LECTURE 4: TRADE

TERMS AND LOCAL

1
CHARGES
nttuyen@hcmiu.edu.vn
Reference: Incoterms 2020, ICC

***Import – Export Management*** Ms. Uyen Ngo – IEM HCMIU

 2 Contents

1. Overview about Incoterms rules

2. INCOTERMS 2020
3. Division of incoterms
4. Local charges

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 3 1. INCOTERMS overview
 INCOTERMS: International Commercial Terms
 a series of pre-defined commercial terms published by the International Chamber of
Commerce (ICC) relating to international commercial law.
 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)
 Be widely used in international commercial transaction or procurement processes.
 Be accepted by governments, legal authorities, and practitioners worldwide for the
interpretation of most commonly used terms in international trade.

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 4 1. INCOTERMS overview
 To avoid misunderstandings, disputes & litigation that are waste of time and money.
 First published in 1936, then revised in 1953, 1967, 1976, 1980, 1990, 2000, 2010
and most recently, 2020.
 Purpose: provide a full set of international rules for the interpretation of the most
commonly used trade terms in international trade  avoid different interpretations
in different countries.
 Reflect business-to-business practice in contracts for the sale and purchase of
goods.

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 5 1. INCOTERMS overview
 The Incoterms rules describe:

 Obligations: Who does what as between seller and buyer, e.g., who organizes
carriage or insurance of the goods or who obtains shipping documents and export or
import licenses;

 Risk: Where and when the seller “delivers” the goods; in other words, where risk
transfers from seller to buyer;

 Costs: Which party is responsible for which cost, for example, transport, packaging,
loading or unloading costs, and checking or security-related costs.
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 6 1. INCOTERMS overview
 No substitute for a contract of sale.
 Do not deal with the transfer of property/title/ownership of the goods sold &
following matters:

 the effect of sanctions;

 the imposition of tariffs;
 export or import prohibitions;
 force majeure or hardship;
 intellectual property rights;
 the method, venue, or law of dispute resolution in case of such breach.

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 7 1. INCOTERMS overview
 whether there is a contract of sale at all;
 the specifications of the goods sold;
 the time, place, method, or currency of payment of the price;
 the remedies which can be sought for breach of the contract of sale;
 most consequences of delay and other breaches in the performance of
contractual obligations;

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8

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 9 1. INCOTERMS overview
If parties want the Incoterms 2020 rules to apply to their contract:
“[the chosen Incoterms rules] [named port, place or point] Incoterms 2020”
i.e. CIF Shanghai Incoterms 2020
Note:
 The place named next to the chosen Incoterms® rule is even more important:
• in all Incoterms rules except the C rules, the named place indicates where the goods
are “delivered”, i.e. where risk transfers from seller to buyer;
• in the D rules, the named place is the place of delivery and also the place of
destination and the seller must organize carriage to that point;

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 10 2. INCOTERMS 2020
• in the C rules, the named place indicates the destination to which the seller must
organize and pay for the carriage of the goods, which is not, however, the place or
port of delivery.

 The use of a particular term depends upon following issues:

+ Relationship between the seller and the buyer
+ Nature of the goods
+ Customs of trade
+ Mode of trade

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 11 2. INCOTERMS 2020

 What role do the Incoterms® rules play in the contract of carriage?

Incoterms® rules do not form part of those other contracts: where incorporated,
the Incoterms® rules apply to and govern only certain aspects of the contract of
sale.

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 2. DIVISION OF INCOTERMS 2020
12 D
E F C
E F C D

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 13 3.1 E GROUP
 In group E (Departure), the seller makes the goods available to the buyer at the
delivery point indicated by the seller. The seller is not obliged either to customs or
export clearance and does not bear the risk and costs of loading. In group E, there is
only Incoterms EXW.

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 14 3.1 E GROUP

 For delivery to occur, the seller does not need to load the goods on any collecting
vehicle, nor does it need to clear the goods for export, where such clearance is
applicable.
 Mode of transport:

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 15 3.1 E GROUP
 EXW is the Incoterms® rule which imposes the least set of obligations on the
seller. From the buyer’s perspective, therefore, the rule should be used with care
for different reasons as set out below.

