INCOTERMS - Revealthoughtrevealthought.weebly.com/uploads/3/2/1/7/32172955/incoterms.pdfIncoterms 2010 have been effective from 1st January 2011 7 Ashok Advani - Jaipuria Institute

INCOTERMS

1 Ashok Advani - Jaipuria Institute of Management

Who Pays for What ?

Goods move across international borders because there has been a sale involving:

• Seller • Buyer Contract of sale should define the responsibilities of both parties

relating to:

• The physical nature of the goods • Movement of the consignment Buyers and sellers have various options relating to the movement

of the goods regarding:

• The division of costs • Defining each parties responsibility and the transfer of risk

2

Ashok Advani - Jaipuria Institute of Management

What is an Incoterm ?

Sales term incorporated within the contract of sale

It impacts the contract of carriage

Incoterms identify the obligations placed on the parties to the contracts in terms of

• Responsibilities relating the costs and their division when

shipping the goods

• Distribution of risks associated with the movement of the

goods

• Where these risks transfer to another party

Freight forwarders need to understand these terms to:-

• Ensure that consignments are processed in line with the

appropriate Incoterm

• Assist in handling claims should they arise

3


What are Incoterms ?


4

Definition

A series of International rules for defining specified terms of Trade in foreign trade



5

Task

Regulating basic purchaser and seller obligations

• Who must bear the transport costs and from when

• Risk transfer specially for international business



6

Goals

An international, standardized interpretation of specific obligations of

purchasers and sellers for contract partners

• Misunderstandings & legal disputes can be avoided

Incoterms 2010

Published by the International Chamber of Commerce (ICC) to be used in international transactions

First published in 1936

Reviewed every 10 years to ensure that they are kept up to date with current trade practices

Incoterms 2010 have been effective from 1st January 2011

7


Summary of main changes

Post 1st January 2011 the number of categories has been reduced from four to two

These categories cover

• Terms for any Mode or Modes of Transport, or • Terms for Sea and Inland Waterway Transport

The aim is to assist Incoterm users to identify the correct terms for their particular requirements

8


Incoterms


9

Incoterms Do

Complete a sale of goods

Indicate each contracting party’s costs, risks and obligations with regard to delivery of goods:

When is delivery completed ?

Mode & terms of carriage

Delivery terms & requirement for proof of delivery

Risk of loss transferred from the seller to the buyer

Incoterms


10

Incoterms Do

Indicate each contracting party’s costs, risks and obligations with regard to delivery of goods:

Transport cost division between the parties

Notices parties required to give to each other regarding transport & transfer of goods

Delivery terms & requirement for proof of delivery

Incoterms

Do Not Regulate

When & where the ownership of the goods is transferred from the seller to the purchaser

The contract of sale

The condition of the goods

The warranty of the goods

The payment or non-payment of the goods

Place of jurisdiction

11


Incoterms


12

Incoterms Do Not

Do not apply to contracts for services

Cover the goods before or after delivery

Define the remedies for breach of contract

Determine how title to the goods will be transferred

Define contractual rights and obligations other than for delivery

Protect a party from his/her own risk of loss

Incoterms

Do Not Regulate

13


Incoterms are used in contract of sale and not in a contract of carriage

Reduction in the number of Incoterms

Previously there were 13 incoterms which have been reduced to 11

The following Incoterms have been removed

• DAF

• DES

• DEQ

• DDU

The following new Incoterms have been introduced:-

• DAT

• DAP

14


Incoterms – Important Terms Defined

Delivery

It is the point where “the risk or loss of damage passes from the

seller to the buyer.” This is often the “named port or place” but not necessarily the buyer’s place of business

