INCOTERMS

CHAPTER 2

Nguyen Thi Hong An

 Learning expectations
2

 Understand what INCOTERMS is

 Understand differences in Incoterms 2000 &
2010
 Understand terms in Incoterm 2010

Nguyen Thi Hong An

INCOTERMS : International
Commercial TermS

 INternational COmmercial TERMS, first

version in 1936.
 “INCOTERMS define the mutual obligations of
seller and buyer arising from the movement of
goods under an international contract from the
standpoint of risks, costs and documents”
UNCTAD, 1990

Nguyen Thi Hong An

What are they?
 Set of international rules for the interpretation
of the most commonly used foreign trade
terms.
 Incoterms 2010 was announced in September
2010 and went into effect in January 2011.
 Incoterms 2010 provides a more user friendly
set of terms reflecting up-to-date practices
 11 terms of shipment and delivery created by
the International Chamber of Commerce (ICC),
for use in sales contracts
Nguyen Thi Hong An
 Provide an Internationally accepted definition
of:
 The responsibilities of Buyer and Seller
 The allocation of delivery costs
 The assumption of delivery risks
 Periodically updated to reflect trade practice
 Should be referred to as ‘Rules’
 Translated into different languages

Nguyen Thi Hong An

Why are they Important?
 Reduce the uncertainty caused by trade
practices in different countries.
 Simplify the negotiations involved in
international commerce.
 Ensure common understanding of obligations

Nguyen Thi Hong An

Incoterms ‘do’:
 Divide costs, risks and responsibilities
between seller and buyer;
 Guide one or the other contracting party into
subsidiary contracts necessary to fulfill
designated Incoterm tasks, such as contracts
of carriage and insurance;
 Provide useful shorthand;
 Reduce potential misunderstandings between
buyer and seller;
 “Reflect” rather than dictate trade practice.
Nguyen Thi Hong An
Incoterms ‘do not’
 Convey title
 Address revenue recognition
 Include all of the duties of the Buyer/Seller in a
transaction
 Automatically apply (you must specify)
 Speak about payment disputes between buyer and
seller
 Deal with a breach in contracts
 Incoterms do not specify how goods are to be packed for
shipment or how the goods are to be loaded and stowed
onto transport equipment (as in a container, on a truck, rail
car, aircraft, ocean vessel, etc.)

Nguyen Thi Hong An

Incoterms ‘do not’
 Incoterms are not Payment Terms
(although payment timing is commonly tied
to the event of delivery).

 Payment Terms + Incoterms = Terms of Sale

Nguyen Thi Hong An

 Incoterms® and Sales Contracts --
10
Key Elements !
-- Full (legal) name and address of parties
-- Good, practical description of the goods that can be used
to verify the customs classification
-- Shipping Instructions (and packing) & Insurance
-- Payment terms and currency
-- Incoterms®
-- Passing of title (e.g., after delivery and payment)
-- Timing for events (latest shipment, etc.)
-- Applicable law and dispute resolution (as the ICC)
-- Duly signed by authorized parties

Nguyen Thi Hong An

 Incoterms 2010 – What’s New?
11

 New Layout – Divided into two distinct sections

 Any Mode Terms: DDP, DAP, DAT, CIP, CPT, FCA, EXW
 Waterway/Maritime Terms: FOB, FAS, CFR, CIF
 As opposed to 2000 version that began with EXW and progressed to
DDP – Least to most risk
 Includes explanation of terms used in the book
 11 Terms (Down from 13)
 DAF, DES, DDU, & DEQ have been removed and replaced by DAP &
DAT respectively
 Graphics added to illustrate risk and obligation

Nguyen Thi Hong An

 What happened to
12
DAF, DES and DDU?
 These three terms have been replaced by one term
DAP (Delivered at Place)
 DAF (Delivered at Frontier) – Rarely used and limited to ground
transport
 DES (Delivered Ex-Ship) – Limited to water shipments only
 DDU (Delivered Duty Unpaid) – Not appropriate for domestic
shipments since duty was implied
 DAP can be used with any mode of transport –
domestic or international

