Ontario
International Transport and logistics
Section 8: Incoterms2010
The INCOTERMS
What is an INternational COmmercial TERM ?
• Since 1936, terms used by the member countries of the
International Chamber of Commerce (ICC). Latest
revision was in 2000.
• The INCOTERMS are a tentative for mutual agreement
between two (2) parties with standardized interpretations.
• The INCOTERMS are recognized worldwide when
incorporated in a commercial agreement.
WHY THE INCOTERMS® 2010
• DOMESTIC USE:The INCOTERMS are also used
more and more in national and domestic
transactions (where no borders are involved).
Example: European Union, Canada, USA, etc.
• USA: Desire of the USA to harmonize their
commerce with the rest of the world by using the
INCOTERMS internationally… and nationally.
WHY THE INCOTERMS® 2010
• ELECTRONIC DOCUMENTATION: Use of the
electronic documents as official documents, with
acknoledgement of parties.
• SECURITY requirements at loading and unloading
sites, at terminals, on route.
• Disapearing of the crane movement in the risk
aspect.
THE INCOTERMS
 Determines the obligations of the parties:
• A:The SELLER must...
• B:The BUYER must...
• ROLE 1: Stipulates who is responsible of:
• Organizing transportation, insurance, loading and
delivery.
THE INCOTERMS
• ROLE 2: Establish transfer on who:
. Pays for transportation;
. Assumes risk of cargo while in transit.
_______________
 The choice of INCOTERMS will depend on the
sellers tolerance to risk: ‘I am ready to go to...’
The INCOTERM should be part of the
conversation in the negociation!
• The INCOTERMS are not laws and do not
transfer the cargo ownership.
• Once indicated, the INCOTERM is part of the
agreement and has legal power.
The INCOTERM should be part of the
conversation in the negociation!
• The INCOTERM should be mentioned right at the start, in
the negociation phase between the seller and the buyer.
Then, be part of the agreement and\or the purchase order.
Example: ‘The rule of Incoterm chosen is DAT Antwerp,
Incoterms® 2010’.
• It is not an obligation to use an INCOTERM. However, if
complications would occur in transit, this would avoid
disputes and the famous...‘I thought that ..’
DIFFERENCES: INCOTERMS 2000 and
INCOTERMS® 2010
• SIMPLIFIED: Now 11 INCOTERMS instead of 13,
which 7 for all modes of transport and 4 for the
maritime / waterways transportation.
• 4 Incoterms disappears and are replaced by 2
new ones: DAT replaces DEQ, while DAP replaces
DAS, DES, DDU.
DIFFERENCES: INCOTERMS 2000 and
INCOTERMS® 2010
INCOTERMS still regrouped in 4 groups:
 Group E: Departure = EXW
 Group F: Main Carriage Unpaid = FCA, FOB, FAS
 Group C: Main Carriage Paid = CIP, CPT, CIF, CFR
 Group D: Deliver = DAT, DAP, DDP
• In the official INCOTERMS®2010 book, obligations from
the seller are clearly identified by articles A-1 to A-10, while
the obligations from the buyer, just like a mirror, are
identified by articles B-1 to B-10
Complete informations and interpretations are
found in the book published by The
International Chamber of Commerce
www.iccbooks.com
ICC Publication No. 715E, 2010 Edition
DETERMINIG THE SHARE OF RESPONSIBILITIES
 A1: General obligations
from the seller, as the
preparation of paper or
electronic documentation
 A2: Licenses,
authorizations, security
fees and other formalities
 A3: Transport contract and
insurance
 A4: Delivery
 A5: Risk transfer
 B1: General obligations
from the buyer
 B2: Licenses,
autorizations, security
fees and other formalities
 B3: Transport contract
and insurance
 B4: Taking posession
 B5: Risk transfer
DETERMINING THE SHARE OF RESPONSIBILITIES
 A6: Share of costs (Avoiding

double charges $)
 A7: Buyer notice

 A8: Documentation to

prepare and submit
 A9: Visual verification,

security, packaging,
labelling, bracing
 A10: Support at transaction,

informations
B6: Share of costs
(Avoiding double charges $)
B7: Seller notice
B8: Proof of delivery, paper
or electronic
B9: Visual inspection of the
merchandize
B10: Support at transaction,
informations
The 11 Incoterms®2010
7 RULES FOR ALL MODES OF
TRANSPORT
EXW
Ex-Works
FCA
Free Carrier
CPT
Carriage Paid To
CIP
Carriage and insurance Paid To
DAT
Delivery at Terminal
DAP
Delivery at Place
DDP
Delivered Duty Paid
4 RULES FOR OCEAN AND
WATER WAYSTRANSPORT
FAS
Free Alongside Ship
FOB
Free On Board
CFR
Cost and Freight
CIF
Cost, Insurance, Freight
WHICH INCOTERM TO USE TO REDUCE RISK?
