Incoterms
International Trade is Confusing!
Who pays charges for?
$
$
$
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$
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Seller
Buyer
$
$
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Who bears risk of loss or damage?
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Incoterms and International Trade
Protection
from loss or
damage
Marine
Insurance
Transfer
of cost
and risk
Incoterms
Choice of
jurisdiction
(law) and
venue
Transfer
of title
Contracts
Of Sale
CISG
FOB
Domestic
freight
term
CITT Webinar Series
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Incoterms
Shipping Terms of Sale
FOB
AFTD
INCOTERMS
UCC
1700s
1919-1985
1936 – 2010
1952-2004
Marine
Payment
Term
(Including
‘FOB’
Terms)
(Current
Version)
(Including
‘FOB’
Terms)
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Incoterms - What are They?
Incoterms were developed by the
International Chamber of Commerce
(ICC) in 1936 to:
• Provide a set of standardized rules for
interpreting commonly used terms in
international trade
• Eliminate misunderstandings, disputes,
and litigation that can occur when buyers
and sellers are unaware of different
trading practices in foreign countries
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Incoterms - What Do They Do?
Incoterms provide information to the
Buyer and Seller regarding:
•
•
•
•
•
The carriage of goods from Seller to Buyer
Export and import Customs clearance
The division of costs and risks
The obligations to give notice
The obligations to provide documentation
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Incoterms
• Three words that often cause confusion
under Incoterms:
• “Delivery” can
occur in a
foreign Port
Delivery
Ownership
• Incoterms
exclude
ownership
• Risk of ownership
(i.e. the need for
cargo insurance)
Risk
• These issues should be clarified in the
Buyer and Seller’s “contract of sale”
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Incoterms
Conditions
of the sale
Incoterm
Buyer/Seller
Contract of
Sale
Condition
of the goods
Payment
Ownership
Jurisdiction
/ Venue
Breach of
contract
May not all be covered in Purchase Order terms and conditions
Which is why
carriers should
never
recommend
an Incoterm!
CITT Webinar Series
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Incoterms
• Incoterms are terms of the international
contract of sale, not the contract of carriage
• Incoterms were developed by the
International Chamber of Commerce to assist
Buyers and Sellers in international trade, they
are not “law”
• Incoterms 2010 consists of eleven terms for
use in international trade…
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Incoterms
Incoterms 2010 can
be sorted into two
groups:
1. Those designed for
multimodal shipping
(i.e. any mode:
ocean, truck, rail, air)
and…
2. Those designed only
for marine (ocean)
shipping
CITT Webinar Series
Multimodal Terms
EXW DAT
FCA DAP
CPT DDP
CIP
M
Ocean Terms
FAS
FOB
CFR
CIF
O
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Incoterms
Incoterms 2010
“E” Terms (Buyer bears all costs & risks)
• EXW - Ex Works (named place of delivery)
M
“F” Terms (Buyer pays “main freight”)
• FCA - Free Carrier (named place of delivery)
• FAS - Free Alongside Ship (named port of
shipment)
• FOB - Free On Board (named port of
shipment)
CITT Webinar Series
M
O
O
12
Incoterms
Incoterms 2010
“C” Terms (Seller pays “main freight”)
• CPT - Carriage Paid To (named place of
M
destination)
• CIP - Carriage and Insurance Paid To (named place
M
of destination)
• CFR - Cost and Freight (named port of destination) O
• CIF - Cost, Insurance and Freight (named port of
O
destination)
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Incoterms
Incoterms 2010
“D” Terms (Seller bears all costs & risks):
• DAT - Delivered at Terminal (named terminal at
port or place of destination)
• DAP - Delivered at Place (named place of
destination)
• DDP - Delivered Duty Paid (named place of
destination)
CITT Webinar Series
M
M
M
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Incoterms 2010: Transfer of Costs (to the Buyer)
[
Services
Multimodal Terms
][
Ocean Terms
]
EXW
FCA
CPT
CIP
DAT
DAP
DDP
FAS
FOB
CFR
CIF
Ex Works
Free
Carrier
Carriage Paid
To
Carriage,
Insurance
Paid To
Delivered at
Terminal
Delivered at
Place
Delivered
Duty Paid
Free
Alongside
Ship
Free On
Board
Vessel
Cost &
Freight
Cost,
Insurance &
Freight
Multimodal C / Multimodal C / Multimodal
C / Multimodal
C / Multimodal C / Multimodal C / Multimodal
