Ch. 6 Incoterm Rules

Incoterms rules 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. - On the other hand, an experienced importer may be intent on performing all or most of the tasks involved in the shipment. - Most exporters would gain by flexible, offering a quote where list several possible incoterms: - And the importer decide which incoterm rule it would rather use

Cost and Freight (CFR)

- CFR is for goods shipped by ocean transportation. The exporter arranges the international transportation of the goods and pays to have them shipped to a port of destination specified by the importer. - Scope: CFR can be used for any types of goods - Modality: CFR can be used for ocean transportation - Syntax: CFR (Port of destination), Incoterms 2010. - Exporter: Packages the goods for the international voyage, provides the the documents necessary to clear customs. Clears the goods for export and delivers the goods to the port of destination - Importer: Everything else - Transfer Point: when the gods are on board the ship in the port of departure.

Carriage and Insurance Paid to (CIP)

- CIP applies to goods shipped on a muulti-modal bill of lading that may include acean transportation. The exporter delivers the goods to a carrier in the expanding country. - Scope: CIP can be used for any types of goods - Modality: CIP can be used for all modes of transportation - Syntax: CIP (address in the city of destination), Incoterms 2010. - Exporter: packaging the goods for international voyage. And provides the importer with the documents necessary to clear customs in the importing country. Clears the goods for export, and arranges and pays to transport the goods to the city of destination. Pays for international insurance (always 110% value) - Importer: Everything else - Transfer Point: when the goods are delivered to the first carrier for transportation to the names place of destination.

Cost, Insurance, and Freight (CIF)

- COF applies to goods shipped by ocean transportation. The exporter arranges and pays for the international ocean transportation of the goods, as well as for international insurance. - Scope: CIF can be used for any types of goods - Modality: CIF can be used for ocean transportation - Syntax: CIF (Port of destination), Incoterms 2010. - Exporter: Packages the goods for the international voyage, provides the the documents necessary to clear customs. Clears the goods for export. Delivers the goods to the port of destination, and pays for international insurance (always 100% value) - Importer: Everything else - Transfer Point: when the goods on board the ship in the pot of departure.

Carriage paid to (CPT)

- CPT applies to goods shipped on a multi-modal bill of lading that may include ocean transportation. The exporter delivers the goods to a carrier in the exporting country. - Scope: CPT can be used for any type of goods - Modality: CPT can be used for all modes of transportation. - Syntax: CPT (address in the city of destination), Incoterm 2010. - CPT, delivery takes place when goods are loaded in the first means of conveyance. - Exporter: packaging the goods for international voyage. And provides the importer with the documents necessary to clear customs in the importing country. Clears the goods for export and arranges and pays to transport the goods to the city of destination. - Importer: Everything else - Transfer point: When the goods are delivered to the first charrier for transportation to the named place of destination.

Understanding Incoterms Rules:

- Choosing the correct incoterms rule depends on which export strategy a company is following. Factors: - The type of product being sold (weight, volume, perishability, value, sensitivity to temperature changes, and so on). - The ability and willingness of either of the exporter and importer to perform the tasks involved. - The amount of trust placed by either of the parties toward the other.

Delivered at Place (DAP)

- DAP, an incoterms rule created in 2010, applies to all goods shipped by any means of transportation. It was designed to reflect practices in international cargo. - Scope: DAP can be used for any types of goods - Modality: DAP can be used for all modes of transportation - Syntax: DAP (address of delivery point in the city of destination), Incoterms 2010. - Exporter: provides the the documents necessary to clear customs in the importing country. Clears the goods for export and arranges and pays to transport the goods to the point of destination but, does not get pay for unloading. - Importer: Everything else - Transfer Point: when the goods are delivered to the point of destination, still loaded on the truck.

Incoterm 2010 rules - Changed on Jan. 1st2011. Two new Incoterms rules were created.

- DAT Delivered at terminal. - DAP Delivered at Place. - Four were eliminated - DDU Delivered Duty Unpaid - DES Delivered Ex- ship - DEQ Delivered Ex-Quay - DAF Delivered at Frontier

DAT Change with Incoterms 2010

- DAT incoterm rule was introduced for incoterm 2010 - It is designed to reflect the practice that cargo (and particularly containerized cargo) often transits through a terminal in the importing country, either in the port of destination or inland, by an airport or other road terminal. Some countries call these "dry terminals". - The goods are delivered to the importer, who is then responsible to clear them through customs, and for on-carriage in the importing country. - DAT Incoterm rule replaces the former DES, DEQ, and DAF Incoterm rules, that have been eliminated. - Under DAT, delivery takes place when goods are unladed in the terminal.

