INCOTERM assignment

 “INCOTERMS 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

International Commerce Terms = Incoterms  A formalized international Term of Trade regulated

by the International Chamber of Commerce

 Specifies the responsibilities of the exporter and the

responsibilities of the importer in an international

transaction

› Which tasks will be performed by the exporter

› Which tasks will be performed by the importer

› Which activities will be paid by the exporter

› Which activities will be paid by the importer

› When the transfer of responsibility for the goods will

take place

 Set of international rules for the

interpretation of the most commonly

used foreign trade terms

 Reduce the uncertainty caused by trade

practices in different countries.

 Simplify the negotiations involved in

international commerce.

 Ensure common understanding of

obligations

 First codified by the International Chamber of

Commerce in 1936. It was revised in 1953, 1967,

1976, 1980, 1990, 2000 and the latest revision

was in 2010 (Known as Incoterms 3000).

 In Incoterms 2000, there were 13 terms: EXW,

FCA, FAS, FOB, CFR, CIF, CPT, CIP, DAF, DES,

DEQ, DDU, and DDP

 In Incoterms 2010, there are only 11 terms: EXW,

FCA, FAS, FOB, CFR, CIF, CPT, CIP, DAT, DAP,

and DDP

Incoterms Code

Ex works EXW

Free carrier FCA

Free alongside ship FAS

Free on board FOB

Cost & freight CFR

Cost, insurance & freight CIF

Carriage paid to CPT

Carriage and insurance paid to CIP

Delivered at frontier DAF

Delivered ex ship DES

Delivered ex quay DEQ

Delivered duty unpaid DDU

Delivered duty paid DDP

E Terms

F Terms

C Terms

D Terms

Main International

Transportation

4

Handling Inbound

Customs Clearance

Duties

Final Transportation

Unloading

Packing

Loading Preliminary Transportation

Customs Clearance for Export

Handling Outbound

Insurance

1

2 3

5

6

7

891011

Goods available only at seller’s premises.

Buyer: loads the goods on truck or container at the seller’s

premises, and takes into account the subsequent costs

and risks.

EXW = Ex Works

The seller fulfills his obligation to deliver when he has made the goods available at his premises to the buyer.

The seller is not responsible for loading the goods on the vehicle provided by the buyer

The seller is not responsible for clearing the goods for export, unless agreed.

The buyer bears all costs and risks involved in taking the goods from the seller’s premises to the desired destination.

Group F: Main Carriage Not

Paid by Seller

FAS - Free Alongside Ship

FCA - Free CArrier

FOB - Free On Board

Under F-terms, the seller arranges and pays for pre-carriage in the country of

export. Including export clearance under FCA and FOB

Delivery at the specified point of departure: the seller’s premises

or a named cargo terminal / railroad station

Buyer: main carriage/freight, cargo insurance and other costs

and risks

Seller: places the goods alongside the ship at the named port, loaded at his expense.

Buyer: pays loading fee, main carriage/freight, cargo insurance and other costs risks.

Delivery of goods on board the vessel at the port

of origin is at the seller’s expense.

Buyer is responsible for loading fee, main

carriage/freight, cargo insurance and other

costs risks.

Group C: Main Carriage

Paid by Seller

CFR - Cost & FReight

CIF - Cost, Insurance & Freight

CPT - Carriage Paid To

CIP - Carriage & Insurance Paid to

Under C-terms, the seller arranges and pays for the main carriage but without assuming the risk of the main carriage.

Seller: pays the costs and freight to bring the

goods to the port of destination.

Risk: transferred once the goods have crossed

the ship’s rail.

Used exactly the same way as CFR except that

Seller: must in addition procure and pay for

insurance for the cargo insurance and delivery

of goods to the port of destination

Buyer: responsible for the import customs

clearance & other costs and risks

Seller delivers the goods at the named place of

destination at his expense.

Buyer assumes the cargo insurance, import

customs clearance, payment of customs

duties and taxes, and other costs and risks.

Risk transferred at the delivery of goods

Seller delivers the goods on the ship. On board, the risk is transferred to the buyer.

Buyer is accountable for the import customs clearance, payment of customs duties and taxes, and other costs and risks until goods reach their final destination.

