Guta Mihai Alexandru

Gaspar George Dan

Ghergu Andrei Catalin
T rends

in using

INCOTERMS
 What does INCOTERM stand for ?

‣ Def : The  word  INCOTERM  is  an  abbreviation  for  International          

Commercial  Terms  which  provide  a  common  set  of  rules  used  for  
defining  the  responsibilities  of  sellers  and  buyers  in  the  delivery  of  
goods  under  sales  contracts.  

‣ They  are  widely  used  in  international  commercial  transactions.  

 Are they

important ?
For sure !

but...
 Why is that ?

Because they :

‣ Set  international  rules  for  commonly  used  terms  in  foreign  trade  

‣ Define  obligations  of  both  parties  involved  in  the  transaction  

‣ Determine  the  distribution  &  transfer  of  risks  regarding  the  goods  
delivered  from  seller  to  buyer    

‣ State  the  clear  sharing  of  expenses  between  the  parties  during  transport

So...
 When and where did they appear ?

‣ First  conceived  by  International  Chamber  of  Commerce  (ICC)  in  1921  and  
implemented  starting  from  1936,  since  they  have  been  updated  6  times  in  
order  to  keep  pace  with  the  evolution  of  international  trade.    

‣ In  1923,  a  Trade  Terms  Committee  developed  the  first  6  rules  :  FOB,  FAS,  
FOT,  FOR,  Free  Delivered  CIF  and  C&F,  as  the  precursor  for  what  would  later  
be  known  as  INCOTERM  rules.  
 Revising the INCOTERMS

‣ In  order  to  keep  up  with  the  continuous  evolution  of  commercial  
practices,  types  of  goods  and  transport  and  international  law,  
INCOTERMS  need  to  be  regularly  updated  by  specialised  experts.    

‣ Some  significant  revisions  :    

1980  -­‐    FCA  was  introduced,  for  dealing  with  cases  where  the  reception          
point  was  no  longer  the  ship's  rail,  but  a  point  on  land  where  goods  were  
stored  in  a  container  

followed by...
‣ 1990  -­‐  the  seller  was  permitted  to  provide  the  proof  of  delivery  
electronically  by  EDI-­‐messages  instead  of  paper  documentation    

‣ 2000  -­‐  export  clearance  and  other  formalities  under  FAS  are  placed  on  
the  seller  (previously  buyer)    

                   -­‐  in  FCA,  it  became  the  seller's  obligation  to  load  the  goods  on  the    
buyer's  vehicle  or  the  buyer's  obligation  to  receive  the  seller's  arriving  
vehicle  unloaded  
 Updating INCOTERMS every 10 years -
...is it necessary ?
The  answer  is  Yes  -­‐  because  of  the  rapid  expansion  of  world  trade  and  the  
continuous  changes  in  international  market's  structure,  the  same  rules  cannot  
be  applied  effectively  in  any  circumstances  without  considering  the  new  factors  
and  influences  that  might  occur.    

     The  most  recent  key  drivers  include  :    

‣  a  need  for  improved  cargo  security  

‣ changes  in  the  Uniform  Commercial  Code  in  2004  resulting  in  a  deletion  of  US  
shipment  and  delivery  terms    

‣ new  trends  in  global  transportation  

 INCOTERMS 2010 - latest revision

What is new ?
   Entered  into  force  1st  January  2011,  containing  the  following  amendments:  

‣ reduction  from  13  to  11  terms  by  replacing  4  delivery  terms  :  DEQ,  DAF,  DES,  
DDU  with  2  new  ones  :  DAT(Delivery  at  Terminal)  and  DAP(Delivery  at  Place)    

‣ terms  grouped  in  2  categories,  according  to  the  means  of  transport  used  :    

General all types of transport Special sea & inland

! waterway

!
• EXW
• DAT
• FAS

• FCA
• DAP
• FOB

• CPT
• DDP
• CFR

• CIP
• CIF

 More changes...

