chapter 2. incoterms

INTERNATIONAL COMMERCIAL TERMS

1. Overview on International Commercial Terms

1.1. Concept

Incoterms are rules for interpretation of trade terms

which clarify the distribution of functions, costs and

risks relating to the transfer of goods from the seller to

the buyer.

1.2. Evolution of Incoterms rules

1936, 1953, 1967, 1976, 1980, 1990, 2000, 2010

To reflect trade practice more precisely

GV Nguyn Th Minh H 1


1.3. Content of Incoterms rules

Sellers obligations Buyers obligations

A1: General obligations B1: General obligations

B2: Formalities B2: Formalities

A3: Carriage & insurance B3: Carriage & insurance

A4: Delivery B4: Taking delivery

A10: Assistance B10: Assistance GV Nguyn Th Minh H 2


1.4. Notes on using Incoterms

- Applied in purchase and sale of tangible goods;

- Non-compulsory trade practice;

- Need to be referred to in sale contracts;

- Revision (year of publication) must be stated;

- Selection of appropriate terms dependent upon

certain circumstances;

- Modification of terms is not encouraged;



- Incoterms rules do not deal with:

+ Transfer of property rights in the goods;

+ Relief from obligations and exemption from liability in case of unexpected events;

+ Consequences if various breaches of contracts;

- Transport terms (FI, FO, FIO, FIOST,) should not be incorporated;

Incoterms rules only interpret of terms of delivery, not other terms of the sales contract.



2. Incoterms 2000 and Incoterms 2010

2.1. Incoterms 2000

- Number of terms: 13

- Classification based on first letters of terms:

+ Group E: 1 + Group F: 3

+ Group C: 4 + Group D: 5

- Classification based on modes of transport:

+ Maritime transport: FAS, FOB, CFR, CIF, DES, DEQ;

+ Any mode or modes of transport: EXW, FCA, CPT, CIP, DAF, DDU, DDP.



GROUP TERM COMPLETE NAME

GROUP E EXW Ex Works

DEPARTURE

GROUP F FCA Free Carrier

MAIN CARRIAGE FAS Free Alongside Ship

UNPAID FOB Free on Board

GROUP C CFR Cost and Freight

MAIN CARRIAGE CIF Cost, Insurance and Freight

PAID CPT Carriage paid to CIP Carriage and Insurance paid to

GROUP D DAF Delivered at frontier

ARRIVAL DES Delivered ex ship

DEQ Delivered ex Quay

DDU Delivered Duty unpaid

DDP Delivered Duty paid



INCREASED OBLIGATIONS OF THE SELLER

E F C D

DECREASED OBLIGATIONS OF THE BUYER



2.2. Incoterms 2010

- Entered into force since Jan 1st, 2011

- Number of rules: 11

- Classification based on modes of transport

+ Any mode or modes of transport: EXW, FCA, CPT,

CIP, DAT, DAP, DDP;

+ Maritime transport: FAS, FOB, CFR, CIF.

Rules for maritime transport are placed behind?



Changes in Incoterms 2010:

- Rules for domestic and international trade terms;

- Ships rail replaced by on board;

- Number of rules, new rules and classification;

- Security-related obligations;

- String sales

- Contract of carriage in FOB, FAS

- Transport documents in CIP, CPT

- EDI



3. Incoterms 2010 rules

3.1. EXW Ex Works

EXW + named place of delivery + Incoterms 2010

E.g.: EXW 10, Downing Street, London, United Kingdom,

Incoterms 2010

- The seller fulfils his obligation by placing the goods

unloaded at the disposal of the buyer at the sellers premises or another named place.

- Sellers minimum obligations.



Sellers obligations:

- Provide goods and commercial invoice in conformity with the contract of sale;

- Free from loading, carriage and insurance, customs formalities;

Buyers obligations:

- Take delivery since the goods are placed at his disposal at the sellers premises;

- Carry out necessary import & export formalities (where applicable).



Note:

- Applied for all modes of transport;

- Appropriate for domestic transactions;

- Buyer should use EXW rule if:

+ He is able to perform export customs formalities;

+ He has representatives in the sellers country;

- The seller is often not considered exporter;

- Premature transfer of risk;

- Seller and buyer are free from carriage obligation.



3.2. FCA Free Carrier

FCA + named place of delivery + Incoterms 2010

E.g.: FCA Noibai Airport, Vietnam, Incoterms 2010

- The seller fulfils his obligations by delivering the goods to

the carrier or another person nominated by the buyer at the

seller promises or another named place;

- Who is the carrier? What if the seller nominates more than

one carrier?

- When delivery is considered to be completed?




- Clear the goods for export (where applicable) and

assumes any risk or expense involved;

- Deliver the goods to the carrier/another person

nominated by the buyer;

- Provides the buyer with usual proof of delivery;

- No obligation to the buyer to make a contract of

carriage/insurance;

- Contract for carriage at buyers risk and expense?



