex Works
• FCA – Free Carrier
• FCA – Free Carrier
• FAS – Free Alongside Ship
• FAS – Free Alongside Ship
• FOB – Free On Board
• FOB – Free On Board
• CFR – Cost and Freight
• CFR – Cost and Freight
• CIF – Cost, Insurance & Freight
• CIF – Cost, Insurance & Freight
• CPT – Carriage Paid To
• CPT – Carriage Paid To
• CIP – Carriage & Insurance Paid To
• CIP – Carriage & Insurance Paid To
• DEQ – Delivered Ex Quay
• DAT – Delivered At Terminal
• DES – Delivered Ex Ship
• DAP – Delivered At Place
• DAF – Delivered at Frontier
• DDP – Delivered Duty Paid
• DDU – Delivered Duty Unpaid
• DDP – Delivered Duty Paid

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 Incoterms® 2010

- Entered into force since Jan. 1st, 2011.

- Number of rules: 11.
- Classification based on modes of transport:

 Group 1: Rules for any mode or modes of transport

EXW, FCA, CPT, CIP, DAT, DAP, DDP

 Group 2: Rules for sea and inland waterway transport

FOB, FAS, CIF, CFR

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Main changes in INCOTERMS 2010

Reduction from 13 to Transfer of risks “on

11 terms board” of the ship,
i/o “Ship’s rail”

Priority for any mode Security-related

of transport Incoterms obligations

Goods in containers only

for Incoterms with any International and
mode of transport domestic use

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 Classification of INCOTERMS 2010
• INCOTERMS for any mode of transport and multi-modal transport: EXW, FCA, CPT, CIP, DAT, DAP &
DDP
Mode of
transport used • INCOTERMS uniquely for sea and inland waterways transport: FAS, FOB, CFR & CIF

• INCOTERMS paid by the buyer (importer): EXW, FCA, FAS & FOB
Payment for the • INCOTERMS paid by the seller (exporter): CPT, CFR, CIP, CIF, DAT, DAP & DDP
main transport

• INCOTERMS with transfer of risks in the country of origin: EXW, FCA, FAS, FOB, CPT, CFR, CIP & CIF
Transfer of risks
• INCOTERMS with transfer of risks in the country of destination: DAT, DAP & DDP.
in transporting
the goods

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Classification of INCOTERMS 2010

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Incoterms® 2010 vs 2020

What’s new with INCOTERMS® 2020?

6 “substantial” modifications performed by the ICC in

regards to the Incoterms® 2010 rules.

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“On-board” notation on B/L under FCA term:
 Under Incoterm® 2010 FCA, the seller cannot
obtain the B/L nor proof of boarding of the
goods unless the goods was loaded on board.
 The various costs are split in different parts
of each Incoterms® 2010 rule.
• Under Incoterms® 2010 CIF and CIP, same
insurance coverage: minimum coverage.
 Incoterms® 2020 FCA provides an additional option for the buyer’s
ocean carrier to provide the seller with a B/L including an “on-board”
notation at the time the goods is received for loading.
 For each Incoterms® 2020 rule, articles A9/B9 provide a list of all costs
related to each rule.
• Incoterms® 2020 CIF requires an insurance by the seller against the
buyer’s risk with the minimum cover of the Institute Cargo Clause C
or equivalent, unless otherwise contractually agreed by the parties.
• Incoterm® 2020 CIP requires at least an insurance by seller against
buyer’s risk with the minimum cover of the Institute Cargo Clause A
or equivalent, unless otherwise contractually agreed by the parties.
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o Under Incoterms® 2010 rules, carriage from o Incoterms® 2020 rules: FCA, DAP, DPU and DDP now take into
seller to buyer is assumed to be performed account that the goods may be carried without any third-party
by a third-party carrier. carrier, viz. using the buyer or seller’s own fleet.

 Under Incoterms® 2010 DAT, the seller is  Incoterms® 2010 DAT has been changed to Incoterms® 2020 DPU
responsible for unloading the goods at port / to simply clarify that the place of destination could be any place
airport of destination and delivery to the and not just a “terminal”.
designated terminal.

 The security rules were stated separately  Incoterms® 2020, security requirements have now been added
through A2/B2 and A10/B10 in each to article A4 about carriage.
Incoterms® 2010 rule.

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02
11 RULES OF INCOTERMS 2010

- 7 rules for any mode of transport (Multi-modal terms)

- 4 rules for sea and inland waterway transport
- How to select the appropriate Incoterms rules
- Incoterms 2010 overview

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SLIDE MAIN TITLE
SLIDE SUB TITLE
Our user-friendly and functional search engine helps you locate the right templates, effectively saving your time..