‣ transfer  of  risks  'on  board'  in  INCOTERMS    FOB,  CFR,  CIF  while  in  previous  
INCOTERMS  2000,  the  risk  passed  when  the  goods  were  off  'the  ship's  rail'  

‣ goods  in  containers  can  be  delivered  only  using  Incoterms  for  any  mode  of  
transport  but  not  sea  Incoterms    

‣ security  related  information  must  be  provided  by  the  seller  who  has  the  
obligation  to  assist  the  buyer  concerning  the  safety  of  goods,  all  costs  being  
borne,  however  by  the  buyer.  
How INCOTERMS evolved

1936 20 00 201 0
EXW
EXW CIP EXW CIP
FOR
FCA DAF FCA DAP
FAS
FOB FAS DAT
FOB DES
CFR FOB DDP
CFR DEQ
CIF CFR
EXQ CIF DDU
CIF
EXS
CPT DDP CPT

Revising
Beginning Present
I Rules for any mode of transport
 EXW (Ex Works)
Seller Buyer
‣ delivers  goods  at  his  own   ‣ responsible  for  loading  goods  onto  
premises  (factory/warehouse)   carrier  and  all  other  transport  cost,  
duties  and  insurance  
‣ minimal  obligations,  risks  &costs
‣ clearance  of  goods  for  export  
‣ bears  the  whole  risk  on  his  own

     minimal  costs  &  risks  for  exporter  

     lowest  service  offered   loss  of  competitiveness
 FCA (Free Carrier)
Seller Buyer
‣ completes  and  bears  costs  of  export   ‣ import  clearance  formalities  
clearance  and  obtaining  necessary  
documents   ‣ responsible  for  unload  if  delivery  
occurs  in  a  facility  or  transport  
‣ delivers  goods  at  agreed  place  to  
infrastructure
carrier  
‣ liable  for  the  load  if  delivery  is  made  on  
his  premises

 flexible,  various  delivery  points  

 any  type  of  cargo  and  different  payment  methods  
 best  suited  for  goods  transported  in  containers  
 CPT (Carriage Paid To)
Seller Buyer
‣ contracts  and  pays  transport  to   ‣ supports  transport  costs  starting  from  
the  buyer's  country  delivery  place   the  moment  goods  have  reached  the  
place  of  delivery  in  his  country  
‣ completes  formalities  and  bears  
export  customs  clearance  costs   ‣ import  clearance  costs  and  formalities  

‣ risk  of  transport  is  transferred   ‣ supports  the  transport  risk  since  the  
when  the  goods  are  delivered  to   goods  have  been  delivered  to  1st  
the  first  carrier  in  the  seller's   carrier  and  the  insurance  for  
country   international  transport  
 CIP (Carriage and Insurance Paid To)

Seller Buyer
‣ bears  the  same  costs  and   ‣ beneficiary  of  the  insurance  paid  by  
obligations  as  in  case  of  CPT   the  seller  
‣ must  take  into  account  that  the  buyer  
 +    the  obligation  of  hiring  insurance  
is  obliged  only  to  a  minimum  coverage  
to    cover  the  buyer's  risk  during  
insurance  
international  transport  
‣ he  needs  to  agree  with  the  seller  to  
‣ contracts  the  insurance  and  pays  
hire  additional  insurance  if  he  wants  a  
the  premium
larger  coverage
 DAT (Delivery at Terminal)

Seller Buyer
‣ delivers  goods  unloaded  at  a  port   ‣ import  customs  clearance  and  tariffs  
terminal  or  another  place  of   paid  
destination  in  the  buyer's  country  
‣ clearly  mention  the  specific  point  
‣ complete  the  formalities  and  bear   chosen  for  delivery
costs  of  customs  clearance  for  
export    
‣ transport  risk  passes  to  the  buyer  
at  the  time  of  delivery  to  
destination  country  
 DAP (Delivery at Place)
Seller Buyer
‣ delivers  goods  ready  for  unloading  in   ‣ pays  the  costs  of  import  
the  country  of  destination,  in  a  place  
clearance  customs  
other  than  a  transport  terminal,  such  
as  the  buyer's  premises  or  a  place  
nearby  
‣ risk  is  transferred  to  buyer  in  the  same   useful  for  sales  between  countries  
place  where  goods  are  delivered   of  same  economic  area  (EU)  as  
there  are  no  import  customs  
‣ complete  formalities  and  bear  export  
clearance  costs  
 DDP (Delivery Duty Paid)