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16

3.2. F GROUP

FCA FAS FOB

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FCA - Free Carrier (insert named place of
delivery)

17
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18

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 “Free Carrier (named place)” means that the seller delivers the goods to the
buyer
19 in one or other of two ways.
 First, when the named place is the seller’s premises, the goods are delivered:
• when they are loaded on the means of transport arranged by the buyer.
 Second, when the named place is another place, the goods are delivered:
• when, having been loaded on the seller’s means of transport,
• they reach the named other place and
• are ready for unloading from that seller’s means of transport and
• at the disposal of the carrier or of another person nominated by the buyer.

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 Whichever of the two is chosen as the place of delivery, that place identifies
20
where risk transfers to the buyer and the time from which costs are for the buyer’s
account.
 Mode of transport:

 Export/import clearance:
FCA requires the seller to clear the goods for export, where applicable. However,
the seller has no obligation to clear the goods for import or for transit through third
countries, to pay any import duty or to carry out any import customs formalities.

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21 FAS - Free Alongside Ship (insert named port of shipment)

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 22
FAS - Free Alongside Ship
 “Free Alongside Ship” means that the seller delivers the goods to the buyer:
• when the goods are placed alongside the ship (e.g. on a quay or a barge) nominated
by the buyer at the named port of shipment.
• or when the seller procures goods already so delivered.
The risk of loss of or damage to the goods transfers when the goods are alongside the
ship, and the buyer bears all costs from that moment onwards.
 Mode of transport: only for waterway
transport (sea/inland)

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 23
FAS - Free Alongside Ship
 FAS requires the seller to clear the goods for export, where applicable.
However, the seller has no obligation to clear the goods for import or for
transit through third countries, to pay any import duty or to carry out any
import customs formalities.

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24 FOB - Free On Board (insert named port of
shipment)

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 25 FOB - Free On Board

 “Free on Board” means that the seller delivers the goods to the buyer
• on board the vessel
• nominated by the buyer
• at the named port of shipment
• or procures the goods already so delivered.
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 FOB - Free On Board (insert named port of
26
shipment)

 Mode of transport: only for waterway transport (sea or inland).

 Export/import clearance—FOB requires the seller to clear the goods for
export, where applicable. However, the seller has no obligation to clear the
goods for import or for transit through third countries, to pay any import duty
or to carry out any import customs formalities.

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27

3.3. C
GROUP

CFR CIF CPT CIP

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28 CFR - Cost and Freight (insert named port of destination)

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 29 CFR - Cost and Freight

 “Cost and Freight” means that the seller delivers the goods to the buyer
• on board the vessel
• or procures the goods already so delivered.
In CFR, the seller owes no obligation to the buyer to purchase
insurance cover: the buyer would be well-advised therefore to purchase
some cover for itself.
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 CFR - Cost and Freight
30

 Mode of transport: waterway transport (sea or inland).

 Export/import clearance—CFR requires the seller to clear the goods for export,
where applicable. However, the seller has no obligation to clear the goods for import
or for transit through third countries, to pay any import duty or to carry out any
import customs formalities.

***Import – Export Management*** Ms. Uyen Ngo – IEM HCMIU

31
CIF - Cost Insurance and Freight (insert named port of
destination)

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 32 CIF - Cost Insurance and Freight
 “Cost Insurance and Freight” means that the seller delivers the goods to the
buyer
• on board the vessel
• or procures the goods already so delivered
 Mode of transport: waterway transport (sea or inland)
 Insurance: The seller must also contract for insurance cover against the buyer’s
risk of loss of or damage to the goods from the port of shipment to at least the
port of destination

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 33 CIF - Cost Insurance and Freight
 Export/import clearance: CIF requires the seller to clear the goods for
export, where applicable. However, the seller has no obligation to clear the
goods for import or for transit through third countries, to pay any import duty
or to carry out any import customs formalities.

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34

CPT - Carriage Paid To (insert named place of

destination)

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 CPT - Carriage Paid To (insert named place
35
of destination)
 “CarriagePaid To” means that the seller delivers the goods—and transfers the risk
—to the buyer:
• by handing them over to the carrier
• contracted by the seller
• or by procuring the goods so delivered.
 The seller may do so by giving the carrier physical possession of the goods in the
manner and at the place appropriate to the means of transport used.