RULES FOR ANY MODE OR MODES OF TRANSPORT

(MULTI-MODAL TERMS)

EXW FCA CPT CIP DAT DAP DDP

Powerpoint is a complete presentation graphic package it gives you everything you need to produce a professional-looking presentation 31
 Responsible for loading goods onto carrier and all other
Delivers goods at his own premises (factory / warehouse) transport costs, duties and insurance.

Minimal obligations, risks & costs Clearance of goods for export

Bears the whole risk on his own

Minimal costs & risks for exporter

Lowest service offered loss of competitiveness

Compulsory insurance is seller’s

obligation

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 • Export / Import Customs: Buyer’s obligation for export and import

• Freight charges: Buyer (From Seller’s premises)

• Insurance: Seller has no obligation to the Buyer to provide insurance

• Transfer of risk: At Seller’s premises

 This term should not be used if the Buyer is unable to arrange export customs clearance.
 Buyer’s obligation to load the goods.
 Not recommended for containerized shipments.

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 ALLOCATION OF COSTS BETWEEN SELLER & BUYER

Loading of the goods at the first carrier.

Assumes only the cost of packaging, checking and
Inland transportation (pre-carriage) to transport center, port, airport in
marking of goods, according to usual practices in seller’s country.
international trade. Costs and taxes of export clearance.

Terminal costs (warehousing, handling, loading) in seller’s country.

Main transport (Main-carriage) to the country of destination.

Insurance transport (if it is hired).

Terminal costs (unloading, handling, warehousing) in buyer’s country.

Costs and taxes of import clearance.

Inland transportation (on-carriage) from the transport center, port, airport

to the buyer’s premises.

Unloading of goods on buyer’s premises.

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EXW is useful for the following types of international operations:

 First exports of companies that have very short experience and knowledge of international trade.
 International sales between subsidiaries belonging to the same multinational group in which there is full transparency
and confidence in the way of operating.
 Sales in an integrated economic area (e.g. the EU), where there is free movement of goods without customs clearance
 Groupage operations of small volumes where the buyer sends a carrier to the seller´s premises to collect and load the
goods in the truck (pallets, boxes) with very little costs and risks.
 Full load operations (full container or truck) in which there is a single transport document for the whole journey, and
where it is not necessary to carry out customs clearance. However, in the cases where the goods are loaded by the
seller on a truck sent by the buyer, it is preferable to use FCA.

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KEYS to EXW (…named place of delivery), Incoterms 2010

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Discussion:
1/ When should the buyer choose EXW term?
2/ Company A buys goods from Company B at Tan Thuan Export Processing Zone of Ho Chi Minh City, VietNam but
company A wants to receive goods at Vietnam-Singapore Industrial Zone, Binh Duong Province, VietNam. Contract
mentioned nothing except EXW Tan Thuan.
Who will be responsible for transportation cost from Tan Thuan Export Processing Zone to Vietnam- Singapore Indust
-rial Zone?
3/ An export sales contract under EXW term, however, the buyer does not advise the date, time and place to pick
up cargo as mentioned in the contract, thus the seller is unable to deliver cargo.
Cargo needs to be temporarily stored in warehouse. During that time, the quality of cargo is decreased.
Who will be responsible for this issue?

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Completes and bears costs of export clearance and obtains Import clearance formalities.
necessary documents.
Delivers goods at agreed place to carrier. Responsible for unloading if delivery occurs in a
Be liable for the loading if delivery is made on his premises. facility or transport infrastructure.

Flexible, various delivery points (Seller’s premises, Airport, Sea port, other agreed locations)
Applicable for any types of cargo and different payment methods
Best suitable for goods transported in containers

Compulsory insurance is seller’s

obligation

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 • Export / Import Customs: Seller’s obligation for Export / Buyer’s obligation for Import

• Freight charges: Buyer (from the named place)

• Insurance: Seller has no obligation to the Buyer to provide insurance

• Transfer of risk: Upon delivery to the first carrier

 Recommended for containerized shipments.

 Flexible Incoterm which allows the delivery of the goods both on the premises of the seller and at various
points: transport centers, ports, airports, container terminal in seller’s country.
 If you are a buyer purchasing goods from a foreign manufacturer and shipping them internationally, FCA
will likely be the most appropriate Incoterm for your shipment.