Ex-Workers Change with incoterms 2010

- The ICC would prefer that EXW be used only for small packages that are shipped with carriers that traditionally pick up the goods from the seller (UPS< FEDEX, DHL). - For larger goods, the ICC would prefer the exporter and importer agree to ship the goods under FCA (free Carrier) Exporter's Premises. - The variant "EXW loaded" should be replaced with FCA Exporter's Premises

Delivered At Terminal (DAT)

- DAT, an Incoterms rule created in 2010, applies to all goods shipped by any means of transportation. It was designed to reflect practices in international cargo. - Scope: DAT can be used for any types of goods - Modality: DAT can be used for all modes of transportation - Syntax: DAT (address of terminal in the port/ or city of destination), Incoterms 2010. - Exporter: provides the the documents necessary to clear customs in the importing country. Clears the goods for export and arranges and pays to transport the goods to the terminal of destination and unload them. - Importer: Everything else - Transfer Point: when the goods are delivered to the terminal of destination and unloaded.

Common errors

- Domestic terms as international terms of trade - An inexperienced exporter will use FOB factory rather than the correct corresponding FCA incoterm rule -confusion with older versions

Any Mode

- Ex-Workers (EXW) - Free Carrier (FCA) - Carriage Paid To (CPT) - Carriage and Insurance Paid to (CIP) - Delivered at Terminal (DAT) - Delivered at Place (DAP) - Delivered Duty Paid (DDP)

Free alongside Ship (FAS):

- FAS was created for goods shipped by ocean transportation. The exporter/seller delivers the goods to a part of departure specified by the importer. - Scope: FAS can be used for any types of goods - Modality: FAS can be used for ocean transportation - Syntax: FAS(address in the Port of departure), Incoterms 2010. - Exporter: Packages the goods for the international voyage, provides the the documents necessary to clear customs. Clears the goods for export and delivers the goods to the port of departure - Importer: Everything else - Transfer Point: when the exporter delivers the goods to the carrier.

Free On Board (FOB)

- FOB was created for goods shipped by ocean transportation. The exporter/seller delivers the goods on board a ship specified by the importer. - Scope: FOB can be used for any types of goods - Modality: FOB can be used for ocean transportation - Syntax: FOB (Port of departure), Incoterms 2010. - Exporter: Packages the goods for the international voyage, provides the the documents necessary to clear customs. Clears the goods for export, Delivers the goods to the port of departure and pays to have them loaded on board. - Importer: Everything else - Transfer Point: when the exporter goods are "on board" the ship

Electronic Data interchange

- For a number of incoterms rules, there is no transport document that is issued at the importer (Ex: BOL). - Electronic data interchange has attempted to solve this problem. - Whenever there is no transport document possible, the exporter can still send an EDI "notice" to the importer, which acts as a proof of delivery for both parties. The exporter has a record of the notification sent, and the importer knows unambiguously when the goods were delivered to the quay or when they arrived In port.

International commercial terms

- For each international sale, it is important to determine, who the exporter or the importer is responsible for: a. Domestic transportation in the exporting country: Ohio to France, from Ohio to a port, loading goods, international itself, once gets to port in France, unloading it, and clearing through customs, then transportation to the customer. b. International transportation c. Domestic transportation in the importing country d. The risks involved in international transportation. e. Customs clearance in the importing country

Ocean Only

- Free Alongside Ship (FAS) - Free On Board (FOB) - Cost and Freight (CFR) - Cost, Insurance and Freight (CIF)

Improper Incoterm rules

- Incoterms are sometimes specific to certain modes of transportation and types of cargo, and cannot be used only with an ocean shipment term. - The correct incoterms rule to use for an air shipment should be FCA, to clearly outline the responsibilities of the exporter and of the importer.