Carrier

Any person or firm who by contract “undertakes to perform or procure” services for transportation of goods. In some cases the buyer nominates the “carrier” and the seller accepts the nomination

for the term to work

15



Pre-carriage

The initial transport of goods from the seller’s premises to the main

port or place where main carriage begins. Usually by truck, rail or

inland waterway

Main carriage

The primary transport of goods, generally for the longest part of the

journey and generally from one country to another. Usually by sea

vessel or airplane, but also by truck, rail or inland waterway

16



Onward carriage

Transport from the port, terminal or place of arrival in the country of

destination to the buyer’s premises. Usually by truck, rail or inland waterway

Multimodal

Use of more than one mode of transport (road, rail, sea, air) to

transport goods from origin to final destination

17


INCOTERMS

EXW Ex Works (named place of

delivery)

FCA Free Carrier (named place of

delivery)

FAS Free Alongside Ship (named

port of shipment)

FOB Free On Board (named port of

shipment)

CFR Cost & Freight (named port of

destination)

CIF Cost, Insurance & Freight

(named port of destination)

CPT Carriage Paid To (named place

of destination)

CIP Carriage & Insurance Paid To

(named place of destination)

DAT Delivered At Terminal (named

terminal at port or place of destination)

DAP Delivered At Place (named

place of destination)

DDP Delivered Duty Paid (named

place of destination)

Each Incoterm® requires that the Seller and Buyer agree upon a named port, or place, at either origin or destination to make the chosen term valid

11 Official ICC Incoterms® as of 1/1/11

18


INCOTERMS

Group E [Departure]

The costs & risk are transferred

to the importer when the goods

leave the exporter’s premises i.e. the seller only provides the

buyer with goods on his

own premises

Group F [Main Carriage Unpaid]

The costs & risk are transferred to

the importer at the delivery location

in the country of export i.e. the

seller transfers the goods to one of

the carriers specified by the buyer

Group C [Main Carriage Paid]

The costs & risk are transferred

separately. The exporter bears the costs

up to a particular destination in the

country of import, and takes out a

minimum insurance policy. The risk is

transferred to the importer when the

goods are transferred to the carrier at

the delivery location

Group D [Arrival]

The costs & risk are transferred to

the importer at the specified

destination

The 4 Incoterm Groups

19


Incoterms – Any Mode of Transport

These consist of the following seven terms

EXW - Ex Works (named place of delivery)

FCA - Free Carrier (named place of delivery)

CPT - Carriage paid to (named place of destination)

CIP - Carriage and insurance paid to (named place of destination)

DAT - Delivered at terminal (named terminal at port or place of

destination)

DAP - Delivered at place (named place of destination)

DDP - Delivery duty paid (named place of destination)

All of these terms need to specify the port or destination

20


Incoterms – For Sea and Inland Waterways

These consist of the following four terms

FAS – Free alongside ship (named port of shipment)

FOB – Free on Board (named port of shipment)

CFR - Cost and Freight to (named port of destination)

CIF - Cost, Insurance and Freight to (named port of destination)

21


EXW – Ex Works : Named Place of Delivery

Ex Works (EXW): Named Place of Delivery

Minimum risk to the Seller

Delivery occurs when goods are made available at the Seller’s facility in origin

Seller is not responsible for export customs clearance or loading of collecting vehicle

All transportation & customs related costs are for account of the Buyer

Maximum responsibility for risk of loss or damage to the Buyer

Can be used with any mode or transport, or combination thereof

22



Critical Points

Buyer to carry out all export formalities

Carriage to be arranged by the buyer

Risk transfers from seller to buyer when goods are made ready for disposal to the buyer

Cost transfers from seller to buyer when goods are made ready for disposal to the buyer

Insurance on buyer’s account

Used for any mode of transport

23


Sample Incorrect CI: EXW Seller’s Facility

24




25

FCA – Free Carrier : Named Place of Delivery

There can be more than one delivery point at origin (Seller’s facility, forwarder’s facility, port or airport)

Delivery occurs when goods are presented to the carrier nominated by the Buyer at the named place or port, cleared for export

If delivery is at Seller’s facility, the Seller must load the collecting vehicle

If delivery is not at the Seller’s facility, Buyer is responsible for loading

All costs and risks beyond delivery point are for Buyer’s account

Can use any mode of transport

26



Critical Points

Seller to carry out all export formalities and deliver goods custom cleared for export to carrier