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 ALLOCATION OF COSTS BETWEEN SELLER & BUYER

Inland transportation (pre-carriage) to transport center, port or

Assumes the cost of packaging, checking and marking of goods airport in seller’s country.

Delivers the goods to the first carrier or another person Terminal costs (warehousing, handling, loading) in transport

nominated by the buyer at the seller’s premises or another center, port or airport in seller’s country.

named place. Main transport to the country of destination.

 If the named place is the seller’s premises, the goods have Insurance transport (if it is hired).

been loaded on the means of transport provided by the buyer. Terminal costs (unloading, handling, warehousing) in

 In any other case except the seller’s premises, the goods are transport center, port or airport in buyer’s country.

on the seller’s means of transport ready for unloading. Costs & taxes of import clearance.

Costs & taxes of export clearance. Inland transportation (on-carriage) from the transport
center, port or airport to the buyer’s premises.

Unloading of goods on buyer’s premises.

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 FCA is a very flexible Incoterm because it allows different places of delivery of the goods depending on the
type of transport used; suitable for multimodal transport.
 There are several alternatives to use FCA, whose election depends on the place of delivery:

FCA port or port terminal

FCA transport center

[(mainly for groupage (consolidation)] FCA Airport

FCA factory or warehouse FCA railroad

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 Companies that do not have too much experience in foreign markets and do not want to manage international
logistics to deliver the goods in the destination country.
 Exports of full loads (trucks, containers) in which it is preferable that the seller perform the load on the first carrier
(usually truck) in its own facilities.
 Exports in groupage for which the seller uses their own transport vehicles to deliver the goods somewhere (transport
center, port, airport) in their own country, usually near his premises.

In short, FCA is a very flexible Incoterm, increasingly used, that will probably
replace EXW for most exports in which the seller delivers the goods in their
own country and prefers not to manage international logistics.

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KEYS to FCA (…named place of delivery), Incoterms 2010

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 Discussion:
Please indicate who (seller or buyer) will be responsible for costs, risks in the following cases:
1/ Loading cargo onto truck at seller’s warehouse in THU DUC Dist. & deliver cargo to buyer.

2/ Unloading cargo from truck & loading cargo onto vessel / airplane at CAT LAI Port / TAN SON NHAT Airport.

3/ Main freight charge from CAT LAI port to TOKYO port.

4/ Unloading cargo from vessel at TOKYO port.

5/ Cargo is stuffed & dropped off at ICD TAY NAM & loading port is CAT LAI:

+ Who bears transportation cost & risks to ship cargo by truck to ICD TAY NAM?

+ Who will be responsible for costs of unloading cargo from truck at ICD TAY NAM?

+ Some cargoes are lost during stuffing into container at ICD TAY NAM, who will be responsible for this loss?

+ Damage to cargoes during transportation from ICD TAY NAM to CAT LAI.

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Contracts & pays transport to the buyer’s country delivery
place.
Completes formalities and bears export customs clearance
costs.
Risk of transport is transferred when the goods are delivered
to the first carrier in the seller’s country.
Support transport costs starting from the moment goods
have reached the place of delivery in his country.
Import clearance costs and formalities.
Supports the transport risk since the goods have been
delivered to the first carrier and the insurance for
international transport.
Compulsory insurance is seller’s
obligation
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• Export / Import Customs: Seller’s obligation for Export / Buyer’s obligation for Import

• Freight charges: Seller (to the named place of destination)

• Insurance: Seller has no obligation to the Buyer to provide insurance

• Transfer of risk: Upon delivery to the first carrier

Recommended for containerized shipments.

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 ALLOCATION OF COSTS BETWEEN SELLER & BUYER

Packaging, checking and marking of goods.

Insurance transport (if it is hired).
Loading of the goods at the first carrier.
Terminal costs (unloading, handling, warehousing) in
Inland transportation (pre-carriage) to transport center, port or
transport center, port or airport in buyer’s country.
airport in seller’s country.
Costs & taxes of import clearance.
Costs & taxes of export clearance.
Inland transportation (on-carriage) from the transport
Terminal costs (warehousing, handling, loading) in transport
center, port or airport to the buyer’s premises.
center, port, airport in seller’s country.
Unloading of goods on buyer’s premises.
Main transport to the country of destination.

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• When the seller wants to place the goods at the buyer’s country, but without assuming the risk and the cost
of transport insurance.
• In operations between neighboring countries, with no customs so it is not necessary clear goods for export
and import, and the goods are to be delivered at the buyer’s premises but without the seller assuming the risk
of transport.
• For exports between developed countries where the risk of transport is limited and is not considered
essential to hire a transport insurance.
• In operations that due to the low value of the goods is not necessary to hire a transport insurance.