Origin: Where is the merchandise coming from?
City? Region? Interior transportation (inland)?
Destination: Where is the merchandise going?
Port? Interior transportation? Client? Warehouse?
Which types of transportation will be used?
Ocean? Air? Rail? Road? Multimodal?
Necessary handling?
Manual? Lift truck? Crane?
What is the merchandise?
Heavy? Fragile? Perishable? Value $? Wrapping?
How to draft an Incoterm?
A complete Incoterm includes an anglophone acronym of 3
letters. Ideally, MUST be followed of precisions concerning
place of delivery or destination
(Incoterm)
(Location)
(Specific instructions)
FCA
, Incoterms®2010
1234,Park Avenue,Montréal
i Indicates the responsibilities of the parties involved
ii. Indicates the place of transfer of responsibilities
iii.Additional informations (optional) + Incoterms®2010
Multi-Modal Incoterms
INCOTERMS MULTIMODAL TRANSPORTATION (7)
CO$T
EXW
FCA
DAT
EXW
RISK
DDP
Douane
Douane
FCA
CPT
CIP
CPT
CIP
DAP
DAT
DAP
DDP
EXW
Ex-Works
The seller makes the goods available
at his premises. The buyer is
responsible for all charges.
Example: EXW plant Boucherville, QC, Incoterms®2010
EXW (Ex-Works) * Suggested for domestic shipments
COST
PAID by
RISK by
Loading at origin
Buyer
Buyer
Local transport
Buyer
Buyer
Local transport contract
Buyer
Buyer
Documentation
Seller*
Buyer
Export fees and docs
Buyer
Buyer
Loading at carriers terminal
Buyer
Buyer
Cargo insurance
Optionnal
Optionnal
International transport
Buyer
Buyer
Terminal fees
Buyer
Buyer
Customs clearance
Buyer
Buyer
Import fees and taxes
Buyer
Buyer
Destination local transportation
Buyer
Buyer
PARTICULARS for EXW
• ICC suggest to avoid when there is an export
passage formality. Prioritize it for domestic
transportation.
• Support to the buyer:
Like indicated in A2 / B2:
‘Where applicable, the seller must provide the
buyer, at the buyer’s request, risk and expense,
assistance in obtaining pany export licence (ex. B13 for Canada), or other official authorization
necessary for the export of the goods (ex.
controlled goods for defence products in Canada).
PARTICULARS for EXW
• Delivery:
Like stipulated in A4:
In the case of the Incoterm used ‘EXW company
dock, Southampton, UK’, where the seller has
multiple locations:
‘If no specific point has been agreed, within the
named place of delivery, and if there are several
points available, the seller may select the point
that best suits its purpose. The seller must deliver
the goods on the agreed date or within the agreed
period.
EXERCICE: EXW no 1
Example: SELLER – Loading the cargo
The trucker arrives at your plant to pick up the cargo
of it’s customer. Once verifications done (ID + proof
of pick-up), you indicate the driver that he/she has to
load the cargo him/herself.
Q1. By indicating this, does the seller respect the
Incoterm?
Q2. If your shipping personnel helps the driver by
loading and the lift truck fall on the side and
damages the cargo, who is responsible?
Q3. What precautions / indications can you give your
shipping department to be compliant and protect my
interest?
