Chaper 3

INCOTERMS
MSC Tăng Minh Hưởng
 Incoterms
- Incoterms = International Commercial Terms = Terms of Trade – International Commercial Conditions (also
referred to as delivery terms).
- Incoterms are one of the "offspring" of the ICC (International Chamber of Commerce: Trade Department.
The headquarters of the Trade Department is located in Paris, France).
- Incoterms are an international set of rules.

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 Other popular international conventions and rules currently:
Uniform rules for collection (URC). URC522 is the latest version currently.
Uniform Customs and Practice for Documentary Credits (UCP). UCP600 is the latest
version currently.
International Standard Banking Practice for the examination of documents under
documentary credits (ISBP). ISBP745 is the latest version currently.
Uniform Rules for Bank-to-Bank Reimbursement (URR). URR725 is the latest version
currently.
Uniform Rules for Demand Guarantees (URDG). URDG758 is the latest version currently.
International Standby Practices (ISP). ISP98 is the latest version currently.
International Commercial Terms (Incoterms). Incoterms 2020 is the latest version
currently.

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 Characteristics
1. Incoterms are an international set of trade terms:
• They have lower legal validity than national laws. In case of any conflict between Incoterms and
provisions in the Sales Contract, the provisions of the law will prevail.
• There are multiple versions, the most recent being 2000, 2010, 2020. Subsequent versions do not
invalidate previous ones. The choice of which version to use depends on the agreement between the
parties (exporter, importer).
• International trade terms can be modified in specific documents (amendments in the Sales Contract).
• Example 1: According to the EXW condition: Incoterms 2010, the buyer is responsible for loading
goods, but in a specific contract, the buyer and the seller may agree that the seller will perform this
duty.
• Example 2: Incoterms 2010 CIF CIP EXPORTER buys insurance, but it can still be agreed that the
Importer buys it.

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 Characteristics
2. Incoterms regulate the purchase and sale of tangible goods (items that can be
physically handled: rice, wheat, corn, etc.), NOT the purchase and sale of intangible
goods (services, etc.).
3. Incoterms regulate the responsibilities, costs, and risks between the importer and
exporter. Incoterms DO NOT regulate the relationship between the
exporter/importer and third parties.
4. Incoterms address three main pillars:
• Obligations of the buyer/seller related to goods transportation, customs procedures,
insurance purchase, etc.
• Costs incurred at various stages and who bears them.
• Location, time of transfer of risk from the seller to the buyer.

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 Characteristics
5. Incoterms do not replace the Sales Contract; on the contrary, they supplement and
streamline it while still providing comprehensive, detailed responsibilities and cost-
sharing arrangements between the exporter and importer.
6. Incoterms 2010 is the most widely used version effective from January 1, 2011.
Meanwhile, the latest version of Incoterms is the 2020 version, effective from January 1,
2020.
7. Incoterms are used both in international trade and domestic trade. (Incoterms are
international rules but can be used for domestic transactions as long as the seller and
buyer clearly specify in the contract. Example: American traders often use them).

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 Classification of Incoterms 2010
Classification of Incoterms 2010
Method 1: Based on the transportation method used, Incoterms 2010 (consisting of 11 terms) are
divided into 2 groups:
• Group 1: Incoterms terms used for all modes of transport: EXW, FCA, CPT, CIP, DAT, DAP, DDP (7
terms).
• Group 2: Incoterms terms ONLY used for maritime transport (inland waterway, sea transport):
FAS, FOB, CFR, CIF (4 terms).
• FOB NOI BAI INTERNATIONAL AIRPORT, VIET NAM, Incoterms 2010 => Correct or Incorrect?

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 Method 2: Classification based on increasing seller's responsibilities
Group E: EXW
Group F: FCA -> FAS -> FOB
Group C: CFR -> CIF -> CPT -> CIP
Group D: DAT -> DAP -> DDP

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 General syntax
General syntax when specifying delivery conditions in the Sales Contract

[Selected Incoterms condition] + [port/location name] + [Incoterms version]

Example: CIF Shanghai Port, China, Incoterms 2010

Note: Port, location names: According to ICC recommendations, the more

detailed, the better.