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KEYS to CPT (…named place of destination), Incoterms 2010

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Bears the same costs and obligations as in case of CPT term.
Plus the obligation of hiring insurance to cover the buyer’s
risk during international transport.
Contracts the insurance and pays the premium.
Beneficiary of the insurance paid by the seller.
Must take into account that the buyer is obliged only to a
minimum coverage insurance.
Needs to agree with the seller to hire (procure) additional
insurance if the buyer wants a larger coverage.
Compulsory insurance is seller’s
obligation
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• Export / Import Customs: Seller’s obligation for Export / Buyer’s obligation for Import

• Freight charges: Seller (to the named place of destination)

• Insurance: Seller procure insurance for the Buyer (on “minimum coverage”)

• Transfer of risk: Upon delivery to the first carrier.

(Consider exclusions in the seller-procured insurance policy!)

Recommended for containerized shipments.

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 ALLOCATION OF COSTS BETWEEN SELLER & BUYER

Packaging, checking and marking of goods.

Loading of goods at the first carrier.

Inland transportation (pre-carriage) to transport center, port or
airport in seller’s country.
Costs & taxes of export clearance.
Terminal costs (warehousing, handling, loading) in transport
center, port, airport in seller’s country.
Main transport to the delivery place in the country of destination
Terminal costs (unloading, handling, warehousing) in
transport center, port or airport in buyer’s country.
Costs & taxes of import clearance.
Inland transportation (on-carriage) from the transport
center, port or airport to the buyer’s premises.
Unloading of goods on buyer’s premises.

Insurance transport (minimum coverage) from the place of

delivery to the place of destination.

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• When the seller wants to offer a good level of service to the buyer by placing the goods in the country of
destination and covered with insurance transport.
• In land transport operations (truck) between nearby countries in which there are no customs and therefore is
not necessary to clear goods for export and import. In this case, using CIP the seller can deliver the goods at
buyer’s premises (factory or warehouse).
• In air transport operations of some value and where there is a risk that justifies the use of letter of credit as
payment method. The seller delivers the goods documentation (including the airway bill) against payment of
the credit.
• In multimodal transport operations in which the goods travel in containers with a single transport document
that is the multimodal bill of lading FBL. In these situations, if the destination is a port, the Incoterms 2010
advised to use CIP instead of CIF.
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KEYS to CIP (…named place of destination), Incoterms 2010

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Delivers goods unloaded at a port terminal or another place
of destination in the buyer’s country. Import customs clearance and tariffs paid.
Completes the formalities and bears costs of customs Clearly mentions the specific point chosen for delivery.
clearance for export.
Transport risk passes to the buyer at the time of delivery to
destination country.

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• Export / Import Customs: Seller’s obligation for Export / Buyer’s obligation for Import

• Freight charges: Seller (to the named terminal or another point of destination)

• Insurance: Seller has no obligation to the Buyer to provide insurance

• Transfer of risk: Upon delivery, unloaded, at a named terminal at the named port
or place of destination. (consider cargo insurance)

Recommended for containerized shipments.

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 ALLOCATION OF COSTS BETWEEN SELLER & BUYER

Packaging, checking and marking of goods.

Loading of the goods at the first carrier.

Inland transportation (pre-carriage) to transport center, port or Costs & taxes of import clearance.

airport in seller’s country. Inland transportation (on-carriage) from the transport

Costs & taxes of export clearance. center, port or airport to the buyer’s premises.

Terminal costs (warehousing, handling, loading) in seller’s Unloading of goods on buyer’s premises.

country.

Main transport to the country of destination

Insurance transport (if it is hired).

Terminal costs (unloading, handling, warehousing) in

transport center, port or airport in buyer’s country.

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• Operation of heavy loads, bulk and complex goods (machinery) in which the buyer wants to place the goods at
the dock of the port of destination. It would be the same use as the old Incoterm DEQ, disappeared in Incoterms
2010 version.
• Sales of complete containers delivered unloaded in the port of destination.
• Groupage / Consolidation operations in which the goods are delivered to terminals and logistics platforms in
buyer’s country, and then carried to buyer´s premises in his own account.
• Goods that are delivered on port logistics zones (free zones, free warehouses or customs warehouses) in order
to benefit from a favorable tax and customs system.