EXERCICE: EXW no 1 - ANSWERS
Example: SELLER – Loading the cargo
The trucker arrives at your plant to pick up the cargo
of it’s customer. Once verifications done (ID + proof
of pick-up), you indicate the driver that he/she has to
load the cargo him/herself.
Q1. By indicating this, does the seller respect the
Incoterm? YES
Q2. If your shipping personnel helps the driver by
loading and the lift truck fall on the side and
damages the cargo, who is responsible? BUYER
Q3. What precautions / indications can you give your
shipping department to be compliant and protect my
interest? IDENTIFYING SKIDS / PALLETS
FCA
FREE CARRIER
The seller hands over the goods, cleared for
export, into the custody of the first carrier
(named by the buyer) at the named place.
Example: FCA, 1234 Manheim, Munchen, GE, QC, Incoterms®2010
FCA (Free Carrier) *Suggested by ICC for export
COST for FCA
PAID by:
RISK by:
Loading at origin
Seller
Seller
Local transport
Seller*
Seller*
Local transport contract
Seller
Seller
Documentation
Seller
-
Export fees and docs
Seller
-
Unoading at carriers terminal
Buyer
Buyer
Optionnal
Optionnal
International transport
Buyer
Buyer
Terminal fees
Buyer
Buyer
Customs clearance
Buyer
Buyer
Import fees and taxes
Buyer
Buyer
Destination local transportation
Buyer
Buyer
Cargo insurance
PARTICULARS FCA
• Minimal obligation for international exchanges.
• The seller hands over the goods, cleared for
export, into the custody of the first carrier
(named by the buyer) at the named place. Can be
more than one place. Specify.
• Guidance note, p.25:
‘If the parties intend to deliver the goods at the
seller’s premise, they should identify INDICATE
THE ADDRESS of those premises as the named
place of delivery. If, on the other hand, the parties
intend the goods to be delivered at another place,
they MUST identify a different specific place of
delivery’.
EXERCICE: FCA
The seller is a sports clothing manufacturer in Sudbury, ON.
The identified Incoterm in the transaction is FCA, Billy
Transport, Incoterms®2010.
Looking on the web, the seller sees that Billy Transport have
offices in North Bay, Orilla and Mississauga.
The seller delivers to Billy Transport in North Bay.
Q1. Did the seller fulfilled it’s obligations stated by the chosen
Incoterms? YES
Q2. The buyer is not happy. He ‘assumed’ that the cargo would
be available for his forwarder at the Toronto airport and asked
Billy Transport to bring evertyhing to Mississauga and bill the
seller.
Is the buyer required to pay? NO
As indicated at A4, page 28:
If no specific point has been notified buy the buyer under B7
within the named place of delivery, and if there are several
points available, the seller may select the point that best suit its
purpose.
CPT
CARRIAGE PAID TO
The seller pays for carriage to the named point of
destination, but risk passes when the goods are
handed over to the first carrier. No insurance.
Example: CPT warehouse Linde, Santiago, Chile, Incoterms®2010
CPT (Carriage paid to)
COST for CPT
PAID by:
RISK by:
Loading at origin
Seller
Seller
Local transport
Seller
Seller
Local transport contract
Seller
Seller
Documentation
Seller
-
Export fees and docs
Seller
-
Loading at carriers terminal
Seller
Buyer
Optionnal
Optionnal
International transport
Seller
Buyer
Terminal fees
Seller
Buyer
Customs clearance
Buyer
Buyer
Import fees and taxes
Buyer
Buyer
Destination local transportation
Buyer
Buyer
Cargo insurance
CIP
CARRIAGE AND INSURANCE PAID (named place of
destination)
Seller pays for carriage and insurance to the named destination
point, but risk passes when the goods are handed over to the
first carrier.
Example: CIP Terminal, Hong Kong, Incoterms®2010
CIP (Carriage and insured paid to)
COST FOR CIP
PAID by:
RISK by:
Loading at origin
Seller
Seller
Local transport
Seller
Seller
Local transport contract
Seller
Seller
Documentation
Seller
-
Export fees and docs
Seller
-
Loading at carriers terminal
Seller
Buyer
Cargo insurance
Seller
Buyer
International transport
Seller
Buyer
Terminal fees
Seller*
Buyer
Customs clearance
Buyer
Buyer
Import fees and taxes
Buyer
Buyer
Destination local transportation
Buyer
Buyer
EXERCICE: CPT / CIP
You are exporting electronic equipement by
container from Shanghai, China to Liuk, Belgium, to
your client warehouse.