Not specify the incoterms rules

- Incoterms rules have changed from 2000 to 2010. Until the 2010 rules are solidly established, it would be advisable to always specify "Incoterms 2010". - Since the FOB point of delivery changed from Incoterms 2000 to Incoterms 2010, some possible problems may develop should cargo be damaged during the loading of a ship.

DAP Change with Incoterms 2010

- Introduced for incoterms 2010 - It is designed to reflect the practice that the exporter can arrange to have cargo delivered to a city of destination in the importing country, but that it is more difficult for the exporter to clear customs on behalf of the importer in the importing country. - The goods are delivered to the importer who is only responsible to clear them through customs, and for eventual on-carriage. - The DAP incoterms rule is similar to the former DDU Incoterms rule, which had been abandoned - DAP incoterms rule is conceptually similar to the FOB destination of the Uniform Commercial Code of the US.

After 2020 Common Errors

- Same as 2010 also, - Not specify the incoterms ® rule version Incoterm rule have changed from 2000 to 2010, and 2020. Until the 2020 rules are solidly established, it would be advisable to always specify "incoterms 2020". - Since the FOB point of delivery changed from 2000-2010 (therefore 2020), some possible problems may develop should cargo be damaged during the loading of a ship if the versions (2020) is not specified.

After 2020 DPU

- Scope: DPU can be used for any type of product, but it is designed for containerized cargo. - Modality: DPU can be used for any mode of transportation. - Syntax: DPU [Address in the City of Destination where goods are delivered], Incoterms ® 2020. - DPU rule was created in 2020. It replaces (DAT) that had been created in 2010. - The DPU rule is meant to be used for containerized cargo delivered to a port, and to replace the maritime cargo terms (FCA, FOB, CFR, CIF), which the ICC wants to reserve for non-containerized cargo. - Under the DPU Incoterms® rule, the exporter and the importer can agree on a terminal that is located in the exporting country, or one located in the importing country, or yet one located in a country through which the goods will transit - Responsibilities of the Exporter: The exporter must package the goods for the international voyage, provide the importer with the documents necessary to clear Customs in the importing country, as well as arrange and pay for transportation to the terminal at which the goods are to be delivered. - Responsibilities of the Importer: Everything else. - Point at which the responsibility for the good shifts from exporter to importer. - When the exporter delivers the goods, unloaded from the mode of transportation, to the terminal - DPU delivery takes place when goods are unloaded in the terminal or location.

Free Carrier Change with Incoterms 2010

- The LCC would prefer that exporter and importer agree to ship the goods under FCA rather than EXW . The diff btw the two is that the exporter is responsible to clear rhe goods for exporter under FCA - The way the responsibility of the exporter is defined in terms of packaging doesn't include stowing, a distinction that is clearly made, but difficult to implement. - The FCA exporter premises- incoterms rule is conceptually very similar to the FOB factory of the Uniform commercial code of the US. It would then be FCA seller's premises

FAS Change with Incoterms 2010

- The international chamber of commerce would like international logisticians to restrict the usage of the FAS Incoterms rule to non-containerized cargo, and to use the FCA for containerized cargo. - The preference reflects the practice that containerized cargo is rarely, if ever, delivered to a point "alongside the ship", but is almost always delivered to a terminal in the port. - Under FAS, delivery takes place when goods arrive alongside the ship in the port departure.

CFR Change with Incoterms 2010

- The transfer point for CFR incoterm rule has also changed to "on board" the ship. - The international Chamber of Commerce would like international logisticians to restrict the usage of the CFR incoterms rule to non-containerized cargo. - Under CFR, delivery takes place when goods are placed onboard the ship.

CIF Change with Incoterms 2010

- The transfer point for the CIF incoterms rule has also changed to "on board" the ship. - The international Chamber of commerce would like international logisticians to restrict the usage of the CIF incoterm rule to non-containerized cargo. - The insurance coverage is still the "min. cover" as defined by the coverage C of the institute Marine Cargo Clauses

FOB Change with Incoterms 2010

- The transfer point for the FOB incoterms rule has changed; the former "FOB point" the ship's rail, has been replaced with "on board" to reflect the fact the BOL is issued when the goods are on board the ship. - The international chamber of Commerce would like international logisticians to restrict the usage of the FOB Incoterms rule to non-containerized cargo, to reflect the fact that containerized cargo is rarely delivered to the ocean carrier in the port of departure. It is delivered earlier, to a terminal in the port.

