INCOTERMS 2000

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THE HORROR STORIES! 
Incoterms? That·s that FOB thing, innit?  The export price list shows ¶FOB £5.00 per Unit· and ¶CFR £5.00 per Unit·!  We use FOB Birmingham or CIF Cairo!

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INCOTERMS define 
the point at which risk passes;  the delivery point;  the division of costs;  the division of functions;  the division of responsibilities.
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5 .INCOTERMS GROUP ¶E·  The goods are made available to the buyer at the seller·s premises.

6 .INCOTERMS GROUP ¶F·  The seller must deliver the goods to a carrier appointed by the buyer.

INCOTERMS GROUP ¶C·  The seller must contract for the carriage of the goods without assuming risk of loss of or damage to the goods or additional costs due to events occurring after shipment. 7 .

INCOTERMS GROUP ¶D·  The seller must bear all costs and risks required to bring the goods to the place of destination. 8 .

EXW  May be used for any mode of transport.  The seller must place the goods at the disposal of the buyer at the seller·s premises or another named place not cleared for export and not loaded on any collecting vehicle. 9 .EX WORKS .

cleared for export.FREE CARRIER . 10 .  The seller must deliver the goods. to the carrier nominated by the buyer at the place nominated by the buyer.FCA  May be used for any mode of transport.

FAS  Maritime and inland waterway transport only. cleared for export. 11 .  The seller must place the goods.FREE ALONGSIDE SHIP . alongside the vessel at the named port of shipment.

 The seller delivers the goods.FOB  Maritime and inland waterway transport only. cleared for export. 12 . when they pass the ship·s rail at the named port of shipment.FREE ON BOARD .

13 .  The seller must clear the goods for export.CFR  Maritime and inland waterway transport only.  The seller delivers when the goods pass the ship·s rail in the port of shipment. If the parties do not intend to deliver the goods across the ship·s rail the CPT term should be used. as well as any additional costs due to events occurring after the time of delivery. The seller must pay the costs and freight necessary to bring the goods to the named port of destination BUT the risk of loss of or damage to the goods.COST AND FREIGHT . are transferred from the seller to the buyer.

CIF  Maritime and inland waterway transport only.  The obligations are the same as under CFR with the addition that the seller must procure insurance against the buyer·s risk of loss or damage to the goods during carriage.COST INSURANCE AND FREIGHT . 14 .

 The seller delivers the goods to the nominated carrier and must also pay the cost of carriage necessary to bring the goods to the named destination. 15 .CARRIAGE PAID TO . The buyer bears all additional costs and risks after the goods have been delivered to the nominated carrier.CPT  May be used for any mode of transport.

CARRIAGE & INSURANCE PAID TO - CIP 
May be used for any mode of transport.  The obligations are the same as under CPT with the addition that the seller must procure insurance against the buyer·s risk of loss of or damage to the goods during carriage.

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DELIVERED AT FRONTIER - DAF 
May be used for any mode of transport.  The seller must place the goods at the

disposal of the buyer on the arriving means of transport not unloaded, cleared for export but not cleared for import, at the named point and place at the frontier.
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DELIVERED EX SHIP - DES 
Maritime and inland waterway transport only.  The seller delivers when the goods are

placed at the disposal of the buyer on board the ship, not cleared for import, at the named port of destination.

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DELIVERED EX QUAY .  The seller delivers when the goods are placed at the disposal of the buyer on the quay. at the named port of destination.DEQ  Maritime and inland waterway transport only. not cleared for import. 19 .

DDU  May be used for any mode of transport.  The seller must deliver the goods to the buyer. 20 . not cleared for import. and not unloaded at the named place of destination.DELIVERED DUTY UNPAID .

DDP  May be used for any mode of transport.DELIVERED DUTY PAID . 21 . and not unloaded at the named place of destination. The seller pays the import duties.  The seller must deliver the goods to the buyer. cleared for import.

 Standard practice for the country of importation.  The regulations of the country of importation.  Exporter·s policy. 22 .WHICH INCOTERMS TO USE?  The buyer·s stipulation.

WHICH INCOTERM TO USE?  The mode of transport used  Availability of information  Customer service  Economy .