Carriage to be arranged by the buyer or by the seller on buyer’s behalf

Risk transfers from seller to buyer when goods have been delivered to the carrier at the named place

Cost transfers from seller to buyer when goods have been delivered to the carrier at the named place

Insurance on buyer’s account

27



Critical Points

Seller is responsible for loading goods on to the buyer’s collecting vehicle

Buyer’s obligation to receive the Seller’s arriving vehicle and unload it

Used for any mode of transport

28


FCA – Free Carrier

Incoterms® 2010: Scenario � Under the FCA term, who is the carrier? Under Incoterms 2010, the “carrier is the party with whom carriage is contracted” The carrier can be the trucker picking up the cargo at the Seller’s facility, a freight forwarder or an airline/steamship line

29




30

FAS - Free Alongside Ship : Named Port of Shipment

Delivery occurs in the port of shipment alongside the vessel, prior to loading Export clearance and inland freight charges up to the delivery point are for the Seller’s account All charges beyond delivery point (including loading onboard the vessel at origin) are for the Buyer FAS is normally used for over sized or out of gauge shipments with special handling requirements Intended for ocean or inland waterway transportation only

31


FAS – Specific Uses

Often used for the ocean borne shipment of what is know as

“oversized”, “out of gauge” or “project cargo.” This includes large structures for the oil and gas industries, etc The use of FAS for these types of shipments makes a lot of sense because the nature of the cargo calls for a great deal of crating, handling and manipulation while in transit Under this term the Seller is responsible for the inland freight up to the named port of export and export clearance, but once the goods are placed alongside the vessel, the Seller’s delivery obligations have been completed

32



Critical Points

Export clearance to be arranged by the seller


Risk transfers from seller to buyer when goods have been placed alongside the ship

Cost transfers from seller to buyer when goods have been placed alongside the ship

Insurance on buyer’s account once placed alongside the ship

Intended for ocean or inland waterway transportation only

33


Sample Quotation – FAS Houston Port

34




35

FOB - Free On Board : Named Port of Shipment

Delivery occurs in the port of shipment when goods are loaded on board the vessel Export clearance and inland freight charges up to the delivery point are for the Seller’s account All costs and risk beyond the delivery point are for the Buyer FOB is better suited for bulk cargo Not suitable for containerized cargo (use FCA in this case) Intended for ocean or inland waterway transportation only

36


FOB - Free On Board : Example

� Can the FOB term be used for shipments where delivery occurs at a destination port?

The Seller’s obligations states that delivery obligation ends when goods are loaded on board the vessel at origin FOB is intended for bulk goods

37



Critical Points



Risk transfers from seller to buyer when goods pass the ship’s rail

Cost transfers from seller to buyer when goods pass the ship’s rail

Insurance on buyer’s account once goods pass the ship’s rail


38




39

CFR – Cost & Freight : Named Port of Destination

Delivery occurs in the port of shipment when goods are loaded on board the vessel As a result, risk shifts to the Buyer at the port of shipment Seller is responsible for all transportation costs up to the port of arrival Better suited for bulk cargo Not meant for containerized cargo (consider CPT as an alternative) Intended for ocean or inland waterway transport only

40


Import Example Using the “CFR” Incoterm®

Without naming a port at destination you are blind to what your

cumulative lead times will be.

41


Sample of Incomplete PO: CFR No Named Port

42



Critical Points


Carriage to be arranged by the seller


Cost transfers from seller to buyer at port of destination

Insurance on buyer’s account once goods loaded on board the vessel


43




44

CIF - Cost, Insurance & Freight : Named Port of Destination

Delivery occurs in the port of shipment when goods are loaded

on board the vessel Risk shifts to the Buyer at the port of shipment Seller is responsible for all transportation costs up to the port of arrival Seller must secure minimum cover insurance on behalf of Buyer Better suited for bulk cargo Not intended for containerized cargo (consider CIP as an alternative) Intended for ocean or inland waterway transport only

