1. INTERNATIONAL COMMERCIAL TERMS 2010
Areej Aftab Siddiqui

2. International Commercial Terms History
Initially created in 1936 by the International Chamber of Commerce (ICC) and have been periodically revised (Incoterms® is the 8th revision)
Incoterms® are generally good for approximately 10 years ~ not a magic number, but historically about accurate
Incoterms® reflect world-wide trade practices, as practices change, Incoterms® are revised
Incoterms® were written by the ICC, represented by 8 individuals from various countries/areas of the world
Met 11 times in person
Received over 2000 suggestions in first request
Refined suggestions over 4 proposals
Controlling source document is written in British English and will be translated into 35+ languages over the next year. 2

3. What are Incoterms ® 2010?
Eleven (11) Incoterms® (used to be 13 terms)
Four (4) terms were deleted and two (2) new terms were created
Incoterms® will begin January 1, 2011
Available worldwide through 100 International Chamber of Commerce National Committees
The terms aren’t law
Country neutral – they don’t favor one country over another
Self-contained – all information that determines responsibility and risk are in one place 3

4. Who Uses Them? Buyers and Sellers, directly And indirectly Banks
Insurers
Carriers/Forwarding Agents

5. Use by Banks Most credits will state an Incoterm
This enable banks to check, to an extent, that:
– The documents called for in the credit are consistent with the term used
– The documents presented are consistent with the term used
Only few credits state that the term used is actually an ―Incoterm.
To avoid ambiguity and avail the benefit of this revision, it is recommended to state the Incoterms specifically stating ―Incoterms 2010

6. Use by Insurers
If there is loss or damage to a cargo, insurers will be at pains to establish exactly where it has occurred and therefore whether the buyers or sellers were responsible
Incoterms determine whether it is the buyer or seller that is at risk

7. Use by Carriers/Forwarding agents
To determine which party (buyer/seller) will be responsible for payment of frieght charges
To determine which party (buyer/seller) will be responsible for the various activities in transportation

8. Definitions….. 8

9. Key Definitions
What is Delivery?
It is not always:
When the goods arrive in your customer’s hands or
When the goods leave your dock
Defined the same in all countries
You must know your contract and your Incoterm®
Note: A Purchase Order and a matching Acknowledgement will constitute a “contract” if there isn’t a separate stand-alone contract related to the transaction.
As defined in Incoterms® 2010, “it is used to indicate where the risk of loss of or damage to the goods passes from the seller to the buyer.” 9

10. Transportation Definitions
Pre-carriage: inland transportation on the seller’s side
Domestic: from the place where the shipment starts to any subsequent transportation carriage
International: from the place where the shipment starts to the departure point on the seller’s side
Main Carriage:
Domestic: subsequent transportation beyond pre-carriage
International: transportation from the point of departure on the seller’s side to the arrival pint on the buyer’s side
On-carriage:
Domestic: subsequent transportation beyond main carriage
International: transportation from the arrival pint on the buyer’s side 10

11. Transportation Definitions
Door – to – Door
Contract of carriage that includes pre-carriage, main-carriage and on-carriage by the same carrier
Door – to – (Air) Port:
Contract of carriage including pre-carriage and main-carriage to airport or ocean port or truck terminal port or rail port
(Air) Port – to – (Air) Port:
Contract of carriage for main carriage only
(Air) Port – to – Door:
Contract of carriage including main carriage and on-carriage

12. Type of Transportation?
Company A
Company B
Door to Door – one contract for all carriage (pre-, main, and on-carriage)

13. Type of Transportation?
Company A
Door to Port – contract for pre-carriage and main-carriage
Company B responsible for arranging pick up at Arrival Airport

14. A Few More Definitions…..
Omni-modal: Used with terms that use all modes of transportation (truck, airplane, vessel, train…)
Marine-restricted: Terms that only apply to carriage by vessel (sea)
Shipment Contract: sales/purchase contract where the seller’s responsibility ends when goods are handed over to the first carrier
Arrival Contract: sales/purchase contract where seller’s responsibility ends when goods have arrived at agreed place

15. Packaging Definitions
The packaging of the goods to comply with any requirements under the contract of sale.
The packaging of goods so that they are fit for transportation.
The stowage of the packaged goods within a container or other means of transport.
Only Definition 1 & 2 are addressed in Incoterms®
Definition 3 must be addressed within the contract between the parties. 15