 Consistency of language  Customs clearance in free trade areas. 23 .INCOTERMS 2000 ² Major Changes  FAS / DEQ customs clearance obligations.  The expression ¶ No Obligation·.  FCA loading and unloading obligations.

 Minimum cover of Institute Cargo Clause.INCOTERMS AND INSURANCE  Only affects CIF / CIP. 24 .  Seller procures insurance for the benefit of the buyer.  Contract price plus 10%.

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INCOTERMS AND ELECTRONIC COMMERCE  Incoterms 2000 includes provision for specified documents or ¶equivalent electronic message·. 25 .

PLEASE REMEMBER!  Documents must refer to Incoterms 2000 (or current version)  Always use the 3 letter code  Always suffix with a named place CIF Aqaba Port Incoterms 2000 FOB Immingham Docks Incoterms 2000 CPT Queen Alia Airport Incoterms 2000 .

The Incoterms Revision  Incoterms review underway  Reduction from 13 to 10 terms  Clarification of maritime / non-maritime terms  Security regimes addressed  Publication due 2010  Probably effective from Jan 2011 .

The Incoterrms Revision  Incoterms 2011  EXW v FCA  The Maritime Terms  The D Terms ² in general  The D Terms ² and Letters of Credit .

Incoterms 2000 ² Responsibility Chart SERVICES EXW Warehouse Storage Warehouse Handling Export Packing Loading Charges Inland Freight FCA S FAS S FOB S CFR S CIF S CPT S CIP S DAF S DES S DEQ S DDU S DDP S S S S B B B B B B B B S S S S* B B B B B B S S S S S B B B B B S S S S S B S B B B S S S S S S S S B B S S S S S S S S B B S S S S S S S S S B S S S S S S S S S B S S S S S S S S S B S S S S S S S S S B S S S S S S S S S B S S S S S S S S S B S S S S S S S S S S Terminal Charges Forwarder·s Fees Loading on vessel Sea/Air Freight Charges on arrival Duty. 27 . Taxes & Customs clearance Delivery to destination B B B B B B B B B B B S S S = Seller B = Buyer ‡ If terms are FCA Seller¶s Premises. Seller is responsible only for loading goods and not for inland freight.

Customs Formalities .

Customs Formalities Legal Obligations:  Declarations of cargoes  Payment of duties / Taxes  Compliance with import regulations including controls and prohibitions Impact upon time scales in the supply chain .

Why is Customs Clearance needed?  Revenue collection or waiver  Anti-Smuggling Net  Counterfeit goods / IPR protection  Enforce import controls  Assure integrity of declarations  Inspection / quality assurance  Identify over-pricing and under-pricing issues .

Imports  Invoices showing CIF / CIP value  Packing Lists  Certificates of Origin  Import Licence  Certificates of Free Sale  Test Certificates  Import declaration  Inspection Certificates / CRIs / IDFs .Documentary Requirements .

Typical Clearance Routes Customs Entry Processing Unit No Checks Documentary Checks Cargo Examination .

 Valuation is on the basis of the transactional value  If the transactional value cannot be determined Customs Authorities may base their calculations on the value of identical or similar goods.Customs Valuations  Duties / Taxes are usually calculated on the basis of the CIF / CIP value of the goods. .  Most countries use the Harmonised System (HS) of classification for their customs tariffs.

Types of Customs Duty  Import Duty  Excise Duty  Anti-Dumping Duties  Countervailing Duties .

Exercise!  CPT Value of the consignment US$10.000  Insurance premium estimated as US$100.00  Import Duty Rate is 3% How much Import Duty would be payable? .

Topical Issues  Single Window Environment  WCO Safe Framework  Trusted Trader environments ² The Golden List  Use of Scanners  One Stop Border Posts  Integrated Border Management  Trade / Transit Corridors .

Kenya KRA Customs Kenya Ports Authority Other Control Agencies Clearing Agent Kenya Airport Authority Ship Agent Bank Importer / Exporter Transporter .Inefficiency of trade procedures .

Permit Railways .Expected Business Solution Revenue Authority ( Tradex) CFS & ICD OGA Ship Agents PCBS Port & Airport Authority Freight Forwarders Importer / Exporter E.

