INCOTERMS Presentation by: Vikram S. Tyagi WHAT ARE INCOTERMS FIRST PUBLISHED IN 1936 BY THE INTERNATIONAL CHAMBER OF COMMERCE AND ARE AMENDED EVERY 10 YEARS TO SUIT CONTEMPORARY COMMERCIAL PRACTICES. SET OF RULES GOVERNING INTERNATIONAL TRADE. IT IS ACCEPTABLE TO GOVERNMENTS AND LEGAL AUTHORITIES WORLDWIDE. IN ORDER TO ENFORCE INCOTERMS IN A SALE- PURCHASE CONTRACT, IT HAS TO BE CLEARLY SPECIFIED THAT THE CONTRACT IS GOVERNED BY THE INCOTERMS 2000. Contd. IT DENOTES THE POINTS AT WHICH THE SHIPPER, THE CARRIER AND THE CONSIGNEE RISK & RESPONSIBILITY BEGIN AND TERMINATE. THERE ARE 13 MAIN TERMS, DENOTED BY THREE LETTER ABBREVIATIONS AND MANY LOCAL VARIANTS OF EACH. THE SCOPE OF INCOTERMS IS LIMITED TO THE RIGHTS AND OBLIGATIONS OF PARTIES TO THE CONTRACT OF SALE WITH RESPECT TO DELIVERY OF PHYSICAL GOODS, BUT EXCLUDING “INTANGIBLES” LIKE COMPUTER SOFTWARE THE VARIOUS INCOTERMS BROADLY, THESE THREE LETTER ABBREVIATIONS USED IN DENOTING 13 INCOTERMS CAN BE CLASSIFIED IN FOUR CATEGORIES TO DEFINE ROLES AND RESPONSIBILITIES: “E”- TERM: DENOTES DISPATCH FROM SELLER’ PREMISES. “F”- TERM: DENOTES BUYER PAYS MAIN CARRIAGE. ONLY PRE-CARRIAGE PAID BY SELLER. THIS IS PRIMARILY A “SHIPMENT” CONTRACT “C”- TERM: DENOTES SELLER PAYS MAIN CARRAIGE.THIS IS A SHIPMENT CONTRACT “D”- TERM: DENOTES SELLER DELIVERS AT AGREED DESTINATION AND BEARS ALL COST & RISK TILL THEN.THIS IS PRIMARILY A “ARRIVAL” CONTRACT. EXW (EX WORKS………NAMED PLACE) SELLER HAS DELIVERED WHEN HE PLACES GOODS AT THE DISPOSAL OF THE BUYER WITHIN ITS PREMISES OR AT A GIVEN PLACE WITHOUT BEING RESPONSIBLE FOR LOADING THE GOODS ON THE COLLECTING VEHICLE (NORMALLY) NOR FOR CLEARING THE GOODS FOR EXPORT. IF MUTUALLY AGREED ON THE SALE CONTRACT, THE SELLER MAY AGREE TO LOAD THE VEHICLE WITHOUT BEARING THE RISK & COST OF DOING SO. Contd. VARIANT: EXW LOADED...SELLER AGREES TO BEAR THE COST & RISK FORTUIOUS DAMAGES WHILE LOADING THE GOODS. LEAST RISK TO THE SELLER CAVEAT: BUYER SHOULD NOT AGREE TO SUCH A TERM IF HE IS UNABLE TO CARRYOUT EXPORT FORMALITIES, DIRECTLY OR INDIRECTLY. FCA PREFERRED. FCA (FREE CARRIER…NAMED PLACE) SELLER DELIVERS GOODS CLEARED FOR EXPORT, TO THE CARRIER NOMINATED BY BUYER. IF DELIVERY IS OCCURING WITHIN SUPPLIER PREMISES, THE SUPPLIER IS REPSONSIBLE FOR LOADING. IF HOWEVER, DELIVERY IS OCCURING AT ANY OTHER PLACE, SUPPLIER IS NOT RESPONSIBLE FOR UNLOADING. THE TERM