© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved.

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Terms of Trade or Incoterms Incoterm Definition EXW FCA, FAS, FOB CFR, CIF, CPT, CIP DES, DEQ, DAF, DDU, DDP Electronic Data Interchange Using Incoterms for Strategic Advantage

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Incoterm Definition International Commerce Term 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 First codified by the International Chamber of Commerce in 1953. The latest revision is dated 2000

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Incoterm Definition Incoterm Variant A rare occurrence A modification to one of the Incoterms codified by the International Chamber of Commerce, when it is not clear on a specific point. Variants are generally used to further clarify the responsibilities of the exporter and of the importer in a given transaction. For example, the variant “EXW loaded” clarifies that the exporter agrees to load the goods on the vehicle provided by the importer, when the official Incoterm is silent on that specific point.

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Incoterm Definition Incoterm Strategy It is constrained by the following parameters:  The type of product sold  The method of shipment  The ability of either of the parties to perform the tasks involved in the shipment  The amount of trust placed by either of the parties toward the other For simplification purposes, an exporter often quotes using the same Incoterm in every transaction

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. EX-Works (EXW) Definition and Application Can be used for any merchandise and for any means of transportation. Is the “easiest” of the Incoterms for the exporter Is the most difficult for the importer Should be used with the following syntax: EXW [City where merchandise is to be picked up] For example, EXW Poughkeepsie, New York, USA

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. EX-Works (EXW) Delivery It occurs at the time that the importer (or the importer's agent) picks up the goods at the exporter's plant. This delivery has to take place at a mutually convenient time. Variant The variant “EXW loaded” clarifies that the exporter agrees to load the goods on the vehicle provided by the importer; the official Incoterm is silent on that specific point.

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. EX-Works (EXW) 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

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Free Carrier (FCA) Definition and Application For goods shipped multi-modal or air (not for ocean shipping) Oriented toward containerization Exporter delivers goods to carrier that importer has selected Responsibility shifts from exporter when goods are delivered to carrier’s vehicle, either at exporter’s plant or carrier’s premises This Incoterm should be used with the following syntax: FCA [City where merchandise is delivered to carrier] For example: FCA Castres, France

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Free Carrier (FCA) Delivery The delivery takes place when either of two conditions are met: If the named point in the Incoterm refers to the exporter's plant, then delivery takes place when the goods are loaded, by the exporter and at its expense, onto the carrier's truck. If the named point in the Incoterm refers to the carrier's premises, then delivery takes place when the goods are made available to the carrier. The goods are unloaded from the exporter's truck by the carrier and at the carrier's expense.

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Free Carrier (FCA) 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  Clears the merchandise for export  Has to 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

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Free Alongside Ship (FAS) Definition and Application The FAS Incoterm can be used for any merchandise It is specifically designed for ocean transportation This Incoterm should be used with the following syntax: FAS [Port of Departure] For example: FAS Santos, Brazil

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Free Alongside Ship (FAS) Delivery The delivery officially takes place when the exporter has delivered the goods “alongside” a ship designated by the importer. Today, the merchandise is rarely kept “alongside” a ship, or on the quay waiting for a ship; it is generally in a warehouse or in a container yard, waiting for the stevedore to come and load it onto the ship.

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Free Alongside Ship (FAS) 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  Clears the goods for export  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

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Free on Board (FOB) Definition and Applicability FOB Incoterm can be used for any merchandise It is specifically designed for ocean transportation This Incoterm should be used with the following syntax: FOB [Port of Departure] For example: FOB Cape Town, South Africa

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Free on Board (FOB) Delivery The delivery takes place when the merchandise crosses the ship’s rail The ship’s rail is an imaginary rail that circles the entire hull of a ship. Should a cargo item fall from the crane onto the ship while it is being loaded, the determination of whose responsibility it is hinges on which side of the ship’s rail it falls on:  If the cargo falls on the outside of the ship’s rail, it is the exporter’s responsibility  if it falls on the inside, it is the importer’s