16. Key questions to ask in structuring a transaction
Who furnishes the goods?
Who packages the goods in a manner suitable for shipment (export)?
Who moves the goods from the seller’s factory to a port, airport, or border crossing in the seller’s country?
Who arranges for export clearance in the seller’s country (if applicable)?
Who arranges for main carriage (international transportation) from the departure port to the arrival port?
Who pays for main carriage?
Who insures the shipment?
Who arranges for import clearance?
Who pays import duties?
Who pays for on-carriage from the arrival port to the delivery destination?
Who arranges and pays for country-specific documentation (e.g., consular invoices, inspection reports, licenses)? 16

17. What do Incoterms® 2010 Do?
Divides up tasks, responsibilities, costs and risks to deliver goods from seller to buyer
If used correctly, no duplication of effort between seller & buyer
Acts as signposts for who needs to have additional contracts (i.e., with vessel steamship line, inland trucking company, etc.) to complete transaction
If something goes wrong, clearly defines responsibilities based on where the goods were in the transportation chain of delivery
Address “String sales”
Shipments where ownership changes in transit 17

18. Contd. Address Cargo Security concerns
Defines mode of transportation by their use
4 Terms are for Marine-Restricted for sea & inland waterway transport only
7 Terms are Omni-modal for use with all modes of transportation
Increasingly considered replacement for Uniform Commercial Code (UCC) shipment/delivery terms.

19. What Incoterms® 2010 DO NOT Do…
Automatically Apply
Determine When Ownership Changes
When delivery occurs or when payment happens can impact when ownership changes
Must be addressed specifically in contract
Under US Law, it is when the product is delivered
If jurisdiction is under another sovereign nation law, you need to address per that country regulation
If contract is subject to the United Nations Convention on Contracts for the International Sale of Goods (CSIG) the law does not specify if it is not addressed specifically within the contract 19

20. What Incoterms® 2010 DO NOT Do…
Identify when Revenue is Recognized
Identify if a Breach of Contract occurs, when it happened
Does not determine remedies for breach of contract
Provide relief from obligations/exemptions from liability in unexpected or unforeseeable situations
Address Payment issues
Tells you that the buyer must pay, but not when or where 20

21. Contd. Address more than one contract
Drop Shipments are TWO Contracts
1) between the seller and their supplier and
2) between the seller and the buyer
Incoterms® could be the same or different in each contract
Specifically task a party with container stowage obligations

22. Incoterms® 2000 vs. 2010 EXW – Ex Works FCA – Free Carrier
FAS – Free Alongside Ship
FOB – Free On Board
CFR – Cost and Freight
CIF – Cost, Insurance & Freight
CPT – Carriage Paid To
CIP – Carriage & Insurance Paid To
DAT – Delivered At Terminal
DAP – Delivered At Place
DDP – Delivered Duty Paid
EXW – Ex Works
FCA – Free Carrier
FAS – Free Alongside Ship
FOB – Free On Board
CFR – Cost and Freight
CIF – Cost, Insurance & Freight
CPT – Carriage Paid To
CIP – Carriage & Insurance Paid To
DEQ – Delivered Ex Quay
DES – Delivered Ex Ship
DAF – Delivered at Frontier
DDU – Delivered Duty Unpaid
DDP – Delivered Duty Paid
DEQ (Delivered Ex Quay) has been changed to DAT (Delivered at Terminal) to change to Omni-modal status (all types of terminals – truck, bus, train, airline, vessel) and name changed to better reflect the new status from Quay to Terminal.
DES (Delivered Ex Ship), DAF (Delivered At Frontier) and DDU (Delivered Unpaid) have been all incorporated into DAP (Delivered at Place)
Marine Restricted Omni-Modal 22

23. Group Term Definitions
F – Terms
C – Terms
D – Terms 23

24. F-Group Terms Are considered to be “Shipment Contracts”
Are considered Seller Friendly
Seller
Handles Export Clearance
Handles Pre-carriage
Named Place on Seller’s Side
Buyer
Contracts for Main Carriage
In charge of Carrier (and usually forwarder) selection
Control over Freight Costs
Control of Documentation