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KEYS to DAT (…named terminal at port / place of destination), Incoterms 2010

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Delivers goods ready for unloading in the country of destination,
Pays the costs of import clearance customs.
in a place other than a transport terminal, such as the buyer’s
premises or a place nearby.
Risk is transferred to buyer in the same place where goods are
delivered. Useful for sales between countries of same economic
Complete formalities and bear export clearance costs. area (European Union) as there are no import customs.

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• Export / Import Customs: Seller’s obligation for Export / Buyer’s obligation for Import

• Freight charges: Seller (to the named place/point of destination)

• Insurance: Seller has no obligation to the Buyer to provide insurance

• Transfer of risk: Upon delivery, not unloaded, at a named place of destination.

(consider cargo insurance)

As the delivery occurs at any point in the

Recommended for containerized shipments. destination country, it must be taken into
account that the buyer must performs
customs formalities and pay import taxes
in order to meet the agreed delivery terms.

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 ALLOCATION OF COSTS BETWEEN SELLER & BUYER

Packaging, checking and marking of goods.

Loading of the goods at the first carrier.

Inland transportation (pre-carriage) to transport center, port or airport
in seller’s country.
Costs & taxes of export clearance.
Terminal costs (warehousing, handling, loading) in seller’s country.
Main-carriage to the country of destination
Insurance transport (if it is hired).
Costs & taxes of import clearance.
Inland transportation (on-carriage), if it is hired, from
the place of delivery in buyer’s country to his own
premises (factory or warehouse).
Unloading of goods on buyer’s premises.

Terminal costs (unloading, handling, warehousing) in transport center,

port or airport in buyer’s country.

Inland transportation (on-carriage) to the place of delivery in buyer’s

country.

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• Sales between countries without customs, preferably full load (complete trucks or containers), in which the
seller wants to deliver the goods at the buyer´s premises but without clearing goods for import.

• Sales between countries without customs in which the seller wants to deliver the goods at an inland point
in the country of destination other than a terminal or transport infrastructure because in that case Incoterm
DAT should be used.

• Sales between countries with customs but in which the seller have experience and confidence that the
buyer will make import procedures properly and this will not delay the delivery of the goods at a point inside
destination country.

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KEYS to DAP (…named place of destination), Incoterms 2010

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Delivers goods ready for unloading in the country of destination,
usually at buyer’s premises.
All costs and risks borne by the seller.
Customs clearance of export and import also covered by seller.
Any import tax, including VAT are paid by the seller.
Only cost he assumes is the unloading of goods at delivery
place.
If the parties agree in the sale contract, the VAT or other
taxes can be paid by the buyer.  Variant of DDP term,
called “DDP VAT unpaid” .
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 • Export / Import Customs: Seller’s obligation for Export and Import

• Freight charges: Seller (to the named place of destination)

• Insurance: Seller has no obligation to the Buyer to provide insurance

• Transfer of risk: Upon delivery to the named place of destination

• Recommended for containerized shipments.

• This term should not be used if the Seller is unable to arrange import customs clearance.

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 ALLOCATION OF COSTS BETWEEN SELLER & BUYER

Packaging, checking and marking of goods.

Loading of the goods at the first carrier.

Inland transportation (pre-carriage) to transport center, port or airport in

seller’s country.
Only assumes the costs of unloading on buyer’s
Costs & taxes of export clearance.
premises.
Terminal costs (warehousing, handling, loading) in seller’s country.

Main-carriage to the country of destination

Insurance transport (if it is hired).

Terminal costs (unloading, handling, warehousing) in transport center, port

or airport in buyer’s country.

Costs and taxes of import clearance.

Inland transportation (on-carriage) from terminal, port, airport in buyer’s

country to buyer’s premises (factory or warehouse).

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• Exports of companies with extensive experience and knowledge of international trade and logistics that wish to provide a
complete service to its customers.
• Sales transactions of companies that belong to the same multi-national group, in which the head office assumes all costs and risks
of sending the goods to their branch offices abroad.
• Exports to countries in which the seller has customs brokers or freight forwarders that can take import procedures in a speedy and
safety way.
• Exports of high-cost goods (e.g. jewelry, medical equipment, etc.) in which it is desirable that the seller owns the control and
possession of the goods throughout the complete export process so if there is any problem the seller will take the initiative to solve
it or to make claims to the carrier or the insurance company.
• Urgent shipments (e.g. spare parts) through courier companies, as these services are usually “door to door” and the seller wants to
prevent the client from doing any customs proceeding or expending any money.