Nguyen Thi Hong An

 What happened to DEQ?
13

 DEQ (Delivered Ex-Quay) replaced by DAT

(Delivered at Terminal)
 DEQ required the seller (shipper) to unload at the quay
 DEQ was limited to water transport

 DAT
 Requires the seller to unload at the quay, terminal, or
warehouse
 Can be used with any mode of transport

Nguyen Thi Hong An

 F Terms – General Considerations
14

 Main Carriage contracted by buyer

 Less work for seller, but less control over
documents
 For documentary payment terms
 For US Exporters, EEI (Electronic Export Information) filings are
typically done by forwarder
 Compliance – Documentation required
 For US Importers, F Terms facilitate ISF (Importer
Security Filing – 10+2) reporting

Nguyen Thi Hong An

 D Terms
– General Considerations Continued
15

 For US Exporter – more work than the F Terms

and greater risk than the C Terms
 Seller agrees to deliver or make arrive at named location on the
buyer’s side
 Potential for demurrage charges
 For US Importers, again, the 10+2 filings are
handled by the vendor’s forwarder
 Not the best term to use for L/C transactions,
since the BL or AWB do not show actual arrival
Nguyen Thi Hong An
 C Terms – General Considerations
16

 Most advantageous for seller

 Main Carriage contracted by seller
 Most control over documents
 More work for exporter than F Terms
 Under C Rules, buyers are responsible for the
goods during the main carriage even though the
seller has made the arrangements for main carriage
 US Importers must rely on their supplier’s
forwarder to submit 10+2 documentation and US
Importers at risk during main carriage
Nguyen Thi Hong An
 D Terms – General Considerations
17

 “Arrival” Terms
 Main Carriage contracted by seller
 Seller responsible for goods until delivered
(“arrived”) to specified location on the buyer’s
side
 Not particularly advantageous if you’re looking for
early revenue recognition

Nguyen Thi Hong An

Main changes in INCOTERMS 2010

 Removal of four terms (DAF, DES, DEQ and DDU)

 Introduction of 2 new terms (DAP - Delivered at Place and
DAT - Delivered at Terminal).
 Creation of two classes of INCOTERMS - (1) rules for any
mode or modes of transport and (2) rules for sea and inland
waterway (INCOTERMS 2000 had four categories).
 Rules which are able to serve both domestic and international
trade.
 Express reference to the use of "equivalent electronic records",
if the parties agree or it is customary.

Nguyen Thi Hong An

Main changes in INCOTERMS 2010
 Amended insurance cover to reflect the alterations made to the
Institute Cargo Clauses.

 Allocation of parties' respective obligations to obtain or to

provide information in order to obtain security-related
clearances.

 Responsibility for Terminal handling charges expressly

allocated.

 Including an obligation to "procure" goods to reflect current

practices in string sales.

Nguyen Thi Hong An

Removal of four terms from INCOTERMS 2000

 Delivered At Place (DAP) which should be used

in place of DAF, DES and DDU; and
 Delivered At Terminal (DAT) which replaces
DEQ.
 These terms may be used irrespective of the
agreed mode of transport.
 Part of the reasoning for fewer
terms/simplification was that traders often
chose the "wrong" term or muddled terms,
leading to contradictory or unclear contracts.
Nguyen Thi Hong An
The Categories

Incoterms Code
Ex works EXW E Terms
Free carrier FCA
Free alongside ship FAS F Terms
Free on board FOB
Cost & freight CFR
Cost, insurance & freight CIF
Carriage paid to CPT
C Terms
Carriage and insurance paid to CIP
Delivered at frontier DAF
Delivered ex ship DES
Delivered ex quay DEQ D Terms
Delivered duty unpaid DDU
Delivered duty paid DDP
Nguyen Thi Hong An
The Steps of Global
Logistics
Customs Clearance
for Export
2 3 4
Handling
Loading Outbound
1 Preliminary
Transportation
5
Packing
6
Insurance
Main
Customs International
Clearance Transportation 7
Duties