Warehouse
storage
Seller
Seller
Seller
Seller
Seller
Seller
Seller
Seller
Seller
Seller
Seller
Warehouse
labour
Seller
Seller
Seller
Seller
Seller
Seller
Seller
Seller
Seller
Seller
Seller
Export
packing
Seller
Seller
Seller
Seller
Seller
Seller
Seller
Seller
Seller
Seller
Seller
Loading
charges
Buyer
Seller
Seller
Seller
Seller
Seller
Seller
Seller
Seller
Seller
Seller
Inland
freight
Buyer
Buyer/
Seller
Seller
Seller
Seller
Seller
Seller
Seller
Seller
Seller
Seller
Terminal
charges
Buyer
Buyer
Seller
Seller
Seller
Seller
Seller
Seller
Seller
Seller
Seller
Forwarder’s
fees
Buyer
Buyer
Seller
Seller
Seller
Seller
Seller
Buyer
Seller
Seller
Seller
Loading on
vessel
Buyer
Buyer
Seller
Seller
Seller
Seller
Seller
Buyer
Seller
Seller
Seller
Ocean/air
freight
Buyer
Buyer
Seller
Seller
Seller
Seller
Seller
Buyer
Buyer
Seller
Seller
Charges on
arrival at
destination
Buyer
Buyer
Seller
Seller
Seller
Buyer
Seller
Buyer
Buyer
Buyer
Buyer
Duty, taxes
& customs
clearance
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Seller
Buyer
Buyer
Buyer
Buyer
Inland
delivery to
destination
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Seller
Buyer
Buyer
Buyer
Buyer
C = Recommended for containerized shipments
15
Incoterms
Incoterms 2010
7 Incoterms
for
Multimodal
Shipments…
CITT Webinar Series
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Incoterms
EXW: Ex Works (named place of delivery)
Transfer of Cost and Risk to Buyer (i.e. Seller “delivers”)
Multimodal Term
Berlin
Port of
Bremerhaven
Mississauga
Multimodal
Terms:
EXW
FCA
CPT
CIP
DAT
DAP
DDP
Export/Import Customs: Buyer’s obligation for export and import
Freight Charges
Buyer (from Seller’s dock)
Insurance:
Seller has no obligation to the Buyer to provide insurance
Transfer of Risk:
At Seller’s dock (Consider cargo insurance!)
•This term should not be used if the Buyer is unable to arrange export customs clearance
•Buyer’s obligation to load the goods (i.e. this term is intended for bulk shipments)
•Not recommended for containerized shipments (use FCA)
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Incoterms
FCA: Free Carrier (named place of delivery)
Transfer of Cost and Risk to Buyer (i.e. Seller “delivers”)
Multimodal Term
FORWARDER
Export/Import Customs:
Freight Charges:
Insurance:
Transfer of Risk:
Multimodal
Terms:
EXW
FCA
CPT
CIP
DAT
DAP
DDP
Seller’s obligation for export/Buyer’s obligation for import
Buyer from the “named place”
Seller has no obligation to the Buyer to provide insurance
Upon delivery to the first carrier (Consider cargo insurance!)
Recommended for containerized shipments
CITT Webinar Series
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Incoterms
CPT: Carriage Paid To (named place of destination)
Transfer of Cost to Buyer
Transfer of Risk to Buyer
(i.e. Seller “delivers”)
Multimodal Term
FORWARDER
Export/Import Customs:
Freight Charges:
Insurance:
Transfer of Risk:
Multimodal
Terms:
EXW
FCA
CPT
CIP
DAT
DAP
DDP
Seller’s obligation for export /Buyer’s obligation for import
Seller to named place of destination
Seller has no obligation to the Buyer to provide insurance
Upon delivery to the first carrier (Consider cargo insurance!)
Recommended for containerized shipments
CITT Webinar Series
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Incoterms
CIP: Carriage and Insurance Paid To
(named place of destination)
Transfer of Cost to Buyer
Transfer of Risk to Buyer
(i.e. Seller “delivers”)
Multimodal Term
FORWARDER
Export/Import Customs:
Freight Charges:
Insurance:
Transfer of Risk:
Multimodal
Terms:
EXW
FCA
CPT
CIP
DAT
DAP
DDP
Seller’s obligation for export/Buyer’s obligation for import
Seller to named place of destination
Seller procures insurance for the Buyer (on “minimum cover”)
Upon delivery to the first carrier (Consider exclusions in the
Seller-procured insurance policy!)
Recommended for containerized shipments
CITT Webinar Series
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Incoterms
DAT Delivered at Terminal
(named terminal at port or place of destination)
Transfer of Cost and Risk to Buyer (i.e. Seller “delivers”)
Multimodal Term
Export/Import Customs:
Freight Charges:
Insurance:
Transfer of Risk:
Multimodal
Terms:
EXW
FCA
CPT
CIP
DAT
DAP
DDP
Seller’s obligation for export/Buyer’s obligation for import
Seller to named terminal at place of destination
Seller has no obligation to the Buyer to provide insurance
Upon delivery, unloaded, at a named terminal at the
named port or place of destination (Consider cargo
insurance!)