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 KEYS to DDP (…named place of destination), Incoterms 2010

Despite the difficulties of this Incoterm, the evolution of logistics and the need to provide
a complete service to customers, have made DDP as an Incoterm increasingly used.
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 Main differences between DAT and DAP, DDP

 Delivery of goods Unloaded Ready for unloading Ready for unloading

 Import Clearance The Buyer The Buyer The Seller

 Transportation in the
The Buyer The Seller The Seller
destination country (on-carriage)

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SLIDE MAIN TITLE
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RULES FOR SEA AND INLAND WATERWAY TRANSPORT

FAS FOB CFR CIF

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Delivers the goods by placing them alongside the ship chosen Responsible for loading the goods on the ship.
by the buyer. Must have very good knowledge of the practices in the
The export clearance must be covered by the seller. port of shipment.

Only used for certain commodities and materials that are not packed and cannot be individualized.
(grain, timber, minerals, steel products, etc.)

Delivery is done in ports with specialized terminal.

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• Export / Import Customs: Seller’s obligation for Export / Buyer’s obligation for Import

• Freight charges: Buyer (from the named port of shipment)

• Insurance: Seller has no obligation to the Buyer to provide insurance

• Transfer of risk: Upon delivery alongside named vessel (consider cargo insurance)

Not recommended for containerized shipments.

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 ALLOCATION OF COSTS BETWEEN SELLER & BUYER
Packaging, checking and marking of goods.
Loading of the goods at the first carrier.
Inland transportation (pre-carriage) to shipment port in seller’s
country.
Costs and taxes of export clearance.
Costs in the port of shipment. (warehousing, handling).
Loading in the ship in the port of shipment.
Sea transport till the port of destination.
Terminal costs (unloading, handling, warehousing) in
the port of destination.
Costs and taxes of import clearance.
Inland transportation (on-carriage) from the port of
destination to the buyer’s premises.
Unloading the goods on buyer’s premises.
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 FAS is used mainly for two types of operations:

• Exports by shipping of products such as grain, timber, minerals, fuels, steel products, building
materials, etc., that are not packaged or individualized.
• Exports by shipping of machinery and equipment being transported by truck till the port. The truck
stands on the dock alongside the ship, so that the machine is loaded directly from the truck into the
ship.

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KEYS to FAS (…named port of shipment), Incoterms 2010

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Delivers the goods placing them on board of the ship named Assumes the transportation risk after the goods have
by the buyer.
been delivered on board of the ship.
Covers the terminal costs and export clearance.

Oldest Incoterm and one of the most widely used.

Preferably used with bulk, heavy loads and in case of complex goods (machinery)
which theirs loading involves many certain risks.

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• Export / Import Customs: Seller obligated to clear goods for export.

• Freight charges: Buyer (from the named port of shipment)

• Insurance: Seller has no obligation to the Buyer to provide insurance

• Transfer of risk: When the goods are loaded on board the vessel.

Not recommended for containerized shipments.

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 ALLOCATION OF COSTS BETWEEN SELLER & BUYER

Sea transport to the port of destination.

Packaging, checking and marking of goods.
Insurance transport (if it is hired).
Loading the goods at the first carrier.
Terminal costs (unloading, handling, warehousing) in
Inland transportation (pre-carriage) to shipment port in seller’s
the port of destination.
country.
Costs and taxes of import clearance.
Costs and taxes of export clearance.
Inland transportation (on-carriage) from the port of
Costs in the port of shipment (warehousing, handling, loading).
destination to the buyer’s premises.

Unloading the goods on buyer’s premises.

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 FOB is useful for the following types of international operations:

• Exports in which the seller has no experience in managing sea transport operations and, therefore, it is
preferable that the negotiations and hiring of such transport is done by the buyer.

• Exports in which the buyer can get a price of shipping (freight) cheaper than the seller because of its trading
volume or the transport route to be used.

• General cargo operations or large volume of goods shipped by vessel but not in containers because in case of
using containers, FCA term should be chosen.

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KEYS to FOB (…named port of shipment), Incoterms 2010

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Not only delivers the goods on board of the ship but also pays Must hire an insurance for transport from the port of
the freight to the destination point.
shipment to the destination, as the seller is not
Covers terminal costs and export clearance.
The risk is transferred to the buyer after the goods had reached obliged to do this.
on board of the ship.

Used mainly for large volumes of general cargo.

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• Export / Import Customs: Seller obligated to clear goods for export.