Buyers obligations:

- Clear the goods for import (where applicable);

- Contract at his own expense for the carriage of goods from

the named place of delivery;

- Notify the seller of the carrier/selected time/mode of

transport/point of taking delivery;

- Bear all risks of loss of or damage to the goods from the

time of delivery;

The buyer fail to perform his obligations in B7?



Note:

- Used irrespective of mode of transport;

- Especially suitable for container transport;

- FCA should be used instead of FAS or FOB if the seller does not intend to deliver the goods alongside the ship or on board;

- Usual proof of delivery;

- Deliver to the first carrier;




3.3. FAS Free Alongside Ship

FAS + named port of delivery + Incoterms 2010

E.g.: FAS Haiphong Port, Vietnam, Incoterms 2010

- The seller fulfils his obligations by placing the goods alongside the ship nominated by the buyer at the named port of shipment or by procuring the goods so delivered.

- Who has to contract for carriage?

- How to place the goods alongside ship?




- Carry out all customs formalities necessary for the export of the goods (where applicable);

- Deliver the goods by:

+ Placing them alongside the named vessel in the port of shipment either on the quay or in lighters;

+ Procuring them delivered alongside ship by the 1st seller;

- Provides the buyer with usual proof of delivery;

- Carriage and insurance: no obligation;

- Contract for carriage at the buyers risk and expense?



Buyers obligations:

- Contract for carriage of the goods from the named port

of shipment at his own expense;

- Take delivery and bear all risks from the time of delivery;

- Give the seller sufficient notice of vessel name, loading

point and delivery time (if necessary);

- Carry out import formalities (where applicable);

If the buyer fails to fulfill his obligations in B7?



Note:

- Sea and inland waterway transport;

- FAS seller may charter a vessel;

- Three important shipment notices;

- Distribution of lighterage cost;

- Not suitable for containerized goods (should use FCA

instead of FAS);

- Usual proof of delivery;




3.4. FOB Free On Board

FOB + named port of delivery + Incoterms 2010

E.g.: FOB Haiphong Port, Vietnam, Incoterms 2010

- The seller delivers the goods by placing the goods on board the vessel nominated by the buyer at the named port of shipment or procured the goods already so delivered;

- Obligations of the seller and the buyer are similar to those in FAS;

- FOB Incoterms 2000 vs. Incoterms 2010?



Difference between FOB and FAS:

- Delivery point;

- Allocation of cost and risks related to delivery:

+ Risks of loading: Seller;

+ Costs of loading: liner charter/voyage charter; custom of

the loading port;

- Proof of delivery: received for shipment/on board;

- Popularity of FOB.



Ships rail is removed from FOB, Incoterms 2010:

- For centuries considered as an imaginary border between

the seller and the buyer ;

- Impracticable division of parties functions, costs and risks while the goods are swinging across ships rail;

- Development of transport infrastructure;

- Compatibility with proof of delivery;

- Requirements of a more clearly defined FOB price.

Replaced by on board to reflect trade practice.



Note:

- Diversity of FOB terms;

- Three important times of delivery notice;

- Usage of transport terms: FI, FO, FIO;

- Parties extension of liabilities by adding FOB stowed, FOB trimmed;

- Custom of loading port;

- Proof of delivery;

- Not suitable for containerized goods (FOB => FCA);

- Premature transfer of risks.



FOB 2000 vs. FOB 2010:

- Ships rail is replaced by on board

- Charter a vessel at the buyers risk and expense;

FCA should be used instead of FAS and FOB when goods are not carried by sea:

- FCA is designed for all modes of transport;

- Seller delivers the goods earlier, at lower risks & costs;

- Seller may receive payment earlier;

- Avoid banks rejection of delivery documents.



3.5. CPT (Carriage paid to)

- CPT + named place of destination + ICT 2010;

E.g.: CPT Noibai Airport, Vietnam, Incoterms 2010;

- The seller fulfils his obligations by delivering the goods to the carrier or another person nominated by the seller at a place agreed between the parties;

- Noibai Airport is the point of delivery?

- Who is responsible for carriage of goods?

- Two critical points?



Sellers obligations: - Clear the goods for export;

- Contract for carriage of the goods from the agreed point of delivery;

- Pay the freight and unloading charges at the place of destination for the seller account under the carriage contract;

- Provide the buyer with usual transport documents;

- Deliver the goods the carrier nominated by the seller and notice the buyer of such delivery.



Buyers obligations:

- Take delivery, bear all risks of loss of or damage to the goods from the time they have been delivered;

- Notice the seller of time/place of delivery and bear all arising costs and risks if fail to perform B7;

- Pay all additional charges relating to the goods in transit or unloading costs, unless such costs are for the sellers account under contract of carriage;

- Clear the goods for import;



Note:

- All modes of transport;

- Single delivery notice;

- Costs arising before and after point of delivery;

- If the two parties do not intend to deliver the goods on board, CPT should be used instead of CFR;

- The buyer should contract for insurance;

- Contract for carriage and transport documents;

- Premature transfer of risks.