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Free on Board (FOB) 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  Clears the goods for export  Has the obligation to 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

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Cost and Freight (CFR) Definition and Application CFR Incoterm can be used for any merchandise It is specifically designed for ocean transportation The exporter pays for ocean transportation This Incoterm should be used with the following syntax: CFR [Port of Destination] For example: CFR Lagos, Nigeria

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Cost and Freight (CFR) Delivery The delivery takes place when the merchandise crosses the ship’s rail, the same as under an FOB shipment

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Cost and Freight (CFR) 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  Clears the goods for export  Has the obligation to provide whatever documents and 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

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Cost, Insurance, and Freight (CIF) Definition and Application CIF Incoterm can be used for any merchandise It is specifically designed for ocean transportation The exporter has the additional responsibility to pre-pay for Marine Cargo Insurance until the port of destination. The insurance cover is 110% of the value of the goods, and is “minimum coverage”. This Incoterm should be used with the following syntax: CIF [Port of Destination] For example: CIF Kobe, Japan Some countries restrict the possibility of CIF and CIP usage

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Cost, Insurance, and Freight (CIF) Delivery The delivery takes place when the merchandise crosses the ship’s rail, the same as under an FOB shipment and a CFR shipment Variant The variant “CIF unloaded” clarifies that the exporter agrees to pay to have the goods unloaded in the port of destination. The variant “CIF full cover” clarifies that the exporter agrees to provide full insurance coverage on the shipment

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Cost, Insurance, and Freight (CIF) 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.

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Carriage Paid To (CPT) Definition and Application CPT Incoterm can be used for any merchandise CPT is conceptually similar to CFR: 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) This Incoterm should be used with the following syntax: CPT [City of Delivery] For example: CPT Köln, Germany The delivery does not take place in the city of destination, but in the city where the exporter delivers the goods to the carrier

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Carriage Paid To (CPT) Delivery Delivery takes place when two conditions are met: The exporter hands over the goods to the carrier in the exporting country The exporter is given a bill of lading or equivalent document

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Carriage Paid To (CPT) 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

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Carriage and Insurance Paid To (CIP) Definition and Application The CIP Incoterm can be used for any merchandise CIP is conceptually 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) The amount insured must be at least 110 percent of the value of the goods This Incoterm should be used with the following syntax: CIP [City of Delivery] For example: CIP Sofia, Bulgaria The delivery does not take place in the city of destination, but in the city where the exporter delivers the goods to the carrier

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Carriage and Insurance Paid To (CIP) Delivery Delivery takes place when: The exporter hands over the goods to the carrier in the exporting country The exporter is given a bill of lading or equivalent document Variant The variant “CIP unloaded” clarifies that the exporter agrees to pay to have the goods unloaded in the port of destination. The variant “CIP full cover” clarifies that the exporter agrees to provide full insurance coverage on the shipment

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Carriage and Insurance Paid To (CIP) 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.

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Delivered Ex-Ship (DES) Definition and Application DES Incoterm can be used for any merchandise, but is mostly used for bulk shipments of commodities It is specifically designed for ocean transportation The exporter pays for ocean transportation, but the importer pay for the unloading of the ship This Incoterm should be used with the following syntax DES [Port of Delivery] For example DES Istanbul, Turkey

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Delivered Ex-Ship (DES) Delivery The delivery takes place in the port of destination, once the ship has reached port and makes the merchandise available to the importer. Exporter's and Importer's Responsibilities The exporter pays for ocean shipment The exporter does not make arrangements (nor pay for) unloading the ship, but the importer does

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Delivered Ex-Quay (DEQ) Definition and Application DES Incoterm can be used for any merchandise, but is mostly used for bulk shipments of commodities It is specifically designed for ocean transportation The exporter pays for ocean transportation and for the unloading of the ship This Incoterm should be used with the following syntax DEQ [Port of Delivery] For example DEQ Santiago, Chile The only difference between the DES and DEQ Incoterms is that the unloading costs are borne by the exporter in the DEQ transaction