The World Customs Organisation·s (WCO) SAFE Framework of Standards (FoS) A set of recommended international supply-chain security standards and supporting principles adopted by the WCO in June 2005 to secure and facilitate international trade. 17 Standards arranged under the two Pillars of:  Pillar 1: Customs to Customs co-operation (11 standards)  Pillar 2: Customs to business partnerships (6 standards) .

To enable integrated supply-chain management across all transport modes. . To enhance the role. functions and capabilities of Customs administrations.Aims of SAFE FoS:       To establish international supply-chain security and trade facilitation standards to promote certainty and predictability. To strengthen co-operation between Customs administrations to improve their capability to detect high risk consignments. To promote the seamless movement of goods through secure international trade supply-chains. To strengthen Customs / Business co-operation.

required electronically in advance for inbound.  The conferral of benefits to businesses meeting minimum supply-chain security standards and demonstrating good practice (e.Lessons Learned SAFE·s 4 Core Elements: Harmonization of cargo information.g. . outbound and transit shipments.  Mutual Customs co-operation in the inspection of outbound consignments considered high risk.  The adoption of a Risk Management approach in addressing security threats. Authorised Economic Operator (AEO) and similar ¶trusted trader· schemes).

Methods of Shipment  Seafreight ² Liner shipping Containerised Break Bulk / Conventional Seafreight ² Charter Road Rail Air ² Sea / Air Multi Modal solutions 1. 2.      .

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B & C .Cargo Insurance  Responsibilities in relation to Incoterms  Types of cover ² Open Cover / Specific  Premium Elements ² Marine / War Risks  Institute Cargo Clauses A.

Cargo Insurances Claims  Prompt action by the insured  Complete and accurate documentation  Do not sign clean receipt  Advise insurers immediately  Hold last carrier responsible .

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Documentation Movement:  Bills of lading  Electronic Bills of Lading  Airwaybills  CMR Notes  CIM Notes  Forwarders Certificate of Receipt .

Original Bill of Lading .

Combined Transport Bill of Lading .

Non-negotiable Copy of Bill of Lading .

Another Example of a Bill of Lading .

A Charter Party Bill of Lading .

Documentation       Certificates of Origin Inspection Certificates Test Certificates / traceability Packing Lists Commercial Invoices (indicating CIF value for customs) Insurance Certificates .

CARGO IMPORTER customs security carrier security customs EXPORTER IMPORTERS BANK $ PAYMENT EXPORTERS BANK DOCUMENTS (DIRECT OR THROUGH BANK) .

Methods of Payment for Exports / Imports  Cash in Advance  Confirmed Irrevocable Letter of Credit  Unconfirmed Irrevocable Letter of Credit  Avalised Bill of Exchange  Bank collections  Cash against Documents  Open Account Principle of Documentary Exchange .

Selection of Payment Term and Method Sellers Criteria:  Minimise credit risk  Exporters need for funds  Usual terms sales to country of importation  What competitors are offering  Effect of bank charges Seller will Assess both Commercial and Country Risks .

which strictly comply with all the terms and conditions of the letter of credit. to a nominated bank. conditional upon presentation of documents.Letters of Credit A guarantee of payment by the issuing bank to the seller. .

Letters of Credit The parties involved:  The Opener ² Buyer or Importer  Opening Bank ² Issues the L/C  Nominated Bank ² Advises and may ¶confirm· the L/C  The Beneficiary ² Seller or Exporter .

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Letters of Credit Types:  Confirmed / Unconfirmed  Irrevocable / revocable (UCP 600 Revision)  Revolving  Transferable  Back to Back  Standby  Red Clause / Green Clause .

Letters of Credit The Rules:  Uniform Customs and Practice for Documentary Credits ² ICC Publication No 600  eUCP  International Standard Banking Practice .

Why revise the rules?  Rejection rate under UCP 500 consistently high at 5070% of presentations  Requirement to reflect changes in banking / international transportation and insurance since UCP 500 was published in 1993 .