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 Details of the 11 terms
• Group E, F: The transfer of risk and transportation responsibility lies in the exporting
country.
• Group C: The responsibility for transportation to the importing country lies with the
exporter, while the location of risk transfer remains within the exporting country.
• Group D: The exporter bears the responsibility for transportation and risk until it
reaches the importing country.

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 Condition 1. EXW (Ex Works) delivery at the seller's
warehouse/At the seller's premises
EXW FACTORY AT LOT 6B CN5 IN NGOC HOI INDUSTRIAL ZONE, THANH TRI DISTRICT, HA NOI, VIETNAM,
INCOTERMS 2010
Unit price: USD300/SET EXW FACTORY AT LOT NUMBER 6B CN5 IN NGOC HOI INDUSTRIAL ZONE, THANH TRI
DISTRICT, HA NOI, VIETNAM, INCOTERMS 2010
• Transportation: Exporter. Loading fee: Exporter
• Insurance purchase: Exporter should purchase insurance for self-protection
• Customs clearance procedures: Customs clearance in the exporting country: Exporter handles, Customs
clearance in the importing country: Exporter handles => All import-export customs procedures are handled by
the exporter
• Location of risk transfer: Exporter's warehouse, Once goods are placed on the warehouse floor by the
exporter, delivery is considered complete.
Note: Ex Works
• Minimum obligation for the seller (less professional, focused on production)
• Maximum obligation for the buyer (competent, anticipates and accepts challenges, difficulties arising during
customs clearance, transportation of goods in the exporting country).

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 FCA (Free Carrier) delivery to the carrier
Scenario 1: Delivery to the carrier at the Seller's premises:
FCA FACTORY AT LOT NUMBER 6B CN5 IN NGOC HOI INDUSTRIAL ZONE, THANH TRI
DISTRICT, HA NOI, VIETNAM, INCOTERMS 2010.

Exporter:
Load the goods onto the transportation vehicle provided by the buyer =>> Delivery
completed => Risk transfer completed.
Handle export customs clearance
(FCA at the warehouse and EXW at the warehouse are similar in the remaining aspects).

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 FCA (Free Carrier) delivery to the carrier
Scenario 2: Delivery to the carrier at a different location from the Seller's warehouse
• FCA AT 657 NGUYEN TRAI ROAD, HAI DUONG CITY, VIETNAM, INCOTERMS 2010
• Customs clearance: From the FCA condition onwards, the Exporter will always handle
export customs clearance.
• Exporter: Transport goods from the Thanh Tri warehouse to 657 NGUYEN TRAI ROAD,
HAI DUONG CITY, VIETNAM, keeping the goods on the Exporter's transportation
vehicle.
• The Importer will unload the goods from the Exporter's transportation vehicle to their
own. During unloading, if any damage or loss occurs, the Importer bears the risk. The
location and time of risk transfer are when the goods are on the Exporter's vehicle at
657 NGUYEN TRAI ROAD, HAI DUONG CITY, VIETNAM.

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 FAS (Free Alongside Ship): Delivery alongside the vessel +
Loading Port
• FAS HAI PHONG PORT, VIETNAM, INCOTERMS 2010.
• FAS + Loading Port
• FAS Maputo PORT, Mozambique, INCOTERMS 2010 => Incorrect
• FAS HAI PHONG PORT = EXWORK FACTORY at Thanh Trì + Trucking fee (Thanh Tri -> Hai Phong)
• Location of risk transfer: Alongside the ship at the loading port (Hai Phong port, Vietnam)
• Customs clearance: Export customs clearance: Exporter; Import customs clearance: Importer

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 FOB (Free On Board): Delivery ON BOARD THE VESSEL
+ Port of Loading (POL)
• FOB HAI PHONG PORT, VIETNAM, INCOTERMS 2010.
• FOB + Port of Loading
• FOB Maputo PORT, Mozambique, INCOTERMS 2010 => Incorrect
• FOB HAI PHONG PORT = FAS HAI PHONG PORT + Loading fee
• Location of risk transfer: On board the vessel at the loading port (Hai Phong port,
Vietnam)
• Customs clearance: Export customs clearance: Exporter; Import customs clearance:
Importer