 Ocean Terms Other Terms

› CFR CPT

› CIF CIP

Group D: Arrival

DAF - Delivered At Frontier

DES - Delivered Ex Ship

DEQ - Delivered Ex Quay

DDU - Delivered Duty Unpaid

DDP - Delivered Duty Paid

Under D-terms, the seller’s cost/risk is maximized because he must make the goods available at the agreed destination. Including import clearance under DEQ and

DDP

Delivery of goods is done at the specified point at

the frontier at the seller's expense.

Buyer is responsible for the import customs

clearance, payment of customs duties and taxes.

The transfer of risk is made at the frontier

Seller assumes expenses linked to the delivery of

goods. At the arrival of the ship, the risk is

transferred to the buyer.

Buyer is accountable for the unloading fee, import

customs clearance, payment of customs duties

and taxes, cargo insurance, and other costs

Delivery of goods is done to the quay of the port

at the seller's expense. He is also responsible for

the import customs clearance and payment of

customs duties and taxes at the buyer's end.

Buyer assumes the cargo insurance and other

costs and risks

Delivery of goods and the cargo insurance to the final

destination, which is often the project site or buyer's

premises, is done at the seller's expense.

Buyer is responsible for the import customs clearance and

payment of customs duties and taxes

Seller is responsible for most of the expenses, which include the cargo insurance, import customs clearance, and payment of customs duties and taxes at the buyer's end, and the delivery of goods to the final point at destination, which is often the project site or the buyer's premises.

It is a “door to door” delivery.

Risk is transferred when the goods are delivered

Ocean vs. Other

Ocean Terms Other Terms

DES DDU

DEQ DDP

EXW EXW

F Class:

FCA

FAS

FOB

F Class:

FCA

FAS

FOB

C Class:

CFR

CIF

CPT

CIP

C Class:

CFR

CIF

CPT

CIP

D Class:

DAF

DES

DEQ

DDU

DDP

D Class:

DAT

DAP

DDP

 Selection depends on the following parameters:

▪ Type of product sold

▪ Method of shipment

▪ Ability of the parties to perform the tasks

involved in the shipment

▪ The amount of trust between one party toward

the others

 For simplification purposes, an exporter often

quotes using the same Incoterm in every

transaction.

Exporting Country Importing Country

DAT

DAP

Definition and Application  For any merchandise and for any means of transportation

 Easiest of Incoterms for exporter, most difficult for importer

 Syntax: EXW [City where merchandise is to be picked up]

--

▪ EXW Buffalo, New York, USA

▪ EXW Rabigh, Kingdom of Saudi Arabia

▪ EXW Obhour, Jeddah, Kingdom of Saudi Arabia

Delivery

 Occurs when the importer (or importer's agent) picks up

the goods at the exporter's plant.

Exporter's and Importer's Responsibilities

 Exporter ▪ Makes the goods available to the buyer

▪ Packages the goods for international travel

▪ Assists in the export clearance procedures

▪ Provides the documents to the importer so that the

goods can clear Customs in the importing country or be

insured.

 Importer ▪ Is responsible for all the other aspects of the shipment

Definition and Application ▪ For any merchandise and any means of transportation

▪ Exporter delivers goods to carrier that importer has selected.

▪ Responsibility shifts from exporter when goods are delivered

to carrier’s vehicle.

▪ Syntax: FCA [City where merchandise is delivered to carrier] FCA Al-Andalus, Jeddah, Kingdom of Saudi Arabia

Delivery takes place: ▪ At exporter's plant, the goods are loaded to the carrier’s

truck.

▪ At the carrier's premises, the goods are unloaded from the

exporter’s truck.

Exporter’s and Importer’s Responsibilities

 Exporter › Packages the merchandise for international

travel

› Loads the container on the carrier's truck or

delivers it to the carrier's facilities

› Provide documents to clear Customs in the

importing country and to obtain insurance

 Importer › Arranges the contract of carriage

› Is responsible for all the other aspects of the

shipment

Definition and Application  Can be used for any merchandise, but typically used for

heavy-lift or bulk cargo. For ocean or inland waterway

transportation only

 Syntax: FAS [Port of Departure]. For example:

FAS Jeddah, Kingdom of Saudi Arabia

FAS King Abdullah, Kingdom of Saudi Arabia

Delivery  Takes place when the exporter has delivered the goods

“alongside” a

ship designated by the importer, generally in a warehouse or at

container yard, waiting for the stevedore to come and load it

onto the ship.