45



Critical Points




Cost transfers from seller to buyer at port of destination

Insurance on seller’s account


46




47

CPT - Carriage Paid To : Named Place of Destination

Risk shifts with the first carrier at origin (normally the collecting vehicle at the Seller’s facility)

Can be used for any mode of transportation or combination thereof

Seller is responsible for all transportation costs up to the named place at destination

Very important to name the place at destination (port, airport or inland location)

48



Critical Points



Risk transfers from seller to buyer when goods have been delivered to the carrier

Cost transfers from seller to buyer at named place of destination

Seller not obliged to cover for insurance

Intended for any mode of transport

49




50

CIP - Carriage & Insurance Paid To : Named Place of Destination

Seller is responsible for all transportation costs up to the named place at destination

Very important to name the place at destination (port, airport or inland location)

Risk shifts with the first carrier at origin (normally the collecting vehicle at the Seller’s facility)

Seller must secure minimum cover insurance on behalf of the Buyer

Can be used for any mode of transportation or combination thereof

51



Critical Points



Risk transfers from seller to buyer when goods have been delivered to the carrier

Cost transfers from seller to buyer at named place of destination. Seller pays additional costs of carriage up to named place of destination

Insurance to be arranged by the seller


52


Sample PO: CIP No Named Place at Destination

53




54

DAT - Delivered at Terminal : Named Terminal at Port or Place of Destination

Can be used for any mode of transport

Delivery is complete when the goods are placed at the disposal of the Buyer at a named terminal at the named port or place of destination, off-loaded

“Terminal” includes quays, warehouses, container yard or road, rail or air terminal

Buyer is responsible for customs clearance, duties & taxes

If the Seller wishes to extend his responsibility beyond the terminal DAP or DDP can be used

55


DAT – Example

� Who is responsible for a damaged shipment under the “DAT Moscow Airport” Incoterm®?

First, the arbitrator must determine that the sales contract stipulates the above Incoterm®, and that the contract references Incoterms 2010® Next, it is up to the arbitrator to use the documentation trail to determine where in the supply chain the damage occurred The arbitrator can see from DAT rules that delivery is complete when goods arrive at the terminal of the air carrier at Moscow airport, off-loaded

56



Critical Points


Seller should ensure that their forwarding contract mirrors the contract of sale

Seller is responsible for the costs and risks to bring the goods to the point specified in the contract. Only term where seller is responsible for unloading at destination

Importer is responsible to arrange import customs formalities and pay import duty



57




58

DAP - Delivered at Place : Named Place of Destination

Seller delivers when goods are made available to the Buyer at the named place in destination, prior to customs clearance and not unloaded from the delivering vehicle

Multiple options for named place at destination (ocean/air port, warehouse or Buyer’s facility)

Seller is responsible for all transportation costs up to named place at destination

Risk of loss or damage passes to Buyer at named place in destination

Buyer is responsible for customs taxes, duties, VAT or cost of clearance

formalities

Can be used for any mode of transport, or combination thereof

59


DAP– Example

� Who is responsible for inland freight at destination using the term DAP, customer’s facility, Stuttgart, Germany?

The Seller is responsible for the inland freight charges in Germany because under DAP that is what he committed to

60



Critical Points


Seller should ensure to obtain contract of carriage that match the contract of sale

Seller bears responsibility and risks to deliver the goods to the named place

Importer is responsible to arrange import customs formalities and pay import duty



61




62

DDP - Delivered Duty Paid : Named Place of Destination

Seller delivers when goods are made available to the Buyer at the named placed at destination, cleared for import but not unloaded from the delivering vehicle

Multiple options for named place at destination (ocean/air port, warehouse or Buyer’s facility)

Seller is responsible for all transportation costs up to named place at destination

Risk of loss or damage passes to Buyer at named place at destination

Seller is responsible for all customs taxes, duties, VAT and cost of clearance formalities

Can be used for any mode of transport, or combination thereof

63


Sample Export Quote: DDP, Buyer’s Facility, All In Price

64


Caveats of Using DDP

When you quote DDP named place at destination, the first step is to agree with the Buyer where at destination your delivery responsibilities end You must have a comprehensive understanding of all the costs associated with shipping your goods to each of the countries you do business in In addition to transportation costs, you as the exporter are responsible for customs clearance and the payment of all duties or taxes at destination

65


DDP – Example

� When using the DDP term is the Seller responsible for securing insurance on behalf of the Buyer?