11 10 9 8

Unloading Final Handling

Transportation Inbound
 Acronym (…named location)
Acronym dictates mode and where the lines are drawn

Export Import
SELLER Clearance Clearance BUYER

Goods

PRE -CARRIAGE MAIN CARRIAGE ON-CARRIAGE

Seller’s Risk

Seller’s Cost

Nguyen Thi Hong An

 E Terms: Departure

z EXW (named place)

Under E-terms, the seller minimizes his
risk by only making the goods available
at his own premises.
Export Import
SELLER Clearance Clearance BUYER

Goods

PRE -CARRIAGE MAIN CARRIAGE ON-CARRIAGE

Seller’s Risk

Seller’s Cost
 EXW = Ex Works

z The seller fulfills his obligation to deliver

when he has made the goods available at his
premises to the buyer.
z The seller is not responsible for loading the
goods on the vehicle provided by the buyer
z The seller is not responsible for clearing the
goods for export, unless agreed.
z The buyer bears all costs and risks involved in
taking the goods from the seller’s premises
to the desired destination.
Nguyen Thi Hong An
Group F: Main Carriage Not
Paid by Seller

z FAS - Free Alongside Ship

z FCA - Free CArrier
z FOB - Free On Board

Under F-terms, the seller arranges and

pays for pre-carriage in the country of
export. Including export clearance under
FCA and FOB

Nguyen Thi Hong An

 FAS (…named port of shipment)
Seller
• delivers goods alongside ship
• evidence of delivery
Export Import
SELLER BUYER
Clearance Clearance

Goods

PRE-CARRIAGE MAIN CARRIAGE ON-CARRIAGE

Seller’s Risk
Buyer
• export documents
Seller’s Cost
• nominates carrier,
• contracts carriage
• pays freight
FAS (…named port of shipment)

 Seller: deliver the goods alongside ship

 All risks are transferred to the buyer after the
goods are alongside ship.
 If goods are delivered to carrier to be
packaged in containers, the seller must deliver
goods at the named terminal, not alongside
ship.FAS is not suitable. FCA should be used.
 FAS requires the seller to process custom
clearance.
Nguyen Thi Hong An
 FCA (…named place)
Seller
• clears export customs,
• delivers goods to carrier
• evidence of delivery
Export Import
SELLER BUYER
Clearance Clearance

Goods

PRE-CARRIAGE MAIN CARRIAGE ON-CARRIAGE

Seller’s Risk

Buyer
Seller’s Cost
• nominates carrier,
• contracts carriage
• pays freight
FCA (named place)
 Goods are delivered to the carrier at the
named place
 The seller is responsible for custom clearance
 Evidence of delivery

Nguyen Thi Hong An

Seller
FOB (…named port of shipment)
• clears export customs,
• delivers and loads goods on ship
• evidence of delivery
Export Import
SELLER BUYER
Clearance Clearance

Goods

PRE-CARRIAGE MAIN CARRIAGE ON-CARRIAGE

Seller’s Risk

Seller’s Cost Buyer

• nominates carrier,
• contracts carriage
• pays freight
FOB (named port of shipment)

 If goods are delivered to carrier to be

packaged in containers, the goods must be
delivered at the named terminal. FOB
condition is not possible. FCA should be used.

Nguyen Thi Hong An

 Group C: Main Carriage
Paid by Seller

z CFR - Cost & FReight

z CIF - Cost, Insurance & Freight
z CPT - Carriage Paid To
z CIP - Carriage & Insurance Paid to

Under C-terms, the seller arranges and

pays for the main carriage but without
assuming the risk of the main carriage.
Nguyen Thi Hong An
CFR (…named port of destination)

Export Import
SELLER Clearance Clearance BUYER

Goods

PRE-CARRIAGE MAIN CARRIAGE ON-CARRIAGE

Seller’s Risk

Seller’s Cost
CFR (named port of
destination)
 The seller:
 Loading the goods on ship
 Risk is transferred to the buyer right after the
goods are already on ship board.
 Hire shipment and pays transport cost up the
named port of destination, including unloading of
the goods.
 Export custom clearance