CAN BE USED FOR ANY MODE OF TRANSPORT, INCLUSING MULTI-MODAL TRANSPORT. CARRIER REFERS TO ANY PERSON WHO IN A CONTARCT OF CARRIAGE UNDERTAKES TO TRANSPORT BY ANY OR MULTIMODAL WAYS OF TRANSPORT. FAS (FREE ALONGSIDE SHIP……NAMED PORT OF SHIPMENT) SELLER DELIVERS GOODS CLEARED FOR EXPORT ALONGSIDE VESSEL AT NAMED PORT OF SHIPMENT AND BEARS ALL RISK & COST TILL THEN. THIS TERM IS USED ONLY FOR SEA OR INLAND WATERWAYS OF TRANSPORT. FOB (FREE ON BOARD…………NAMED PORT OF SHIPMENT) SELLER DELIVERS WHEN GOODS CLEARED FOR EXPORT PASS THE SHIP’S RAILS AT THE NAMED PORT OF SHIPMENT. THIS TERM IS USED ONLY FOR SEA OR INLAND WATERWAYS OF TRANSPORT. CFR (COST & FREIGHT…………NAMED PORT OF DESTINATION) SELLER DELIVERS WHEN GOODS CLEARED FOR EXPORT PASS THE SHIP’S RAILS AT THE NAMED PORT OF SHIPMENT. HOWEVER, THE SELLER INCURS THE COST OF BRINGING THE GOODS TO THE NAMED PORT OF DESTINATION. PROOF OF DELIVERY IS B/L OR SEA WAYBILL THE RISK AND ANY ADDITIONAL COST DURING FREIGHT ARE BORNE BY BUYER. THIS TERM IS USED ONLY FOR SEA OR INLAND WATERWAYS OF TRANSPORT. CIF (COST INSURANCE & FREIGHT………NAMED PORT OF DESTINATION) SELLER DELIVERS WHEN GOODS CLEARED FOR EXPORT PASS THE SHIP’S RAILS AT THE NAMED PORT OF SHIPMENT. HOWEVER, THE SELLER INCURS THE COST OF FREIGHT AND MARINE INSURANCE OF MINIMUM COVER TO THE NAMED PORT OF DESTINATION. PROOF OF DELIVERY IS B/L OR SEA WAYBILL ANY ADDITIONAL COST DURING FREIGHT ARE BORNE BY BUYER. THIS TERM IS USED ONLY FOR SEA OR INLAND WATERWAYS OF TRANSPORT. CPT (CARRIAGE PAID TO………NAMED PLACE OF DESTINATION) SELLER DELIVERS WHEN GOODS ARE HANDED OVER TO NOMINATED CARRIER. THE SELLER INCURS THE COST OF FREIGHT (PRE OR POST PAID)TO THE NAMED PORT OF DESTINATION. THE TERM IS USED IRRESPECTIVE OF MODE OF TRANSPORT OR MULTIMODAL TRANSPORT. CIP (CARRAIGE & INSURANCE PAID TO…………NAMED PLACE OF DESTINATION) CPT + MINIMUM MARINE INSURANCE COVER DAF (DELIVERD AT FRONTIER…………NAMED PLACE) SELLER DELIVERS WHEN GOODS ARE PLACED AT THE DISPOSAL OF THE BUYER ON ARRIVING MEANS OF TRANSPORT, NOT UNLOADED, CLEARED FOR EXPORT, BUT NOT FOR IMPORT AT A NAMED POINT & PLACE AT THE FRONTIER BUT BEFORE THE CUSTOMS BORDER OF THE ADJOINING COUNTRY. FRONTIER: REFERS TO ANY FRONTIER INCLUDING THAT OF THE COUNTRY OF ORIGIN. THE TERM IS USED IRRESPECTIVE OF MODE OF TRANSPORT BUT PRIMARILY WHEN GOODS ARE DELIVERED AT LAND FRONTIER. DES (DELIVERD EX-SHIP…………NAMED