25. C-Group Terms Are considered to be “Shipment Contracts”
Are considered Buye Friendly
Seller
Contracts for Main Carriage
In charge of carrier (and usually forwarder) selection
Handles pre-carriage
Has control over freight costs
In control of documentation
Passes risk of loss (delivers) to Buyer prior main carriage
Handles export clearance
Buyer
Named Place is on Buyer’s side
Has risk of loss while goods are in transit with carrier selected and paid for by seller
Must rely heavily on Seller for data elements required for ocean shipments such as Importers General manifest
If informed, should not consider “C” terms due to downside described

26. D-Group Terms Are considered to be “Arrival Contracts” Seller Buyer
Contracts for Main Carriage
In charge of carrier (and usually forwarder) selection
Handles pre-carriage
Has control over freight costs
In control of documentation
Passes risk of loss (delivers) to Buyer at freight arrival point
Handles export clearance
Seller may have revenue recognition issues since “delivery” occurs on arrival side, meaning revenue is recognized only upon arrival
Buyer
Named Place on Buyer’s side
Must rely heavily on Seller for data elements required for ocean shipments such as Importers General manifest
Undertakes less risk than in “C” terms
If inexperienced, or does not have good relationship with carriers, is served will by “D” terms

27. Omni-Modal Incoterms® 2010

28. Ex Works (EXW) + (Named Place)
Named Place is generally Seller’s Location (or where product initially ships from)
Delivery – Seller delivers goods when placed at buyer’s disposal at the name place of delivery
Goods are packaged
Goods are NOT LOADED on the collecting vehicle
Seller Risks – Minimum obligation for seller; once packaged there is a loss of control over transportation movement, where package is finally received, how export or import documentation is presented to relevant governments
Buyer Risks – Buyer bears all costs and risks involved in taking the goods from the named place
Carriage: Buyer responsibility to arrange for pre-carriage, main carriage, on- carriage
Insurance: Neither party required to insure goods
Export/Import Clearance: Buyer must handle all requirements, pay all associated duties and fees
Note: Should NOT be used when the buyer cannot carry out export requirements directly or indirectly 28

30. Free Carrier (FCA) + (Named Place)
Named Place is generally:
Seller’s Place of Business
Seller responsible for having goods available when promised, packaged to the extent known or agree, loaded onto collecting vehicle
Buyer responsible for pre-carriage, main carriage, on-carriage
Another Location on Seller’s side (i.e., International Airport, Freight Forwarder Warehouse for consolidation, another location agreed by Seller and Buyer)
Seller responsible for having goods available when promised, packaged to the extent known or agree, loaded onto collecting vehicle, pre-carriage
Buyer responsible for unloading pre-carriage delivering vehicle, main carriage, on-carriage 30

31. FCA + (Named Place)
Contract of Carriage: Buyer is responsible to make a contract of Carriage, however if requested or the buyer does not give instruction in due time, the seller may contract for carriage on usual terms at the buyer’s risk and expense.
Risks: passes to buyer at point of delivery
Insurance: Neither party required to insure goods
Export Clearance: Handled by Seller
Import Clearance: Handled by Buyer – responsible for the customs formalities and any duties, fees, other charges due upon importation.
This is the most versatile of the “F” terms. 31

33. Carriage Paid To (CPT) + Named Place (on Buyer’s Side)
Delivery: Seller delivers goods to a carrier or another person nominated by the seller, at an agreed place, for transportation to the named destination on the Buyer's side, appropriately packaged
Carriage: Seller chooses and pays cost of carriage to bring the goods to the named destination (the final location, not the destination port)
Risks: Seller bears all risks and costs incurred until the goods are delivered to the first carrier on the Seller’s side
Export Clearance: handled by Seller
Import clearance: Buyer responsibility for paperwork and all costs
Insurance: Neither party required
Note: Risk of Loss passes on Seller’s side to Buyer BUT Cost is Seller’s responsibility to named location on Buyer’s side 33