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 CFR (Cost and Freight) + Port of Discharge (POD)
• CFR MAPUTO PORT, MOZAMBIQUE, INCOTERMS 2010
• CFR MAPUTO PORT = FOB Hai Phong Port + Sea Freight
• CFR HAI PHONG PORT, VIETNAM, INCOTERMS 2010 => INCORRECT
• Transportation: Exporter is responsible for hiring transportation to the port of Maputo.
• Insurance: Importer should consider purchasing insurance.
• Customs clearance: Export customs clearance: Exporter; Import customs clearance: Importer
• Location of risk transfer: On board the vessel at the loading port (Hai Phong port, Vietnam)
• CNF (Cost and Freight) is an Incoterms 2000 condition, not part of Incoterms 2010:
• CNF HAI PHONG PORT, VIETNAM, INCOTERMS 2010 => INCORRECT
• The correct format is:
• CNF MAPUTO PORT, MOZAMBIQUE, INCOTERMS 2000 => CORRECT
• CFR MAPUTO PORT, MOZAMBIQUE, INCOTERMS 2010 => CORRECT

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 CIF (Cost, Insurance, and Freight) + Port of Discharge (POD)
• CIF MAPUTO PORT, MOZAMBIQUE, INCOTERMS 2010
• CIF MAPUTO PORT = CFR MAPUTO PORT + Insurance
• = FOB HAI PHONG PORT + Ocean Freight + Insurance
• Transportation: Exporter is responsible for transporting the goods to the port of Maputo.
• Insurance: Exporter must insure the goods according to the minimum requirements. The
Seller must purchase insurance: Exporter purchases with minimum requirements (C).
Purchasing Type A is preferable (A, B, C. Type A: expensive, widest coverage, Type C is
cheapest but provides the narrowest coverage).
• Customs clearance: Export customs clearance: Exporter; Import customs clearance:
Importer
• Location of risk transfer: On board the vessel at the loading port (Hai Phong port). If the
goods encounter risks during transportation, the insurance company compensates. Risks
not covered by the insurance company (due to being outside the scope of insurance) will
be borne by the Importer.

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 CIF (Cost, Insurance, and Freight) + Port of Discharge (POD)
• Notes: Địa điểm chuyển giao rủi ro của CIF = CFR= FOB Trên boong tàu tại cảng bốc
hàng.
• Lưu ý với bảo hiểm:
+ KHÔNG có chuyện bồi thường đúp cho 1 lô hàng
+ Tại thời điểm xảy ra tổn thất, ai có quyền lợi bảo hiểm thì sẽ được hưởng
• CIF BEIJING INTERNATIONAL AIRPORT, CHINA, INCOTERMS 2010

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 CPT (Carriage Paid To) + Destination in the Inland Territory
• CPT Store of MOE in Maputo Capital, Mozambique, Incoterms 2010
• CPT Warehouse of MOE in the capital Maputo = CFR Maputo Port + Trucking fee from
Maputo port to the warehouse in the capital
• Exporter's Responsibility: Arrange transportation to MOE's warehouse in the capital
Maputo. The Importer will unload the goods when the truck is parked outside the
warehouse.
• Customs Clearance: Export customs clearance: Exporter; Import customs clearance:
Importer
• Insurance: Importer should consider purchasing insurance.
• Location of Risk Transfer: Transferred to the first carrier (in the Exporting country).
• Example: If goods from Vietnam to the Warehouse in the capital Maputo are damaged, the
Importer bears the responsibility.

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 CIP (Carriage and Insurance Paid) + Destination in the Inland
Territory
• CIP Store of MOE in Maputo Capital, Mozambique, Incoterms 2010
• CIP Maputo Warehouse = CPT Maputo Warehouse + Insurance
• Transportation: Exporter arranges transportation to the MOE warehouse in the capital
Maputo. Unloading at the warehouse is the responsibility of the Importer.
• Customs Clearance: Export customs clearance: Exporter; Import customs clearance: Importer
• Insurance: Importer must purchase insurance. Importer purchases with minimum conditions
(C). Type A insurance is preferable.
• Location of Risk Transfer: Transferred to the first carrier (in the exporting country). For
instance, if goods from Vietnam to Maputo are damaged, the insurance company will be
responsible. Risks not covered by the insurance company (out of the insurance scope) will be
borne by the Importer.
• In Incoterms 2010, CIF, CIP already include insurance in the price. Therefore, the seller must
purchase insurance. Other conditions depend on the agreement between the buyer and
seller (insuring for specific segments of the journey where the exporter/importer bears the
risk).