CIP Change with Incoterms 2010

- There are no changes to CIP Incoterms 2010: the insurance coverage is still the "min. cover" as defined by the coverage C of the Institute Marine Cargo Clauses.

Delivered Duty Paid

- Under DDP, exporter agrees to deliver the goods to a location in the importing country, after having cleared customs. - Scope: DDP can be used for any types of goods - Modality: DDP can be used for all modes of transportation - Syntax: DDP (address in the city of delivery in the importing country), Incoterms 2010. - Exporter: arranges for transportation and pays for transportation from the country of the city of delivery in the importing country. And clears customs in the importing country - Importer: takes delivery of the goods in the importing country - Transfer Point: when the goods are delivered to the city of the importing country.

Free Carrier:

- Was created for goods shipped through multi-modal transportation. Under Incoterms 2010, there are now two district ways in which the FCA incoterms rule can be used: - FCA Exporters Premises: the goods are delivered to the carrier when the carrier picks them up at the exporter's plant. The exporter has to load the goods onto the carrier's truck. - FCA Carrier's Premises: The goods are delivered to the carrier when the exporter's truck delivers them to the carrier, at the carrier's location, still loaded on the truck. - Under the FCA Incoterms rule, the exporter/seller delivers the goods to a carrier specified by the importer. - Scope: FCA can be used for any type of goods - Modality: GCA can be used for all modes of transportation - Syntax: FCA (address in the city of departure where goods are handed over to the carrier), Incoterms 2010. - Exporter: packaging the goods for international voyage. And provides the importer with the documents necessary to clear customs in the importing country. And now clears the goods for export - Importer: Everything else - Transfer Point: when the exporter delivers the goods to the carrier.

Ex-Workers (small packages)

-The exporter has to make the goods available to the importer at a point located in the exporting country, at a mutually convenient time. - Scope: EXW can be used for any type of goods - Modality: EXW can be used for all modes of transportation - Syntax: EXW (address in the city of departure where goods are made available0. Incoterms 2010 - Exporter: packaging the goods for international voyage. And provides the importer with the documents necessary to clear customs in the importing country. - Importer: Everything else - Transfer point: when the exporter makes the goods available to the importer.

- Every Incoterm rule has:

1. A scope- the type of products for which it can be used. 2. A modality- the mode of transport for which it can be used. 3. A syntax- the way it has to be stated on invoices and paperwork.

different factors after 2010 new rules

1. The point of delivery has to be more precisely defined; where" EXW San fran, CA" was sufficient in previous versions, it now needs "123 Main st., San Fran, CA 94129, USA." 2. The international Chamber of Commerce insists that they should be called "Incoterm rules," and it actually wants "Incoterm® Rules". 3. The ICC would like to see Incoterm rules used in domestic trade and has modified them in light of that goal. 4. Other changes were made to specific incoterm rules, and will be introduced with each incoterm rule, as needed.

Every Incoterm rule defines:

1. The responsibilities of the exporter 2. The responsibilities of the importer 3. A specific transfer point at which the responsibilities for the goods shifts from the exporter to the importer.

The International Chamber of Commerce specifies that there are two groups of Incoterms rules:

1. The seven Incoterms rules can be use for an means of transportation (ocean, road, air, train). 2. The four Incoterms that can only be used for Ocean transportation (these are the oldest terms of trade).

After 2020 DAT

DAT- now Delivered at place, unloaded (DPU) Carriage and Insurance paid to (CIP) now requires insurance coverage A of the Institute cargo clauses.

After 2020 (CIP)

prefer to use only for containerized cargo, for any mode of transportation - Syntax: CIP (address in the city of destination), Incoterms 2020. - Exporter: exporter must package the goods for international voyage. Provide the importer with the documents necessary to clear customs in the importing country. As well as arrange and pay for pre-carriage, main carriage, on-carriage and insurance to the city of destination - Importer: Everything else - Transfer Point: when the exporter delivers the goods to the first carrier in the exporting country. - Insurance under CIP: Uner the CIP Incoterms rule, the exporter must provide for the goods that provides coverage A of the institute cargo clauses. The amount of insurance is always 110% the value of the goods. - Important change: 2010- the exporter has to provide coverge C of the cargo clause, but this was changed under 2020.