PORT OF DESTINATION) SELLER DELIVERS WHEN GOODS ARE PLACED AT THE DISPOSAL OF THE BUYER ON BOARD THE SHIP NOT CLEARED FOR IMPORT AT NAMED PORT OF DESTINATION. THIS TERM IS PRIMARILY USED FOR SEA SHIPMENTS OR MULTIMODAL TPT. ON A VESSEL IN THE PORT OF DESTINATION. IF SELLER AGREES TO PAY FOR UNLOADING AND BEAR THE RISK OF DAMAGE IN THIS PROCESS, THE TERM GETS MODIFIED TO DEQ (DELIVERED EX- QUAY……………NAMED PORT OF DESTINATION) DDU (DELIVERED DUTY UNPAID………NAMED PLACE OF DESTINATION) SELLER DELIVERS GOODS TO BUYER, NOT UNLOADED FROM ARRIVING MEANS OF TRANSPORT, AND NOT CLEARED FOR IMPORT AT NAMED PALCE OF DESTINATION. APPLICABLE FOR ANY MODE OF TRANSPORT BUT FOR SEA/ INLAND WATERWAYS. DDP (DELIVERED DUTY PAID………NAMED PLACE OF DESTINATION) SELLER DELIVERS THE GOODS TO THE BUYER CLEARED FOR IMPORT BUT NOT UNLOADED FROM ANY ARRIVING MEANS OF TRANSPORT AT ANY NAMED PLACE OF DESTINATION. MAXIMUM OBLIGATION OF THE SELLER. APPLICABLE FOR ANY MODE OF TRANSPORT BUT FOR SEA/ INLAND WATERWAYS. GUIDELINES TO USE OF INCOTERMS ALWAYS SPECIFY WHICH TERMS ARE APPLICABLE. TRY TO CHOOSE THE TERM WHICH MATCHES WITH YOUR COMPANY’S STANDARD TERM OF SALE(OR PURCHASE) EG: FAS INCOTERMS 2000 HAS DIFFERENT CONNOTATION AS COMAPRED TO THAT OF FAS INCOTERMS 1990. USE THE CORRECT FORMAT OF A TERM. EG: CFR IS PERSISTENTLY MISUSED WITH C+F AND C&F. C+F NEVER EXISTED AND C&F WAS REPLACED WITH CFR IN 1980. USE YOUR TRADING PARTNERS TO CONFIRM THEIR ACCEPTANCE OF THE SPECIFIED TERM IN WRITING. Contd. DRAW UP A CHECKLIST OF YOUR DUTIES AND RIGHTS UNDER THE AGREED TERM. REQUEST YOUR TRADING PARTNERS TO DO THE SAME, AND EXCHANGE THIS INFORMATION WITH THEM. CHANGE OR ADD NOTHING (IF POSSIBLE) TO THE SELECTED TERM. IN CASE ANY CHANGE OR ADDITION IS INEVITABLE, INFORM YOUR TRADING PARTNERS AND REQUEST TO THEM TO ACCEPT THE CHANGES/ ADDITIONS IN WRITING. INFORM YOUR BANK & INSURANCE COMPANY OF THE INCOTERMS SELECTED FOR A BUSINESS DEAL, SO THAT THAY ARE IN HARMONY WITH REGARD TO THEIR ROLE IN THE TRANSACTION. INCOTERMS SUMMARY GROUP E TERM Stands for EXW Ex Works FCA FAS FOB Free Carrier Free Alongside Ship Free On Board CFR CIF CPT CIP Cost and Freight paid Cost, Insurance and Freight paid Carriage Paid To Carriage and Insurance Paid To DAF DES DEQ DDU DDP Delivered Delivered Delivered Delivered Delivered F C D At Frontier Ex Ship Ex Quay Duty Unpaid Duty Paid Thank You