You DO NOT want to assume the risk of damage
while in transit.
Q1. Wich Incoterm(s) will you choose?
Q2. If your client ask you to insure the cargo, witch
Incoterm(s) are you going to use?
EXERCICE: CPT / CIP
You are exporting electronic equipement by
container from Shanghai, China to Liuk, Belgium, to
your client warehouse.
You DO NOT want to assume the risk of damage
while in transit.
Q1. Wich Incoterm(s) will you choose?
CPT Liuk, Belgium, Incoterms®2010
Q2. If your client ask you to insure the cargo, witch
Incoterm(s) are you going to use?
CIP Liuk, Belgique, Incoterms®2010
DAT (New)
DELIVERED AT TERMINAL
Delivery occurs when the goods, once
unloaded from the arriving means of
transport, are placed at the disposal of the
buyer at the named terminal.
OCEAN TERMINAL
Example: DAT Le Havre, France, Incoterms®2010
DAT (Delivery at Terminal) - Replaces DEQ
COST for DAT
PAID by:
RISK by:
Loading at origin
Seller
Seller
Local transport
Seller
Seller
Local transport contract
Seller
Seller
Documentation
Seller
-
Export fees and docs
Seller
-
Loading at carriers terminal
Seller
Seller
Optionnal
Optionnal
International transport
Seller
Seller
Terminal fees
Seller
Seller
Customs clearance
Buyer
Buyer
Import fees and taxes
Buyer
Buyer
Destination local transportation
Buyer
Buyer
Cargo insurance
DAP (New)
DELIVERED AT PLACE
Delivery occurs 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.
DESTINATION
Example: DAP, 5 rue du collège, Lyon, France, Incoterms®2010
DAP (Delivery at Place)
COST for DAP
PAID by:
RISK by:
Loading at origin
Seller
Seller
Local transport
Seller
Seller
Local transport contract
Seller
Seller
Documentation
Seller
-
Export fees and docs
Seller
-
Loading at carriers terminal
Seller
Seller
Optionnal
Optionnal
International transport
Seller
Seller
Terminal fees
Seller
Seller
Customs clearance
Buyer
Buyer
Import fees and taxes
Buyer
Buyer
Destination local transportation
Seller*
Seller*
Cargo insurance
EXERCICE: DAT / DAP
Q1. Who between the seller and the buyer should
assume the terminal fees in DAT Incoterms®2010 ?
Q2. Indicate the right Incoterms:
You are exporting soap by container from
Auckland, NZ to Montevideo, Uruguay. Your client will
take care of the cargo at the terminal in the port of
destination.
A) Without assuming the risks of international
transportation;
B) By assuming the risk of international
transportation;
Q3. Witch Incoterm to use for a delivery by truck from
Barrie, ON to Laredo, TX.
DAT Laredo, TX or DAP Laredo, TX or DDP Laredo,
TX?
EXERCICE: DAT / DAP
Q1. Who between the seller and the buyer should assume
the terminal fees in DAT Incoterms®2010 ? SELLER
Q2. Indicate the right Incoterms:
You are exporting soap by container from Auckland,
NZ to Montevideo, Uruguay. Your client will take care of
the cargo at the terminal in the port of destination.
A) Without assuming the risks of international
transportation; CPT, Montevideo, Uruguay,
Incoterms®2010
B) By assuming the risk of international
transportation; DAT, Montevideo, Uruguay,
Incoterms®2010
Q3. Witch Incoterm to use for a delivery by truck from
Barrie, ON to Laredo, TX.
DAT Laredo, TX or DAP Laredo, TX or DDP Laredo, TX?
DDP
DELIVERY AND DUTIES PAID
This term means that the seller pays for all
transportation costs and bears all risk until the
goods have been delivered and pays the duties.