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 DAT (Delivered at terminal) clause + POD
• DAT MAPUTO PORT, MOZAMBIQUE, INCOTERMS 2010 = CFR MAPUTO
PORT+Unloading fee+ (Insurance cost)
• Seller: At the terminal, the seller must unload the goods from the transport vehicle.
• Customs clearance procedure: EX: Seller; IM: Buyer's responsibility
• Buyer Transfer of risk location: The seller is understood to have completed delivery
(transfer of risk) when the goods have been unloaded at the terminal at Maputo port.
• At the terminal, the seller must unload the goods from the transport vehicle to be
considered as completing the delivery.

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 DAP Clause (Delivered at Place) + Location in the
import country
• DAP STORE OF MOE IN Maputo, MOZAMBIQUE, INCOTERMS 2010
• DAP = DAT + Domestic Trucking in Mozambique
• DAP Warehouse = DAT port + Trucking fee (Port -> Warehouse)
• At the agreed place (place), the exporter does NOT need to unload the goods from the
carrier (keeping them on the exporter's truck).
• Customs procedures: Exporter's country customs: Exporter; Importer's country
customs: Importer
• Risk transfer location: When the goods are still on the seller's carrier at the STORE OF
MOE IN Maputo, MOZAMBIQUE
• If DAT = DAP, choose DAT to save unloading fee + Avoid the risk of unloading
• (For the importer, DAT should be chosen, and for the exporter, DAP should be chosen)

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 DDP Clause (Delivered duty paid): Delivery with all
taxes and fees paid + Destination
• DDP STORE OF MOE IN Maputo Capital, MOZAMBIQUE, INCOTERMS 2010 Customs
procedures: Exporter's country customs: Exporter;
• Importer's country customs: Exporter => Exporter handles all customs procedures.
• Risk transfer location: When the goods are on the carrier of the exporter at STORE OF
MOE IN Maputo, MOZAMBIQUE Note:
• - DDP Maximizes exporter's obligations, minimizes buyer's obligations (normally, the
importer bears the burden of import customs clearance, but with DDP, the seller
handles it).
• - If the buyer lacks expertise, while the seller is competent/confident => the seller
needs to be prepared and bear all risks when facing difficulties and challenges in the
import customs clearance or domestic transportation process in the importer's
country.

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 Why did Vietnamese companies traditionally use FOB terms when exporting goods and CIF terms
when importing goods, even up to now? Why are exporters now encouraged to do the opposite (CIF
for exports; FOB for imports)?

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 The new features of Incoterms 2020 compared to
Incoterms 2010

• The new features of Incoterms 2020 compared to Incoterms 2010

• Incoterms 2020, released by the ICC, consist of 11 terms and officially came into effect
on January 1, 2020.
• Let's explore the 5 new features of Incoterms 2020 compared to Incoterms 2010:
1. Reorganization of the parties' obligations to clarify the content of delivery
obligations, risk allocation, and costs.
2. Explanatory Notes provided.
3. On-Board Bill of Lading with FCA terms.
4. Insurance level for CIF and CIP terms.
5. Replacement of DAT term with DPU.

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 Exercises
1. Can the buyer specify in the contract that the seller bears the cost and obligation to
deliver at that location?
2. Under EXW Incoterms 2010, the buyer is responsible for export clearance. If the
buyer fails to fulfill this obligation due to state authority regulations in the exporting
country and therefore refuses to receive the goods and make payment, is the buyer
exempt from contract violations?
3. Under FOB Incoterms 2010, if the buyer's designated vessel arrives late for the seller
to deliver on time, who bears the additional costs?
4. In an export deal of 10,000.00 MT of rice (FOB Incoterms 2010), during loading onto
the ship, a rainstorm occurs, and 300 MT of rice in one hold gets wet. Who bears the
risk in this case?
5. In an import shipment under CIF Incoterms 2010, due to avoiding a storm, the
shipment takes a longer route, causing a reduction in the quality of the goods. Can
the buyer refuse to accept the goods?

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