Seller Buyer
‣ delivers  goods  ready  for  unloading  in   ‣ only  cost  he  assumes  is  the  
the  country  of  destination,  usually  at   unloading  of  goods  at  delivery  
buyer's  premises   place  
‣ all  costs  and  risks  borne  by  seller   ‣ if  the  parties  agree  in  the  contract  
of  sale,  the  VAT  or  other  taxes  can  
‣ customs  clearance  of  export  and  
be  paid  by  the  buyer,  in  what  is  
import  also  covered  by  seller  
known  as  a  variant  of  DDP,  called  
‣ any  import  tax,  including  VAT  are   'DDP  VAT  unpaid'    
paid  by  the  seller  
II Special INCOTERMS for sea transport
 FAS (Free Alongside Ship)
Seller Buyer
‣ delivers  the  goods  placing  them   ‣ responsible  for  loading  the  goods  on  
alongside  the  ship  chosen  by  the   the  ship    
buyer  
‣ must  have  very  good  knowledge  of  
‣ export  clearance  must  be  covered   the  practices  in  the  port  of  shipment  
by  the  seller

 only  used  for  certain  commodities  and  materials  

that  are  not  packed  and  cannot  be  individualised  
(grain,  timber,  minerals,  etc.)  
 delivery  is  done  in  ports  with  specialised  terminals    
 FOB (Free on Board)
Seller Buyer
‣ delivers  goods  by  placing  them  on   ‣ assumes  the  transportation  risk  after  
board  of  the  ship  named  by  the   the  goods  have  been  delivered  on  
buyer   board  of  the  ship  
‣ covers  the  terminal  costs  and  
export  clearance

 oldest  Incoterm  and  one  of  the  most  widely  used  

 preferably  used  with  bulk,  heavy  loads  and  in  case  of  
complex  goods  (machinery)  whose  loading  involves  
certain  risks    
 CFR (Cost and Freight)
Seller Buyer
‣ delivers  the  goods  on  board  of  a  ship   ‣ must  hire  an  insurance  for  transport  
but  he  also  pays  the  cost  of  freight   from  the  port  of  shipment  to  the  
to  the  destination  point   destination,  as  the  seller  is  not  
obliged  to  do  this
‣ covers  terminal  cost  and  export  
clearance  
‣ the  risk  is  transferred  to  the  buyer  
after  the  goods  had  reached  the  
board  of  the  ship

used  mainly  for  large  volumes  of  general  cargo

 CIF (Cost, Insurance and Freight)
Seller Buyer
‣ same  obligations  that  CFR  implies     ‣ he  might  want  to  hire  additional  
insurance,  as  the  seller  is  only  
+  seller  is  obliged  to  hire  insurance  for   obliged  to  purchase  a  minimum  
transport  covering  at  least  the  way   coverage  insurance
from  the  port  of  shipping  to  the  port  
of  destination    
‣ insurance  shall  cover  the  price  of  the  
contract  +  10%

used  for  general  cargo  of  consumer  or  industrial  products  of  high  value    
CIF  value  is  used  in  most  of  the  customs  to  apply  tariffs  and  import  
taxes,  facilitating  the  clearance  of  goods  for  export  
 After so many types of terms...

Here  is  a  simple  diagram  summarising  the  extent  of  costs  &  risks  
covered  by  each  of  the  11  INCOTERMS  that  have  just  been  presented  :  
And a more detailed Bar Chart :
 Using INCOTERMS correctly
by...

Following  the  three  letters  of  the  appropriate  chose  term  with  the  
exact  destination  place  to  which  the  delivery  of  goods  is  to  be  made,  
and  afterwards  the  expression  'Incoterms  2010'  

Such as : FCA Port of New Orleans, USA, Incoterms 2010

Or
CIP Tianjin airport, China, Incoterms 2010

will certainly...
 Benefit all the parties involved
as
INCOTERMS  have  become  an  essential  framework  in  daily  language  of  
trade,  providing  clear  rules  and  guidance  to  importers,  exporters,  lawyers,  

forwarders,  insurers,  carriers            and         mainly everybody

taking part in international trade transactions.

leading to :
 However, if used incorrectly

     Your  contract  may  be  ambiguous,  lacking  some  important  details  or  
even  impossible  to  perform,  causing  lots  of  misunderstandings  and  
prejudices  

which can turn into...

and eventually
cause. . .
Undesirable effects
such as

or

So...
As Eric Ambler stated

' International business may conduct its

operations with scraps of paper, but the
ink it uses is human blood '
thus
in  order  to  practice  commercial  trade  in  a  successful  and  profitable  manner,  
you  need  a  deep  understanding  of  all  factors  involved  as  well  as  a  careful  
fulfilment  of  the  required  procedures  for  defining  and  avoiding  /  minimising  
unnecessary  risks,  obligations  or  costs      

And that is where ...

INCOTERMS have proven their
essentially useful part in daily
language of trade