Terms of Trade or Incoterms

Terms of Trade or Incoterms

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

Incoterm Definition InternationalCommerceTerm • 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

Incoterm (Wikipedia)

http://en.wikipedia.org/wiki/Incoterm

Incoterm Definition InternationalCommerceTerm • 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

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.

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.

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

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.

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

/exporter /importer

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

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.

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

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

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.

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

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

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

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

Multimodal as a primary method of movement? • EXW (Ex-works) • FCA (Free Carrier) • FAS (Free alongside ship) • FOB (Free on Board)

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

Cost and Freight (CFR) Delivery • The delivery takes place when the merchandise crosses the ship’s rail, the same as under an FOB shipment.

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

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.

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.

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.

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.

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

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

Terms of Trade or Incoterms