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 36 CPT - Carriage Paid To

 Once the goods have been delivered to the buyer in this way, the seller does not
guarantee that the goods will reach the place of destination in good condition/full
quantity. This is because risk transfers from seller to buyer when the goods are
delivered to the buyer by handing them over to the carrier.

***Import – Export Management*** Ms. Uyen Ngo – IEM HCMIU

 37 CPT - Carriage Paid To
 Mode of transport:

 Export/import clearance: —CPT requires the seller to clear the goods for export,
where applicable. However, the seller has no obligation to clear the goods for
import or for transit through third countries, or to pay any import duty or to carry
out any import customs formalities.

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38
CIP - Carriage and Insurance Paid To (insert named place of
destination)

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39 CIP - Carriage and Insurance Paid To

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 40 CIP - Carriage and Insurance Paid To
 “Carriage and Insurance Paid To” means that the seller delivers the goods—and
transfers the risk—to the buyer
• by handing them over to the carrier
• contracted by the seller
• or by procuring the goods so delivered.
• The seller may do so by giving the carrier physical possession of the goods in the
manner and at the place appropriate to the means of transport used.

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 41 CIP - Carriage and Insurance Paid To
 The seller does not guarantee that the goods will reach the place of destination in
sound condition, in the stated quantity or indeed at all.
 Mode of transport:

 Insurance—The seller must also contract for insurance from the point of delivery
to at least the point of destination.

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 42 CIP - Carriage and Insurance Paid To
 Export/import clearance: CIP requires the seller to clear the goods for
export, where applicable. However, the seller has no obligation to clear the
goods for import or for transit through third countries, or to pay any import
duty or to carry out any import customs formalities.

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43

3.4. D GROUP

DPU DAP DDP

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DPU - Delivered at Place Unloaded (insert
named place of destination)

44

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 45
DPU - Delivered at Place Unloaded

 “Delivered at Place Unloaded” means that the seller delivers the goods—and transfers risk
—to the buyer when the goods:
• once unloaded from the arriving means of transport,
• are placed at the disposal of the buyer
• at a named place of destination or
• at the agreed point within that place, if any such point is agreed.
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 46
DPU - Delivered at Place Unloaded
 The seller bears all risks involved in bringing the goods to and unloading them at the
named place of destination.
 Mode of transport:

 Export/import clearance—DPU requires the seller to clear the goods for export,
where applicable. However, the seller has no obligation to clear the goods for
import or for post-delivery transit through third countries, to pay any import duty or
to carry out any import customs formalities
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47
DAP - Delivered at Place (insert named place of destination)

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 48 DAP - Delivered at Place

 —“Delivered at Place” means that the seller delivers the goods—and transfers risk
—to the buyer:
• 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 or
• at the agreed point within that place, if any such point is agreed.
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 49 DAP - Delivered at Place
 The seller bears all risks involved in bringing the goods to the named place of
destination or to the agreed point within that place.
 Mode of transport:

 Export/import clearance: —DAP requires the seller to clear the goods for
export, where applicable. However, the seller has no obligation to clear the goods
for import or for post-delivery transit through third countries, to pay any import
duty or to carry out any import customs formalities.

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50 DDP - Delivered Duty Paid (insert named place of destination)

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 51 DDP - Delivered Duty Paid

 “Delivered Duty Paid” means that the seller delivers the goods to the buyer:
• 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 or at the agreed point within that place, if any such
point is agreed.
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 52 DDP - Delivered Duty Paid
 The seller bears all risks involved in bringing the goods to the named place of
destination or to the agreed point within that place
 Mode of transport:

 Maximum responsibility—DDP, with delivery happening at destination and with

the seller being responsible for the payment of import duty and applicable taxes.

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 53 DDP - Delivered Duty Paid
 Export/import clearance: DDP requires the seller to clear the goods for export,
where applicable, as well as for import and to pay any import duty or to carry out
any customs formalities.
 Short explanation:
Incoterms® 2020 Explained for Import Export Global Trade - YouTube

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 54 4. Local charges
 Local charges are the local charges that are paid at the port of loading and the port
of unloading. In addition to sea freight (Ocean Fee), the shipping lines / Forwarder
usually collect an additional amount of Local Charges. For a shipment, both
shipper and consignee have to pay this fee. This fee is collected by shipping
company and port.