3.6. CIP (Carriage and Insurance paid to) - CIP + named place of destination + ICT 2010; E.g.: CIP Chua Ve CFS, Haiphong port, Vietnam,

Incoterms 2010;

- The seller fulfils his obligations by delivering the insured goods to the carrier or another person nominated by the seller at a place agreed between the parties;

- Parties obligations are similar to those in CPT; - Contract for insurance vs. bear risks?



3.7. CFR (Cost and Freight)

- CFR + named port of destination + ICT 2010;

E.g.: CFR Danang Port, Vietnam, Incoterms 2010;

- The seller fulfils his obligations by placing the goods on board the vessel nominated by the seller at the agreed port of loading or by procuring the goods already so delivered;

- Parties main obligations are similar to CPT;

- CFR and CPT;

- CFR Incoterms 20000 and CFR Incoterms 2010;



Note:

- Unloading port custom;

- Single delivery notice;

- Cost arising before and after delivery;

- CPT used instead of CFR;

- The buyer should contract for insurance;

- CNF, C&F, C + F: not recommended;

- Premature transfer of risks;

- Ocean Bill of lading.



3.8. CIF (Cost, Insurance and Freight)

- CIF + named port of destination + ICT 2010; E.g.: CIF Haiphong port, Vietnam, Incoterms 2010;

- The seller fulfils his obligations by placing the insured goods on board the vessel nominated by the seller at the agreed port of loading or by procuring the goods already so delivered;

- Parties main obligations are similar to those in CIP; - CIF vs. CFR; CIF vs. CIP;

- CIF Incoterms 2000 vs. CIF Incoterms 2010;

- Contract for insurance vs. bear risks?



Contract for carriage:

- Made on usual terms;

- Usual route;

- Customary manner;

- Vessel of type normally used for the transport of the type of goods sold.

Transport documents:

- Dated within the period agreed for shipment;

- Enable the to claim the goods from the carrier;

- Enable the buyer to sell the goods in transit.



Contract for insurance:

- Minimum cover as provided by the Institute Cargo Clauses (Clause C);

- Insurance company of good repute;

- Insurance value: 110% CIP or CIF;

- Insurance cover the goods from the point of delivery to at least the named place/port of destination;

- Provide the buyer with negotiable insurance policy or other evidence;

- Additional insurance at buyers request, risk, and expense.



3.9. DAT (Delivered At Terminal)

- DAT + named terminal at port/place of destination + Incoterms 2010;

E.g.: DAT Chua Ve CFS, Haiphong Port, Vietnam, Incoterms 2010;

- The seller fulfils his obligations by placing the goods unloaded from the arriving means of transport at the disposal of the buyer at a named terminal at the named port/place of destination;

- What is a terminal?




- Clear the goods for export;

- Contract for the carriage of goods to the named terminal at place/port of destination;

- Unload the goods from arriving means of transport;

- Notice the buyer to enable the buyer to take necessary measures to take delivery of goods;

- Provide the buyer with documents enabling the buyer to take delivery of goods.

Contract for insurance?



Buyers obligations:

- Clear the goods for import. What if the buyer fails to

perform customs clearance?

- Take delivery, bear all risks of loss of or damage to the

goods from the point of delivery. What if the goods

continue to be transported after the point of delivery?

- Notice of time/place of delivery (if entitled). What if the

buyer fail to perform his obligations in B7?



3.10. DAP (Delivered At Place)

- DAP + named place of destination + Incoterms 2010;

E.g.: DAP 91 Chua Lang Street, Hanoi, Vietnam, Incoterms 2010;

- The seller fulfils his obligations by placing the goods on the arriving means of transport ready for unloading at the disposal of the buyer at the named place of destination;

- Parties main obligations are similar to DAT;

- Place vs. terminal.



DAT vs. DAP:

- Place of delivery;

- Unloading obligation;

- DAP suitable for on-carriage of goods after a named place of delivery;

- DAP suitable for a delivery within the import countrys territory;

- DAP: DES, DAF, DDU (Incoterms 2010);

- DAT: DEQ (Incoterms 2010);

CIP price vs. DAP/DAT price?



3.11. DDP (Delivered Duty Paid)

- DDP + named place of destination + ICT 2010;

E.g.: DDP 91 Chua Lang street, Hanoi, Vietnam, Incoterms 2010;

- The seller fulfils his obligations by placing the goods cleared for import on the arriving means of transport ready for unloading at the buyers disposal at the named place of destination.

- Parties main obligations are similar to DAP;

- Unloading costs and risks?



Note:

- Buyers minimum obligations; - DDP not recommended if the seller cannot obtain import

clearance ;

- Buyers responsible for unloading (different from EXW seller not responsible for loading);

- Seller has to pay VAT or other import taxes unless expressly agreed otherwise in the sales contract;

- Seller pay the costs of PSI mandated by the authority of the country export/import.

- Customs valuation for goods sold under DDP price.



Select the appropriate Incoterms rules:

- Mode of transport;

- Place of delivery;

- Allocation of costs and risks;

- Competition rate;

- Ability to contract for carriage and insurance and perform customs clearance;

- Political and social situation;

- Import/export countrys regulations.


chapter 2. incoterms

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