FUNDAMENTALS OF

OPERATIONAL LOGISTICS
PART 1: Understanding International Trade
Chapter 1, 2, 3 & 4
 FUNDAMENTALS OF
OPERATIONAL LOGISTICS
Chapter 4
Incoterms 2010
 Learning Outcomes

At the end of this chapter, you should be able to:

 Evaluate the various terms in Incoterms
 Correctly choose the correct Incoterms when doing
international trade
 Identify the responsibility/ transfer of risk chart for the user of
Incoterms
 The History of Incoterms

Business jargon can sometimes lead to miscommunications and non-productive,

time- and money-wasting activities.

The International Chamber of Commerce (ICC) has taken the initiative to lead the
world for setting up clear business trade rules.

The first Incoterms was published in 1936. It was later revised in 1953, 1980,
1990, 2000 and the last revision was in 2010.

Incoterms 2010 has been endorsed by the United Nations Commission on

International Trade Law (UNCITRAL).
 Using Incoterms

General guidelines for standard Incoterms:

(1) Banks do not use Incoterms as basis for making payments to
those submitting the documentary credits.
(2) Users of Incoterm can include additional conditions to the
generally accepted terms.
(3) The contract for Incoterms is not absolute.
(4) Incoterms does not mention when payment of the goods must be
made.
(5) The choice of using the terms is the responsibility of both buyer
and seller.
 The 11 Rules of Incoterms 2010

E Group

(1) EXW Ex Works (named place of delivery)

This constitutes the minimum responsibility of the seller. The goods are ready for
pick-up at the seller’s place whereby, the buyer is required to fulfil all other
arrangements like trucking, export clearance, insurance etc. Delivery is complete
when the cargo is released to the buyer or their appointed freight forwarders.
 The 11 Rules of Incoterms 2010 (cont.)

F Group: International Carriage NOT paid by seller

(2) FOB – Free On Board (named port of shipment)

Shipper or seller will appoint their own freight forwarder to move any cargo to
the port or any designated points of origin. Delivery is complete once the
shipper/seller releases the goods to the buyer’s forwarder. Often mistaken for
land movements whereas FOB is dedicated solely for sea freight, based on
the official definition set by the ICC.

3) FCA – Free Carrier


The shipper or seller will arrange transportation to move any cargo. Delivery is
completed once the cargo reached any predetermined port or destination
point.
 The 11 Rules of Incoterms 2010 (cont.)

F Group: International Carriage NOT paid by seller (cont.)

There are further sub-divisions of FCA:

(i) FCA Seller Premise – the seller is responsible for loading of goods but not for
any payment of inland freight.
(ii) FCA Named Place (International Carrier) – the seller is responsible for inland
freight.

(4) FAS – Free Alongside Ship

Buyers are responsible for all transportation cost and any possible risk of loss of goods.
The shipper is then responsible to clear the goods for export. Delivery is complete when
the goods are turned over to buyer’s forwarder for additional insurance payments or
transportation.
 The 11 Rules of Incoterms 2010 (cont.)

C Group: International Carriage Paid by the Seller

(5) CFR – Cost and Freight
Formally known as CNF or C&F. It is the shipper’s responsibility to deliver the
goods from their factory/storage to the port of destination. Delivery is complete
when the vessel arrives at the port. However, the buyer is responsible for all
insurance arrangements from the port of origin to the buyer’s door.

(6) CIF – Cargo, Insurance and Freight

This arrangement is similar to CFR, except that the shipper will be responsible for
all insurance matters of this cargo. Delivery is also completed at the port of
destination. Suitable for maritime transportations only.
 The 11 Rules of Incoterms 2010 (cont.)

C Group: International Carriage Paid by the Seller

(7) CPT – carriage paid to
The shipper shall be responsible for all insurance matters of this cargo which is
similar to CIF. However, shipper is obliged to name the buyer of the insured while
the goods are in transit. Delivery is complete once the cargo arrives at the port of
destination or upon handing over of goods to the first carrier.

(8) CIP – cargo and insurance paid to (named destination)

Normally used in multimodal transportation. The shipper is required to purchase
minimum insurance coverage because it relies heavily on the carrier’s insurance.
The buyer’s insurance is deemed effective when the cargo has been turned over to
the appointed forwarder or to the first carrier.
 The 11 Rules of Incoterms 2010 (cont.)

D Group: Arrival at stated destination

(9) DAT – delivered at terminal
The shipper is responsible to pay for carriage up to the terminal/port. Excluded in
this arrangement are any costs related to customs clearance. The responsibility is
only passed to the next party upon completion of the unloading exercise at the
terminal.
(10) DAP – delivered at place (named place of destination)
The shipper is responsible to pay for transportation right up to the named location.
Excluded in this arrangement are any costs related to customs clearance.
Responsibility is only passed on to the next party upon delivery at the named place
to the point that the goods are ready for unloading by the buyer.
 The 11 Rules of Incoterms 2010 (cont.)

D Group: Arrival at Stated Destination (cont.)

(11) DDP – delivered duty paid

This represents the shippers’ maximum responsibility to deliver
the cargo. It is a door-to-door arrangement. The shipper shall be
accountable for every aspect of the cargo including costs, risks,
insurance, duty and others.
Differences between Incoterms 2010 & Incoterms
2000

Incoterms 2010 EXW FCA CPT CIP DAT DAP DDP FAS FOB CFR CIF - - - -
Incoterms 2000 EXW FCA CPT CIP - - DDP FAS FOB CFR CIF DAF DES DEQ DDU
Usage of Incoterms in Relation to Choice of
Transportation
  AIR ROAD RAIL SEA
EXW YES YES YES YES
FCA YES YES YES YES
FAS NO NO NO YES
Not all Incoterms
FOB NO NO NO YES can be used for all
CFR NO NO NO YES choice of
CIF NO NO NO YES transportation.
CPT YES YES YES YES
CIP YES YES YES YES
DAT YES YES YES YES
DAP YES YES YES YES
DDP YES YES YES YES
Guideline for Responsibilities

Guideline of Responsibilities
Guideline of Responsibilities
 Words of Wisdom

Use only Incoterms 2010 as there are already seven earlier versions.
Spell out any additional requirements or conditions that you would
like to include in the sales contract. For instance: EX works Incoterms
2010, stuffing at the seller’s warehouse is under the buyer’s
responsibility.
The contract of incoterms is not absolute. All sales and purchases
contract are still bound by applicable natural laws and regulations.
The choice of transportation is limited to the choice of Incoterms
used.