• Freight charges: Seller (to the named port of destination)

• Insurance: Seller has no obligation to the Buyer to provide insurance

• Transfer of risk: When the goods are loaded on board the vessel.

Not recommended for containerized shipments.

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 ALLOCATION OF COSTS BETWEEN SELLER & BUYER

Packaging, checking and marking of goods. Insurance transport (if it is hired).

Loading of the goods at the first carrier.
Inland transportation (pre-carriage) to shipment port in seller’s
country.
Costs and taxes of export clearance.
Costs in the port of shipment. (warehousing, handling, loading).
Terminal costs (unloading, handling, warehousing) in
the port of destination.
Costs and taxes of import clearance.
Inland transportation (on-carriage) from the port of
destination to the buyer’s premises.

Sea transport to the port of destination. Unloading the goods on buyer’s premises.

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• For sea transport in which the seller wants to place the goods in a port of the buyer´s country, but without
assuming the risk of transportation or the cost of hiring a insurance transport.

• In general cargo or large volumes of goods that ship by vessel but not in containers because in case of using
containers, the Incoterm CPT should be used.

• For sea transport operations where there is the possibility of selling the goods in transit to the port of
destination, while such goods are not insured.

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KEYS to CFR (…named port of destination), Incoterms 2010

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Same obligations that CFR implies. He might want to hire additional insurance, as the
Seller is obliged to hire insurance for transport covering at least seller is only obliged to purchase a minimum coverage
the way from the port of shipping to the port of destination.
Insurance shall cover the price of contract + 10%. insurance.

Used for general cargo of consumer or industrial products of high value. (e.g. machinery)

Insurance

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• Export / Import Customs: Seller obligated to clear goods for export.

• Freight charges: Seller (to the named port of destination)

• Insurance: Seller arranges insurance for the Buyer (on “minimum coverage”)

• Transfer of risk: When the goods are loaded on board the vessel.

Not recommended for containerized shipments.

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 ALLOCATION OF COSTS BETWEEN SELLER & BUYER

Packaging, checking and marking of goods.

Loading of the goods at the first carrier. Terminal costs (unloading, handling, warehousing) in

Inland transportation (pre-carriage) to shipment port in seller’s the port of destination.

country. Costs and taxes of import clearance.

Costs and taxes of export clearance. Inland transportation (on-carriage) from the port of

Costs in the port of shipment. (warehousing, handling, loading). destination to the buyer’s premises.

Sea transport to the port of destination. Unloading the goods on buyer’s premises.

Insurance transport (minimum coverage) from the port of

shipment to the port of destination.

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 It is advisable to use CIF in the following cases:
• Exports of companies that already have experience in sea transport and, therefore, it is preferable that the
hiring of such transport is performed by the seller.
• Exports in which the seller can get a price of shipping (freight) cheaper than the buyer because of their annual
procurement volume or the transport route that will be used.
• Exports in which the value of goods or the buyer’s requirements make necessary to obtain insurance covering
the transport of goods between the port of shipment and the port of destination.
• Exports in which the seller wishes to place the goods at a port in the buyer´s country but without assuming
the risk of transport and unloading at destination because in this case Incoterm DAT must be used.
• General cargo operations of large volume of goods shipping by vessel but not in containers because in that
case Incoterm CIP must be used.
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KEYS to CIF (…named port of destination), Incoterms 2010

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• Mode of transport;
• Place of delivery;
• Allocation of costs and risks;
• Competitive rate;
• Ability to contract for carriage and insurance and perform customs clearance;
• Political and social situation;
• Import / Export country’s regulations.

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INCOTERMS 2010 Overview – Rules for any mode of transport
•Ex Works - represents Min obligation for Seller
ExW •Named place must be included i.e. (ExW, ABC Stores, 34 Pongola Road, Durban)
Delivery

•Free Carrier means the Seller delivers the goods to the carrier or another person nominated by the Buyer
FCA •Named place must be included i.e. (FCA, Globewide Forwarders, 106 Point road, Durban)
Delivery

•Carriage paid to - means that the Seller delivers the goods to the carrier or another person nominated by the Seller at an
CPT agreed place.
•Named place must be included i.e. (CPT, 1 Amherst Street, E40-281, Cambridge, MA 02142)
Delivery

• Named place must be included i.e. (CIP 1 Amherst Street, E40-281, Cambridge, MA 02142)

CIP • Carriage & Insurance Paid to – means that the Seller delivers the goods to the carrier or another person nominated by the Seller at an
agreed place and that the Seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of
destination.
Delivery

• Replaces the old DAF, DES, DEQ & DDU Terms of INCOTERMS 2000.