Example: DDP client, Warsaw, Poland, Incoterms®2010
DDP (Delivery duty paid)
The seller pays FOR EVERYTHING, including brokerage
fees, the duties and the taxes!!!
As sellers, use a freight forwarder to support you.
You DON’T KNOW the players, the transporters, the
culture and the business practices in the country of
destination.
Potential problems if permits, visas, etc, are required by
the import country.
Circumstances TO USE IT: might be useful for samples, low
value or low volume merchandise.
4 Maritimes / Waterways Incoterms
INCOTERMS EXCLUSIVE OCEAN (4)
CO$T
FAS
FOB
Customs
Customs
Destination port
Origin port
FAS
RISK
CFR
CIF
FOB
CIF
CFR
FAS
FREE ALONGSIDE SHIP
(Name loading port)
The seller must place the goods alongside the
ship at the named port.
FOB
FREE ON BOARD
(Name loading port)
The seller must themself load the goods on board
the ship nominated by the buyer.
Incoterm to use ONLY for transport by ocean or
inland waterways.
If the ‘crane loading’ movement doesn’t play a role,
use FCA.
CFR, COST AND FREIGHT (named destination port)
Seller must pay the costs and freight to bring the
goods to the port of destination.
CIF, COST, INSURANCE, FREIGHT (named port of destination)
Seller must pay the costs and freight to bring the
goods to the port of destination and must contract
minimum insurance coverage for the buyer.
UCC TERMS
(Uniform Commercial Codes)
 Beside the Incoterms, there is in the United Sates different
selling terms that can be used, such as the UCC terms.
 Called ‘Terms of sale’ (Terms of sale), they define how we
proceed at the sales. Just like the Incoterms, they specify the
place where the seller delivers to the buyer, so where the
risk is being shared.
 All FOB = ‘Free on board’, meaning that the seller loads the
transporter.
 Still used intra-USA (50 states) and with Canada (called “the
domestic market”).
 Should be replaced by the Incoterms® 2010.
TERMES UCC (Uniform Commercial Codes):
TERM OF SALE
Pays
transport
Chooses
carrier
Owns cargo
Make claims
FOB Origin
Buyer
Buyer
Buyer
Buyer
FOB Origin, port paid
Seller
Seller
Buyer
Buyer
FOB Origin, port paid,
re-billed
Seller
Buyer*
Buyer
Buyer
FOB Destination, due
port
Buyer
Buyer
Seller
Seller
FOB destination, port
paid
Seller
Seller
Seller
Seller
Seller
Seller
Seller
FOB Destination, due
Buyer*
port and authorized (rebilled)
* Has often better rates.
What can happen to your cargo?
DIFFERENCE BETWEEN RESPONSIBILITY OF THE
TRANSPORTER AND CARGO INSURANCE
According to the Warsaw convention, the carriers
responsibility is limited:
_________________
Air:
20$ USD / kg
Ocean:
500$USD / expedition units
Road:
4,41$CAD / kg
Rail:
0,92$CAD / lbs
Warehousing:
0,25$CAD / lbs
_________________
This is why, in the majority of the cases, it’s good to protect
shipments with additional cargo insurance.
And pay attention, even if insurance is ‘included’ in CIF/CIP,
verify that it’s adequate since it is minimal: Total lost Vs all
risks.
WHY CARGO INSURANCE?
 CIF / CIP:To respect the Incoterm as a seller
 Protect my interests as a seller or as a buyer
 Avoid arguments with transporters and clients and accelerate
the claim process
 By you forwarder or your insurance company
 Always COUNT and manage your risk!
 The insurable value of a shipment is defined as is:
Value ($) indicated on the commercial statement
+ transport fees + 10 %
+ taxes (if applicable in country / territory)
IN CONCLUSION
• NEGOCIATION: The Incoterm must be part of the negociation
right from the start
• IN WRITING: Must be marked on the agreement, the contract,
the purchase order, your price lists (if applicable)
• RISKS: Reduce them to the minimum and use a good
forwarder (develop a relationship)
• RESPONSIBILITY: The responsibility of the carriers is very
limited
• INSURANCE: Calculate according to the value of your
shipment and make sure that it’s ‘All risks’
• PAYMENTS: Letter of credit