Recommended for containerized shipments
CITT Webinar Series
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Incoterms
DAP Delivered at Place
(named place of destination)
Transfer of Cost and Risk to Buyer (i.e. Seller “delivers”)
Multimodal Term
Multimodal
Terms:
EXW
FCA
CPT
CIP
DAT
DAP
DDP
Export/Import Customs: Seller’s obligation for export/Buyer’s obligation for import
Freight Charges:
Seller to named place of destination
Insurance:
Seller has no obligation to the Buyer to provide insurance
Transfer of Risk:
Upon delivery, not unloaded, at a named place of
destination (Consider cargo insurance!)
Recommended for containerized shipments
CITT Webinar Series
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Incoterms
DDP Delivered Duty Paid
(named place of destination)
Transfer of Cost and Risk to Buyer (i.e. Seller “delivers”)
Multimodal Term
Export/Import Customs:
Freight Charges:
Insurance:
Transfer of Risk:
Multimodal
Terms:
EXW
FCA
CPT
CIP
DAT
DAP
DDP
Seller’s obligation for export and import
Seller to named place of destination
Seller has no obligation to the Buyer to provide insurance
Upon delivery to the named place of destination
•This term should not be used if the Seller is unable to arrange import customs clearance
•Recommended for containerized shipments
CITT Webinar Series
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Incoterms
Incoterms 2010
4 Incoterms
for
Marine (Ocean)
Shipments…
CITT Webinar Series
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Incoterms
FAS Free Alongside Ship
(named port of shipment)
Transfer of Cost and Risk to Buyer (i.e. Seller “delivers”)
Ocean Term
Export/Import Customs:
Freight Charges:
Insurance:
Transfer of Risk:
Ocean
Terms:
FAS
FOB
CFR
CIF
Seller’s obligation for export/Buyer’s obligation for import
Buyer from the named port of shipment
Seller has no obligation to the Buyer to provide insurance
Upon delivery alongside named vessel (Consider cargo
insurance!)
Not recommended for containerized shipments (use FCA)
CITT Webinar Series
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Incoterms
FOB Free On Board*
(named port of shipment)
Transfer of Cost and Risk to Buyer (i.e. Seller “delivers”)
Ocean Term
Export/Import Customs:
Freight Charges:
Insurance:
Transfer of Risk:
Ocean
Terms:
FAS
FOB
CFR
CIF
Seller obligated to clear goods for export
Buyer from the named port of shipment
Seller has no obligation to the buyer to provide insurance
When the goods are loaded on board the vessel
(Consider cargo insurance!)
*Not recommended for containerized shipments (use FCA)
CITT Webinar Series
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Incoterms
CFR Cost and Freight
(named port of destination)
Transfer of Risk to Buyer
Transfer of Cost to Buyer
(i.e. Seller “delivers”)
Ocean Term
Export/Import Customs:
Freight Charges:
Insurance:
Transfer of Risk:
Ocean
Terms:
FAS
FOB
CFR
CIF
Seller obligated to clear goods for export
Seller to named port of destination
Seller has no obligation to the buyer to provide insurance
When the goods are loaded on board the vessel (Consider
cargo insurance!)
Not recommended for containerized shipments (use CPT)
CITT Webinar Series
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Incoterms
CIF Cost, Insurance and Freight
(named port of destination)
Transfer of Risk to Buyer
Transfer of Cost to Buyer
(i.e. Seller “delivers”)
Ocean Term
Export/Import Customs:
Freight Charges:
Insurance:
Transfer of Risk:
Ocean
Terms:
FAS
FOB
CFR
CIF
Seller obligated to clear goods for export
Seller to named port of destination
Seller arranges insurance for the Buyer (on “minimum cover”)
When the goods are loaded on board the vessel (Consider
exclusions in the Seller-procured insurance policy!)
Not recommended for containerized shipments (use CIP)
CITT Webinar Series
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Incoterms
EXW
FCA
FAS
FOB
CFR
CIF
CPT
CIP
DAT
DAP
DDP
& Appropriate Modes of Transport
Air
Freight
Yes
Yes
No
No
No
No
Yes
Yes
Yes
Yes
Yes
Road
Freight
Yes
Yes
No
No
No
No
Yes
Yes
Yes
Yes
Yes
Rail
Freight
Yes
Yes
No
No
No
No
Yes
Yes
Yes
Yes
Yes
Ocean
*Ocean
Freight* Containers
Yes
No
Yes
Yes
Yes
No
Yes
No
Yes
No
Yes
No
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Chart provided for illustrative purposes only - Adapted from "UNDP Shipping and Incoterms Practice Guide"
http://www.undp.org/content/dam/undp/documents/procurement/documents/UNDP-Shipping-Guide.pdf
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