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Delivered Ex-Quay (DEQ) Delivery The delivery for a DEQ shipment takes place when the goods are unloaded and placed at the disposal of the importer Exporter's and Importer's Responsibilities The exporter pays for ocean shipment The exporter makes arrangements, and pays for, unloading the ship

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Delivered at Frontier (DAF) Definition and Application For any merchandise, but specifically refers to land transportation Transfer of responsibility from exporter to importer is at the point (city) named in Incoterm Usually, the goods remain on vehicle to final destination This Incoterm should be used with the following syntax: DAF [Border City or Border Crossing Point] For example: DAF Nogales, Arizona, USA

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Delivered at Frontier (DAF) Delivery The delivery takes place when the merchandise, still on the truck or the railroad car, is placed at the disposal of the importer at the border city Exporter's and Importer's 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

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Delivered Duty Unpaid (DDU) Definition and Application The DDU Incoterm can be used for any merchandise, and can be used for any means of transportation The DDU Incoterm is meant to be used when the exporter is willing to perform most of the tasks involved in a shipment, up to the city named in the Incoterm, with the exclusion of Customs clearance and duty payment. This Incoterm should be used with the following syntax: DDU [City of Delivery] For example: DDU Xi'An, China

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Delivered Duty Unpaid (DDU) 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 under DDU Exporter Arranges and pays for all shipping issues until the goods are delivered to the importer Does not clear Customs in the importing country Importer Clears Customs and pays duty

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Delivered Duty Paid (DDP) Definition and Application The DDP Incoterm can be used for any merchandise and for any means of transportation. The DDP Incoterm is the ultimate in customer service on the part of the exporter; it is 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. This Incoterm should be used with the following syntax: DDP [City of Delivery] For example: DDP Karlsruhe, Germany

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Delivered Duty Paid (DDP) 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 The exporter assumes all responsibilities in a DDP shipment The importer only has the responsibility to receive the goods at delivery and unload them

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Incoterm Definition Table 6-1 Incoterms Summary TaskEXWFCAFASFOBCFRCIFCPTCIPDESDEQDAFDDUDDP Export PackingXXXXXXXXXXXXX Inland FreightIXXXXXXXXXXX Export ClearanceIXXXXXXXXXXXX Arrange CarrierIIIIXXXXXXXXX Load onto CarrierIIIXXXXXXXXXX Pay CarrierIIIIXXXXXXXXX Unload CarrierIIIIIIIXIXX Pay InsuranceXXXX Import ClearanceIIIIIIIIIIIIX Pay DutyIIIIIIIIIIIIX Pay Inland FreightIIIIIIIIIIIX

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Incoterm Definition Table 6-1 Incoterms Summary Mode of TransportEXWFCAFASFOBCFRCIFCPTCIPDESDE Q DAFDDUDDP Break-Bulk Ocean CargoYESNOYES NO YES NOYES Bulk Ocean CargoYESNOYES NO YES NOYES Roll-On/Roll-OffYES NO YES NO YES Multi-modal (FCL)YES NO YES NO YES Multi-modal (LCL)YES NO YES NO YES RailYES NO YES NO YES RoadYES NO YES NO YES AirYES NO YES NO YES

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Electronic Data Interchange Electronic Data Interchange is the electronic delivery of commercial and shipping documents EDI usage is still fairly new and limited to developed countries There is no universal standard for EDI, which has slowed the adoption of this technique

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Avoid Errors in Incoterm Usage 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 Improper Use of Correct Incoterm such as FOB used with an air shipment Use of inexistent Incoterms such as “Free Domicile”

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved. Incoterms as a Marketing Tool 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

© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved.

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© 2007 Thomson, a part of the Thomson Corporation. Thomson, the Star logo, and Atomic Dog are trademarks used herein under license. All rights reserved.

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