DAT Delivery
• Named place must be included i.e. (DAT, Duxburry Container Terminal, Felixstowe)
• Delivered at Terminal means that the Seller delivers when the goods, once loaded from the arriving means of transport, are placed at
the disposal of the Buyer at the named terminal at the named port or place of destination.

• Replaces the old DAF, DES, DEQ & DDU Terms of INCOTERMS 2000.

DAP • Named place must be included i.e. (DAP , 1 Amherst Street, E40-281, Cambridge, MA 02142)
• Delivered at Place means that the Seller delivers when the goods are placed at the disposal of the Buyer on the arriving means of
transport ready for unloading at the named place of destination.
Delivery

•Named place must be included i.e. (DDP , 1 Amherst Street, E40-281, Cambridge, MA 02142)
DDP •Delivered Duty Paid means that the Seller delivers the goods when the goods are placed at the disposal of the Buyer,
cleared for import on the arriving means of transport ready for unloading at the named place of destination.
Delivery

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INCOTERMS 2010 Overview – Rules for Sea & Inland waterway transport

• Free Alongside Ship means that the Seller delivers when the goods are placed alongside Delivery

FAS the vessel nominated by the Buyer at the named port of shipment
• Named place must be included i.e. (FAS, Berth 106, Durban Harbour)

• Free on Board means that the Seller delivers the goods on board the vessel nominated Delivery

FOB by the Buyer at the named port of shipment or procures the goods already so delivered.
• Named place must be included i.e. (FOB, “Maeve”, Durban Port)

• Cost and Freight means that the Seller delivers the goods on board the vessel or Delivery

CFR procures the goods already so delivered

• Named place must be included i.e. (CFR, Hamburg Port)

• Cost, Insurance and Freight means that the Seller delivers the goods on board the vessel Delivery

CIF or procures the goods already so delivered.

• Named place must be included i.e. (CIF, Hamburg Port)

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INCOTERMS 2010 - Overview for all rules

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03
Discussion questions & Exercises

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 Discussion questions

1/ Company A buys goods from Company B at Tan Thuan Export Processing Zone of Ho Chi Minh City, Viet
Nam but company A wants to receive goods at Vietnam-Singapore Industrial Zone, Binh Duong Provi
-nce, VietNam. Contract mentioned nothing except EXW Tan Thuan.
Who will be responsible for transportation cost from Tan Thuan Export Processing Zone to Vietnam-
Singapore Industrial Zone?

2/ Sales contract was negotiated under FCA terms, goods was delivered in container. At the time of
doing some customs procedures, the buyers unlocked the container for inspecting the goods &
found that some packages were torn & damaged, not enough quantity as negotiation in contract.
Who will be responsible for this risk?

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 Discussion questions
3/ According to Incoterms 2010, what is the difference between DAT term & DAP term?

4/ Sales contract signed under DAP term (Incoterms 2010), cargoes are directly shipped in full car by
railway to the destination of imported country. Who will be responsible for the transport cost?

5/ Commodity: Frozen Seafood (Temp: -18 Degree C), stuffed in container for carriage by sea. Is it
correct if we choose FOB Incoterms 2010 for this case. If wrong, which term is the best suitable & Why?

6/ A trading for 1000 MT of rice under FOB Incoterms 2010. When loading the cargo into the vessel, it
suddenly rains. The hatch is still being opened, that leads to 300 MT of rice being wet. How can we
resolve for this situation?

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 Exercises

1/ Exporter in DONG NAI Province, export delivery place at Cat Lai port (Ho Chi Minh City); The buyer in Singapore,
import delivery place at OSAKA (Japan).
Commodity: 6,000 MT of Vietnam White Rice
Please select the best appropriate term of Incoterms 2010 for below cases:
a. The seller requested to end his responsibilities after finishing all export procedures, loading goods into the vessel &
receiving “On Board” Bill of Ladings from shipping line.
b. The buyer totally accepted all terms at (a) and he asked the seller to arrange the vessel, pay transportation freight
from Cat Lai port to OSAKA port as well as buy insurance for commodity shipped. The point of risk is the same as (a).
c. If both sides agreed all terms as mentioned on (b) but requested to change risk transferred location of goods (from
the seller to the buyer) after the seller safety delivered the goods into on-carriage at OSAKA port.
d. The seller is responsible for all procedures & costs to directly distribute the goods to rice agents at OSAKA city.

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END OF CHAPTER 01