35. Carriage and Insurance Paid To (CIP) + Named Place (on Buyer’s Side)
Delivery: Seller delivers goods to a carrier or another person nominated by the seller, at an agreed place, for transportation to the named destination on the Buyer's side, appropriately packaged
Carriage: Seller pays cost of carriage to bring the goods to the named destination (the final location, not the destination port)
Risks: Seller bears all risks and costs incurred until the goods are delivered to the first carrier on the Seller’s side
Export Clearance: handled by Seller
Import clearance: Buyer responsibility for paperwork and all costs
Insurance: Seller required to obtain minimum coverage
Note: Risk of Loss passes on Seller’s side to Buyer BUT Cost is Seller’s responsibility to named location on Buyer’s side 35

37. Delivered at Terminal – DAT + Named Place (Buyer’s side)
Replaced DEQ Term
Delivery: Seller delivers goods to named destination terminal on Buyer’s side, packaged appropriately and unloaded
Carriage:
Seller responsible for pre-carriage and main carriage
Buyer responsible for on-carriage
Risks: Transfer from Seller to Buyer once goods are unloaded on buyer’s side at terminal
Export Clearance: Seller Responsibility
Import Clearance: Buyer Responsibility – documentation and fees associated
Insurance: Neither party required to insure
This Incoterm is generally used by bulk carriers such as grain, oil, etc. 37

38. Delivered at Terminal +Named Place (Buyer’s Side)

39. Delivered at Place (DAP) + Named Place (Buyer’s Side)
Previously contained elements of DDU, DAF, DES terms
Delivery: Seller delivers the goods to the buyer at the named place on the Buyer’s side, appropriately packaged, but not unloaded
Carriage: Seller handles all carriage to named place on buyer’s side
Risks: Transfer from Seller to Buyer once goods are delivered to the named place on buyer’s side
Export Clearance: Seller handles
Import Clearance: Buyer handles and pays associated costs
Insurance: neither party required to insure
History of why the elements of DDU, DAF and DES were changed to DAP:
DAF – over history countries have protected their borders, many have different gauges from neighbor countries, so when it was Delivered at Frontier, goods had to be unloaded from one rail and put onto another gauge rail that was not addressed in Incoterms 2000 DAF terms. Also where was the “Frontier” line? Prior to Customs on the exporting side, at an imaginary line, in the middle of a river on the border, after customs on the importing side? Too many unknowns, so DAF was removed and positive elements were incorporated into DAP
DES – was a marine only term under Incoterms Elements were generally accepted, but needed to have more transportation options other than just marine transport
DDU – The committee and many shippers/buyers liked everything about the term other than the name. With “duty unpaid” in the name it didn’t work well to also use as a domestic term. The EU has become more and more like the US interstate transactions, crossing borders in the EU no longer requires customs duty changes, only when you leave the EU or enter from a non-EU country 39

40. Delivered at Place + Named Place (Buyer’s Side)
DAP
Delivered at Place + Named Place (Buyer’s Side)

41. Delivered Duty Paid (DDP) + Named Place (Buyer’s Side)
Delivery: Seller delivers goods to the Buyer, cleared for import on the arrival transportation, but not unloaded at the final destination
Carriage: Seller handles all carriage to named place on Buyer’s side
Risks: Transfer from Seller to Buyer once goods are delivered to the named place on the Buyer’s side
Export Clearance: Seller Handles
Import Clearance: Seller Handles & pays for any charges associated
Insurance: Neither party required to provide
DDP is the other bookend from EXW.
This term is seductive for buyers, but not a good option for sellers. The seller may not be able to import into the country of destination. Buyers have no control over what the sellers provide in terms of classification, or in the case of the US any exemptions or other importing requirements. If the customs authority of the importing country require redelivery after the goods have cleared for some reason such as marking or problems in the paperwork, the buyer has no recourse to speak to Customs – they were not the importer of record – the seller was. 41

43. DDP Caveats
Should not be used if SELLER CANNOT clear goods in importing country
NOT recommended if Buyer wants control of import documents and declarations to Customs
DDP DOES NOT MEAN Buyer is absolved of all Customs Regulations & Responsibilities 43

44. Water Transport Only Incoterms® 2010

45. Free Alongside Ship (FAS) + Named Place (alongside vessel at port on Seller’s side)
Delivery: Seller delivers goods to Buyer alongside the vessel chosen by Buyer at the named port of shipment, packed appropriately
Carriage:
Seller handles pre-carriage
Buyer handles main carriage and on-carriage
Risks: Pass from Seller to Buyer once goods place alongside the vessel on Seller’s side
Insurance: Neither party required to insure goods
Export Clearance: Seller Handles
Import Clearance: Buyer is responsible for requirement and fees associated 45