 Terminal Handling Charge (THC): fee collected per container to offset costs for
cargo handling activities at the port, such as: loading and unloading containers
from container yard (CY) to the quay, etc,. (Charge assessed for container
discharged /loaded on terminal).

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 55 4. Local charges
 Handling Fee: established by shipping lines or forwarders to collect shipper or
consignee fee to offset the cost of taking care of your shipment. For example,
transaction fees between shipping agents/shipping agents, manifest costs and D / O
costs, telephone costs, depreciation costs, etc.
 Delivery Order fee (D/O fee): When a consignee wants to receive a shipment
imported, he must go to the shipping company/Forwarder to get the delivery order,
bring it out to the port and present it to the warehouse (LCL or consol cargo) /
make an EIR (FCL container) to get the goods. Carriers/Forwarders issue a D/O
and so they charge a D/O fee.

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 56 4. Local charges
 Advanced Manifest System fee (AMS): required by the customs office of the US,
Canada and some other countries when asking for a detailed declaration of goods
before the goods are loaded on board to transport to USA, Canada, etc.,
 B/L (Bill of Lading fee), AWB (Airway Bill fee), Documentation fee: similar to
D/O fee for import shipment, these fees are for export shipment that shipper must
pay for Forwarder/Shipping line.
 Container Freight Station Fee (CFS): Whenever there is an export/import
LCL/Consol shipment, Forwarder companies must unload the goods from the
container to the warehouse or vice versa and they collect the CFS fee.

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 57 4. Local charges
 B/L Correction Fee: (B/L Amendment fee): Only applicable to exported goods,
fee to adjust information in your B/L.
 Container Imbalance Charge (CIC) or “Equipment Imbalance Surcharge” is a
surcharge for an imbalance in a container, also known as an import surcharge. It
can be roughly understood as the surcharge for moving empty containers. This is a
type of sea freight surcharge that shipping lines charge to offset the costs incurred
from re-position a large amount of empty containers from excess to missing place.

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 58 4. Local charges
 Charge for storing containers at port yards (DEMURRAGE); Fee for storing
containers at customer’s own warehouse (DETENTION); Port charges
(STORAGE).
 DEMURRAGE: charge for holding the full container at the port/terminal
(collected by shipping line).
 DETENTION: charge for holding empty container at customer’s
(shipper/consignee) warehouse (collected by shipping line).
 STORAGE: charge collected by the port/terminal for allocating the full container
at the port/terminal (usually for LCL)
 Free time = Combined DET + DEM free

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 Exercises (with bonus)
1. Based on the recent Incoterms 2020, how many Incoterms are there?
a. 7
b. 9
c. 11
d. 10

2. How many Incoterms 2020 are only applicable for sea/inland waterway transport?
Name them.
a. 3
b. 4 FAS, FOB, CFR, CIF
c. 5
d. 6 59

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 Exercises (with bonus)
3. Under CFR- Cost and Freight Incorterm, who shall bear the costs and freight
necessary to bring the goods to the named port of destination?
Seller
Buyer

4. Under FOB (Free On Board) Incoterm, who shall clear the goods at the Export
customs?
Seller (exporter)
Buyer (Importer)

Match the definition with the incoterms: "The seller pays the transport costs up to the port
of shipment. He bears the risk until the goods have passed the ship's rail at the port of
shipment.“ FAS 60

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 Exercises (with bonus)
6. In the case of importing by FCL, the estimated time of arrival (ETA) for the vessel
to arrive at the port is May 1st. The container is lift off from the vessel and loaded
into the container yard (CY) on May 3rd. Free time to store your container in the CY
is 5 days, the time allocated for collecting container, unloading the cargo and
returning empty container to the port is 7 days. However, due to incorrect
documenting, you have to admen the documents until 10th May, get the container to
your warehouse and return it to the port at 19th May. Suppose DEM cost = $55/day,
DET = $70/day. How much you have to pay for the shipping line?

61

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 Exercises (with bonus)
7. 20. The local charges are paid by____.
A. Importer.
B. Exporter.
C. Depending on the Incoterm negotiated in the Sale contract, the charges are paid at the
load/unloading port.
D. Forwarder.

8. In which term the seller has to pay D/O fee?

A. CIF
B. CFR
C. DAP
D. DDP
62

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63

***Import – Export Management*** Ms. Uyen Ngo – IEM HCMIU