Exporter's and Importer's Responsibilities

 Exporter

▪ Packages the goods for international travel

▪ Transports them to the port

▪ Unloads them onto the quay or holding area in the port

▪ Clearing the goods for export and provides whatever documents

the importer may need to clear Customs in the importing country

and to obtain insurance

 Importer ▪ Pays for services from the point of delivery: port handling charges

and stevedoring

▪ Is responsible for all the other aspects of the shipment

Definition and Applicability  For any merchandise.

 For ocean transportation or inland waterway only.

 Syntax: FOB [Port of Departure]. Example:

FOB Jeddah, Kingdom of Saudi Arabia

FOB Jeddah, Kingdom of Saudi Arabia, stowed

→[variant]

 Delivery takes place when the merchandise crosses the

ship’s rail.  Ship’s rail: An imaginary rail that circles the entire hull of a ship.

Should a cargo item fall onto the ship while loading, whose

responsibility depends on which side of the ship’s rail it falls on:

› If outside of the ship’s rail, it is the exporter’s responsibility

› If it falls on the inside, it is the importer’s responsibility.

Exporter's and Importer's Responsibilities

 Exporter

› Packages the goods for international travel

› Ships them to the port of departure and loads them onto the

ship

› Provide whatever documents and assistance the importer may

need to clear Customs in the importing country and to obtain

insurance

 Importer

› Responsible for arranging and paying for ocean transportation

from the port of departure to the goods' destination

› Is responsible for all the other aspects of the shipment

Exporting Country

Definition and Application  For any merchandise. Ocean transportation only.

 The exporter pays for ocean transportation.

 Syntax: CFR [Port of Destination]. Example:

CFR Lagos, Nigeria

 Delivery takes place when the merchandise crosses

the ship’s rail, the same as under an FOB shipment.

Exporter's and Importer's Responsibilities

 Exporter › Packages the goods for international travel

› Ships them to the port of departure, loads them

onto the ship and pre-pays the ocean carriage

› Provide documents & assistance the importer

may need to clear Customs in the importing

country and to obtain insurance

› The pre-paid contract of carriage may include

the costs of unloading the goods in the port of

destination (depends on practices at port).

 Importer › Is responsible for all the other aspects of the

shipment

Definition and Application

 For any merchandise. Ocean transportation only.

 Exporter has the additional responsibility to pre-pay for Marine Cargo Insurance until the port of destination.

 Syntax: CIF [Port of Destination]. Example: CIF Kobe, Japan

 Delivery takes place when the merchandise crosses the

ship’s rail, the same as under an FOB shipment and a CFR

shipment.

Exporter's and Importer's Responsibilities

 The exporter and importer have the same

responsibilities as in CFR.

 The exporter has the additional

responsibility to pre-pay for Marine Cargo

Insurance until the port of destination.

Definition and Application  For any merchandise that is shipped by means other than

ocean transport, or shipped by sea without being handed

over the ship's rail (multi-modal transportation).

 Delivery is at the city where the exporter delivers the goods

to the carrier.

 Syntax: CPT [City of Delivery – importing @ neighboring

country]. Example: CPT Köln, Germany

 Delivery takes place when two conditions are met:

› The exporter hands over the goods to the carrier

› The exporter is given a bill of lading or equivalent

document

Exporter's and Importer's Responsibilities

 Exporter

› Packs the goods for export & ships them to the

carrier

› Pays the shipping costs to the city of destination

 Importer

› Is responsible for all the other aspects of the

shipment

Definition and Application  Can be used for any merchandise.

 Similar to CIF: it applies to goods shipped by means other than ocean transport, or shipped by sea without being handed over the ship's rail (multi-modal transportation)

 Exporter has the additional responsibility to pre-pay for Cargo Insurance.

 Syntax: CIP [City of Delivery] For example: CIP Sofia, Bulgaria

 Delivery takes place when:

› The exporter hands over the goods to the carrier

› The exporter is given a bill of lading or equivalent

document

Exporter's and Importer's Responsibilities

 The exporter and importer have the same responsibilities as in CPT.

 The exporter has the additional responsibility to pre- pay for International Cargo Insurance until the city of destination.

Definition and Application  Can be used for any merchandise, but mostly used for

bulk shipments of commodities via for ocean

transportation.

 Syntax: DES [Port of Delivery] For example: DES

Istanbul, Turkey

 Delivery takes place at the port of destination, once the

ship has reached port and makes the merchandise

available to the importer.