Nguyen Thi Hong An

CIF (…named port of destination)

Export Import
SELLER Clearance Clearance BUYER

Goods

PRE-CARRIAGE MAIN CARRIAGE ON-CARRIAGE

Seller’s Risk

Seller’s Cost + Insurance

CIF (named port of
destination)
 If goods are delivered to the carrier to be
packaged in containers, the goods must be
delivered at the named terminal. CIF condition
is not possible. CIP should be used.
 The seller takes export custom clearance.

Nguyen Thi Hong An

Ocean vs Other
 Ocean Terms Other Terms
 CFR CPT
 CIF CIP
CIP – Carriage and Insurance paid to (named
place of destination)

 The seller:
 Deliver the goods to the carrier at named place
 Buys insurance

 Free when goods are delivered to the carrier, not

to the buyer (also applied to CPT, CFR, CIF).
 Pay for unloading of the goods.

Nguyen Thi Hong An

CPT – carriage paid to (named place of
destination)

 The seller:
 Deliver the goods to the carrier at named place
 Free when goods are delivered to the carrier, not
to the buyer (also applied to CIP, CFR, CIF).
 Pay for unloading of the goods.

 Export Custom clearance

Nguyen Thi Hong An

Nguyen Thi Hong An
Group D: Arrival

DAP - Delivered At Place

DDP - Delivered Duty Paid
DAT- Delivered at Terminal

Under D-terms, the seller’s cost/risk is maximized because he must make

the goods available at the agreed destination. Including import clearance
under DDP
Under all D-terms, except DDP, the buyer should do what is necessary to
clear the goods for import
Nguyen Thi Hong An
DAP - Delivered At Place (place of named destination)

 The seller:
 Deliver the goods to named place of destination
(not the carrier)
 Buys insurance

 Pay for unloading of the goods.

 Export Custom clearance

Nguyen Thi Hong An

DAT- Delivered at Terminal (named terminal)

 The seller:
 Deliver the goods to the terminal at named place
 Pay for unloading of the goods.

 Export Custom clearance

Nguyen Thi Hong An

DDP - Delivered Duty Paid (named place of destination)

 The seller:
 Deliver the goods to the at named place of
destination.
 Pay for unloading of the goods.

 Export Custom clearance and Import custom

clearance.
 Maximum responsibility.

Nguyen Thi Hong An

Anti- Boycott Requirements

The anti-boycott laws were adopted to encourage, and in

specified cases, require U.S firms to refuse to participate
in foreign boycotts that the United States does not
sanction.

They have the effect of preventing U.S. firms from being

used to implement foreign policies of other nations
which run counter to U.S. policy.

Nguyen Thi Hong An

 Bribery and the Foreign Corrupt
Practices Act...
 Bribes and facilitating payments are acceptable in many
cultures.
 The U.S. Foreign Corrupt Practices Act prohibits American
corporations from offering or providing payments to officials of
foreign governments for the purpose of obtaining or retaining
business abroad.
 This may place U.S. businesses at a disadvantage.

 This has been supported through global treaties.

Nguyen
10-47 Thi Hong An
DISCUSSION QUESTIONS
1) Imaging you are from Company A in Vietnam.
Your company plans to import a container of
goods from Thailand to Vietnam. List out all
costs will be occurred.
Revision
1) You receive an export order with the Incoterm CFR
New York Airport. How would you respond?

2) What are similarities between CIF and CIP?

3) Under CIF/CIP contracts:

 a) Who is legally obligated to take out the insurance
cover?
 b) What value should the insurance amount cover?

 c) Who is responsible for making the insurance claim

if the goods are damaged in transit?
Nguyen Thi Hong An, MBA
4) A customer in Nigeria asks your company to
amend a quotation from CPT Lagos to DAP
Lagos. What factors must be taken into
consideration before accepting?

Nguyen Thi Hong An,