ICC Task Force Recommendations  Review should be technical rather than line by line revision  ICC opinions. DOCDEX and court cases should be considered  7 articles of UCP 500 account for 58% of all Opinions. decisions. these require scrutiny  17 articles have resulted in none. ISP98 and eUCP. one or two opinions. .  Consider incorporation of URR 525.

What are the key changes?  Leaner set of rules ² reduced from 49 to 39 articles  Easier to read therefore easier to translate  Rules more robust due to removal of terminology ¶Unless otherwise stipulated· ² openers must ¶Expressly modify·  New fundamental article on ¶definitions· .

Complying presentation  17 .Original documents and copies .Advising of credits and amendments  12 .Definitions  3 .Nomination  15 .UCP 600 New Articles  2 .Interpretations  9 .

Revocable  8 .Revocation  12 ² Incomplete or Unclear instructions  38 ² Other documents .Instructions to issue / amend  6 (part) .UCP 500 Articles not Included  5 .

Article 2 .Definitions  Applicant  Banking Day  Complying presentation  Honour ² Issuing bank must ¶honour·  Negotiation ² Bank uses own funds  Paying ² Using issuing banks funds .

as soon as possible will be disregarded  The words from / after in relation to maturity date exclude the date mentioned .Article 3 Interpretations  Words in the singular include the plural and vice-versa  Credits are Irrevocable even if un-stated  Branches of banks in different countries are considered separate banks  Words such as prompt. immediately.

Article 3 Interpretations  A document may be signed by handwriting / facsimilie signature / perforated signature / stamp / symbol or mechanical / electronic method of authentication  A requirement for certification / legalisation is satisfied by any signature / mark / stamp / label .

11-20th  End ² 20th ² last day .Article 3 Interpretations  First half of month ² 1-15th  Second half of month ² 16th -last day  Beginning ² 1-10th  Middle .

Article 4 Credits v contracts  The credit is a separate transaction from the underlying sales contract  Copies of the contract or proforma invoice should not be included as an integral part of the letter of credit .

Article 5 ² Documents V Goods. Services and Performances Banks deal with documents and not with goods. services or performances to which the documents may relate  Deletion of ¶all parties·  Banks only deal in documents .

Article 6 Availabilty. Expiry Date and Date for Presentation  Combines 3 articles from UCO 500  Sets minimum requirements be be set in each credit on these issues  Cross reference to Articles 2 and 29  Credits are always available with the issuing bank  Prohibition of drafts drawn on applicant .

Articles 9 & 10 Advising Credits & Amendments  New article  Bank must satisfy itself of authenticity of credit  Clarifying partial acceptance is deemed rejection  Time limits on amendments disregarded .

for example expiry  Removal of concept of reasonable time .  Such period not subject to other event.Article 14 Standard for Examination of Documents  Fundamental to exporters ² one of longest articles  Incorporates some of ISBP  Maximum period of time for bank to determine compliance reduced to 5 banking days.

Requires case by case interpretation  Requirement that a document must appear to fulfil its function .Article 14 Standard for Examination of Documents  Default presentation period 21 calendar days connected to original transport document  Concept of not in conflict / read in context introduced to reduce misuse of inconsistency rule.

Article 14 Standard for Examination of Documents  Any date of issuance of a document on or prior to date of presentation is acceptable  Addresses of beneficiary and applicant may differ within their respective country / contact details transferred from ISBP (notify party exempted)  Issuer of transport document requirement allows NVOCC and freight forwarders documents .

 Honour or negotiation must follow  Clarification that documents have to be forwarded .Article 15 Complying Presentation  New article  Actions to be taken by the bank after determining presentation is compliant.

Article 16 Discrepant documents  Structure of refusal notice  Additional possibilities ² holding documents until receipt and acceptance of waiver  Latest date for notice of refusal links with 14 (b) .

Article 17 Original Documents and Copies  Interpretation of requirement  At least one original of each document must be presented  Originals instead of copies acceptable  Focus on definition of originals rather than copies  Signing in original makes a document original 17 (b) Reflects ICC Decision on Original Documents .

Article 18 Commercial Invoices  Invoice must be in same currency as the credit  New emphasis that banks may accept invoices showing a greater value than allowed by the credit provided they do not honour or negotiate for an amount in excess of the credit .