 Responsibilities: Exporter = Pays for ocean shipment.

 Importer = Makes arrangements and pays for unloading

the ship

Definition and Application

 For any merchandise, but is mostly used for

bulk shipments of commodities via ocean

transportation.

 Syntax: DEQ [Port of Delivery]. For example:

DEQ Santiago, Chile

 Difference between the DES and DEQ

Incoterms is that the unloading costs are

borne by the exporter in DEQ

 Delivery takes place when goods are

unloaded and placed at the disposal

of the importer.

 Responsibilities: Exporter pays ocean

shipment, makes arrangements, and

pays for, unloading the ship.

Definition and Application  For any merchandise, but specifically to land

transportation

 Transfer of responsibility: At the point (city) named in

Incoterm.

 Usually, the goods remain on vehicle to final destination.

 Syntax: DAF [Border City or Border Crossing Point] For

example: DAF Nogales, Arizona, USA

 Delivery takes place when goods, still on the truck or the

railroad car, is placed at the disposal of the importer at

the border city.

 Responsibilities: Exporter packages the

goods for export & pays for

transportation until the border city

 Importer: Pays for transportation from

the border city to the final destination &

Clears Customs

Definition and Application  For any merchandise, and any means of transportation.

 Syntax: DDU [City of Delivery]. For example: DDU Xi'An,

China

 Delivery: When the exporter places the goods at the

disposal of the importer in the city of delivery.

 Responsibilities: Exporter perform all tasks involved in a

shipment & pays all shipping issues until goods are

delivered to the importer. Does not clear Customs in the

importing country

 Importer: Clears Customs and pays duty

 May be used for all transport modes

 Seller delivers when the goods, once unloaded

from the arriving means of transport, are placed at

the disposal of the buyer at a named terminal at

the named port or place of destination. "Terminal"

includes quay, warehouse, container yard or road,

rail or air terminal.

 Both parties should agree the terminal and if

possible a point within the terminal at which point

the risks will transfer from the seller to the buyer of

the goods.

Responsibilities

 Seller is responsible for the costs and risks to

bring the goods to the point specified in the

contract

 Seller should ensure that their forwarding

contract mirrors the contract of sale

 Seller is responsible for the export clearance

procedures

 Importer is responsible to clear the goods for

import, arrange import customs formalities, and

pay import duty

 May be used for all transport modes

 Seller delivers the goods when they are

placed at the disposal of the buyer on the

arriving means of transport ready for

unloading at the named place of

destination.

 Parties are advised to specify as clearly as

possible the point within the agreed place

of destination, because risks transfer at this

point from seller to buyer.

Responsibilities

 Seller bears the responsibility and risks to deliver

the goods to the named place

 Seller is advised to obtain contracts of carriage

that match the contract of sale

 Seller is required to clear the goods for export

 If the seller incurs unloading costs at place of

destination, unless previously agreed they are not

entitled to recover any such costs

 Importer is responsible for effecting customs

clearance, and paying any customs duties

Definition and Application

 For any merchandise and any means of transportation.

 DDP is the ultimate in customer service by the exporter.

 Meant to be used when the exporter is willing to shoulder

all of the responsibilities of an international shipment,

including clearing Customs in the importing country.

 Syntax: DDP [City of Delivery]. For example: DDP

Karlsruhe, Germany

Delivery

 The delivery takes place when the exporter places

the goods at the disposal of the importer in the city

of delivery mentioned in the Incoterm.

Exporter's and Importer's Responsibilities

 Exporter:

› Assumes all responsibilities in a DDP shipment

 Importer

› Only has the responsibility to receive the goods at

delivery and unload them

 Incoterms confusion with Domestic

Terms, such as “FOB factory” or “FOB

destination”

 Incoterms confusion with Older

Incoterm Versions, such as FOB rail, FOB

truck or FOB airport, DAF, DES, DEQ,

DDU

 Improper use of correct Incoterm, such

as FOB used with an air shipment

 Use of inexistent Incoterms, such as

“Free Domicile”

 A strategic advantage can be gained

by an exporter willing to facilitate the

sale of its products by assisting a

novice importer in the handling of a

shipment.

 An exporter should be willing to

determine which Incoterm to use on a

case-by-case basis.

 The choice of the proper Incoterm is a

critical decision for a firm, as it

indicates willingness to

provide additional services for the

importer.