47. Free On Board (FOB) + Named Place (loaded on vessel at a port on the Seller’s side)
Delivery: Seller delivers goods to Buyer on board the vessel chosen by the Buyer at the named port of shipment, packaged for shipment
Carriage:
Seller handles pre-carriage
Buyer handles main carriage and on-carriage
Risks: Pass from Seller to Buyer once goods are placed on board the vessel on the Seller’s side
Insurance: Neither party is required to insure goods
Export Clearance: Handled by Seller
Import Clearance: Handled by Buyer
NOTE:
“Ships Rail” is no longer part of Incoterms® If using Marine Terms, Contract or PO must exactly state what “on board the vessel” means for the transaction – where on the vessel is the container, item to be placed 47

49. Cost and Freight (CFR) + Named Place (port on Buyer’s side)
Delivery: Seller delivers goods packaged for shipment on board the Seller-designated vessel at the port on Seller’s side
Carriage:
Seller handles pre-carriage and main carriage
Buyer handles on-carriage following delivery to port on Buyer’s side
Risks: Passes from Seller to Buyer once goods are on board the vessel
Insurance: Neither party required to insure goods
Export Clearance: Handled by Seller
Import clearance: Buyer is responsible for the customs requirements and associated costs (fees, duties, etc.)
Even though risk passes from Seller to Buyer on Seller’s side (once loaded per contract), Seller contracts for and pays freight necessary to bring goods to the named port on the Buyer’s side 49

51. Cost Insurance Freight (CIF) + Named Place (port on Buyer’s side)
Delivery: Seller delivers goods packaged for shipment on board the Seller-designated vessel at the port on Seller’s side
Carriage:
Seller handles pre-carriage and main carriage
Buyer handles on-carriage following delivery to port on Buyer’s side
Risks: Passes from Seller to Buyer once goods are on board the vessel
Insurance: Seller required to procure minimum coverage against Buyer’s risk of loss or damage to the goods during carriage
Export Clearance: Handled by Seller
Import clearance: Buyer is responsible for the customs requirements and associated costs (fees, duties, etc.)
Even though risk passes from Seller to Buyer on Seller’s side (once loaded per contract), Seller contracts for and pays freight necessary to bring goods to the named port on the Buyer’s side
Same as CPT + Insurance coverage 51

53. Price Considerations with Incoterms® 2010
When negotiating a contract, keep in mind the following:
Basic Rule of Thumb: The more responsibility the Seller takes on, the more they must charge the Buyer.
Example: What is the price the Seller should quote for 10 units to be shipped from Hilltown to Seattle?
EXW – No transportation/insurance responsibilities for Seller – Price is strictly for units sold plus packaging costs
FCA – Seller responsible for getting the goods from Johnsburg to Hilltown - $200 is for transportation to get units from factory to carrier’s location in London
CIP – Seller responsible for getting the goods from Johnsburg to Hilltown and pre & main-carriage to Newark Airport. Remember, under CIP the Seller is responsible for transportation to the named place – so if in this scenario the Incoterms® was CIP (Seattle) instead of CIP (Newark Airport) the cost would be more, the Seller needs to pay for transportation to Seattle + minimum insurance coverage. But the Seller’s risk would end when it was delivered to the Carrier in Hilltown (delivery to first carrier)
DAT – Seller delivers to O’Hare Airport TERMINAL and responsible for pre & main carriage to O’Hare, no insurance. Seller’s risk to delivery at O’Hare
DDP – Johnsburg is a non-resident Importer into the US, so they could used DDP, but they would be responsible for all costs, all risks delivery to Seattle.
$10,000 EXW, Johnsburg Factory
$10,200 FCA, Carrier in Hilltown
$10,600 CIP, Newark Airport
$10,800 DAT, O’Hare Airport
$12,000 DDP Seattle 53

54. Importing and Incoterms® 2010
Some charges if included and detailed in commercial invoice need to be deducted from the dutiable value of the shipment
Main carriage
Any foreign inland freight
Insurance
Supply chain security fees
Terminal handling fees
Imports if specific fees are included and specified, the importer must deduct them from the dutiable value 54

55. Incoterms 2010 at a Glance