Articles 19 Transport document covering at least two different modes of transport 
If a through document is used this article applies  For example multi-modal bill of lading or sea / airwaybill  No requirement to show name of master  Must indicate the name of the carrier  Must be signed by the carrier or a named agent, or the master or a named agent (on behalf of the carrier or master)  Must indicate that the goods have been despatched, taken in charge or shipped on board at the place stated in the letter of credit.

Article 20 Bill of Lading Article 21 Non-negotiable waybill
No requirement to show name of master No reference to vessels propelled by sail Updated transhipment provisions Must indicate the name of the carrier Must be signed by the carrier or a named agent, or the master or a named agent (on behalf of the carrier or master)  Must indicate that the goods have been shipped on board a named vessel at the place stated in the letter of credit.  Shipped on Board relates to the port of loading shown in the credit not a feeder port (pre-printed wording or dated notation)  Must contain conditions of carriage or linked to email address giving conditions ² new UNCTRAD rule.     

Article 22 Charter Party Bill of Lading 
Banks will not examine charter party contracts even if they are presented as a requirement of the letter of credit  May be signed by the master, owner or charterer (or a named agent on their behalf)  Must indicate that the goods have been Shipped on Board

 Updated transhipment provision  Banks will ignore information in ¶For Carriers Use Only· box  Must indicate the name of the carrier  Must be signed by the carrier or a named agent for and on behalf of the carrier  Must indicate that the goods have been accepted for carriage .Article 23 Air Transport Document  Flight date in a notation is treated as the date of shipment whether it is called for in the credit or not ² over-rides ISBP.

Rail or Inland Waterway Documents  New combined article  A rail waybill titled ¶Duplicate Rail Waybill· is acceptable.  Transhipment is acceptable even if prohibited by the credit  Must indicate the name of the carrier  Must be signed by the carrier or a named agent on behalf of the carrier  Must indicate receipt of the goods by signature. stamp or notation .Article 24 Road.

no document transmittal .Article 25 Courier Receipts««  Refers to goods for transportation under the letter of credit.

Article 26 On Deck««  If loading on deck is required the applicant must expressly modify the requirements of this article when opening the letter of credit otherwise loading on deck is not permitted  A clause stating that goods may be loaded on deck is acceptable .

Article 27 ² Clean Transport Document  Claused transport documents are not acceptable. .  For example. the opener must modify the clause by stating ¶Rust on the steel is acceptable·  The word ¶clean· is not required to appear on the transport document. if steel is being shipped.

Article 28 ² Insurance Document and Coverage  Amalgamated to one article  Incorporates ISBP provision concerning minimum cover  An insurance document may contain reference to any exclusion clause. As a result of ¶millennium clauses· and ¶acts of terrorism (after 9/11)·  Cover notes not allowed  Insurance policy acceptable instead of a certificate .

Article 33 Hours of Presentation  No change for UCP 500  However ² Banks may manage this differently to mitigate the reduction to five (from seven) banking days allowed to check documents .

Article 36 Force Majeure  Addition of Acts of Terrorism as a specified Force Majeure event. .

. transport documents indicating that goods may or will be transhipped are acceptable as long as the whole transit is covered by a single document. even if the Letter of Credit prohibits transhipment.Transhipment provisions In general.

How is it for the Exporter?  A liberalised regime  Should see a reduction in the 70% discrepancy rate  Reduction in time allowed for banks to check documents from 7 to 5 banking days  Prescriptive rules for banks in handling complying presentations But will the customer be happy? .

 . 4.How is it for the Importer?  Documents presented need to be fit for purpose: Customs Regulatory / conformity Title and delivery Insurance Need to ¶expressly modify· requirements 1. 3. 2.

Letters of Credit Opening a Letter of Credit:  Timing and facilities  Opener·s responsibilities  Control of the transaction ² linkage with sales contract / purchase order  Requirement for advance documents .

Letters of Credit Discrepant documents:  Completeness  Compliance  Correctness  Consistency Should you accept or reject the documents? Remember: Consequences of delay in documentation .

Letters of Credit Accept or Reject?  Right goods at the right price  Quality of goods  Marketable  Documents required for clearance  Claused transport documents  Profitability / viability of transaction .

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