DDP term states that the Seller is not required to secure insurance cover on behalf of the Buyer

66



Critical Points



Risk transfer from the seller to the buyer when the goods are placed at the disposal of the buyer

Cost transfer from the seller to the buyer when the goods are placed at the disposal of the buyer

Seller arranges for clearance of goods at destination country & pays for all customs formalities, duties, taxes, VAT etc

67



Critical Points



68




69

Incoterms – Passing of Risks & Costs

In E, F and D terms, both risks & costs pass from seller to buyer at

Named Place

Named Port or

Named Terminal

In C terms : Transfer of risk occurs at a different point than the

transfer of costs

70


Incoterms


71

Incoterms 2010 - Variants

Incoterms - Variants

Incoterms® 2010: Scenario � Is “EXW loaded” recognized as a legitimate Incoterm®? Incoterms® 2010 does not prohibit variants on Incoterms® If Sellers and Buyers do use variants on Incoterms®, the meaning must be well explained in the sales contract

72



� Is “CIF & c & i” recognized as a legitimate Incoterm®?

Yes

C & I stands for commission and interest.

It clarifies to the buyer that above two components are payable by

him

If buyer pays the bill prior maturity, he is allowed a rebate

Such terms used when export effected to distant places where

settlement of bill of exchange drawn on importer takes some time

73



� Are “CIF & C” and “FOB & C” recognized as legitimate Incoterms®?

Yes

C stands for exchange rate fluctuation

Quoted when exporter assumes risk of exchange rate fluctuations

that may occur between date of contract acceptance and payment

74



� Is “CIF ex” recognized as a legitimate Incoterm®?

Yes

Refers to cost, insurance, freight and exchange

Exchange – ambiguous term – refers to banker’s commission & exchange fluctuation

Exchange fluctuation – purchase price not affected by subsequent

rise or fall of agreed currency of payment between exporter &

importer

75



� Is “DDP VAT unpaid” recognized as a legitimate Incoterm®?

Yes

Seller is responsible for paying import duty, but not for paying VAT

76



� Is “FOB Stowed” recognized as a legitimate Incoterm®?

Yes

For some types of cargo, costs arise from stowing the cargo on the

Vessel

Incoterms rule "FOB stowed" makes it clear that the seller is

responsible not only for loading the cargo on board, but also for

stowing it

77


Tips for Using Incoterms

Incoterms® are NOT your primary contract of sale

Is the chosen Incoterm® allowed in the countries where we’re operating?

Consider terms appropriate to the goods being shipped

Consult the “Guidance Notes” in Incoterms® 2010

Consider terms fitting to the necessary transport

Incorporate the appropriate rule into the contract of sale

Decide who will organize the transport

Pinpoint the point, place and port of delivery as precisely as possible

Decide who will organize the insurance, if required

Incorporate Incoterms® 2010 into your contract of sale

78


Incoterms – Usage

“EXW” , “Ex Works” , “Ex Factory”

Can they be used interchangeably

79


Incoterms – Usage

“C&F”

Is it a correct to use this Incoterm instead of CFR

80


Incoterms – Usage

Why is it important to suffix the year after Incoterm ?

81


Incoterms – Usage

Are Incoterms legally binding ?

82


Incoterms – Usage

Are Incoterms legally binding ?

No!

• Incoterms have no legal force; they only become legally binding once they have been validly agreed by the purchaser and seller

• Their use is not compulsory

• They only recommend a minimum standard; individual modification is possible

Clear regulations should be applied to modifications to avoid misunderstandings

83


Incoterm Usage


84

Which Incoterm is used for supply contracts with

external suppliers ?

Incoterm Usage


85

Incoterm usage - supply contracts with external suppliers ?

“FCA – designated delivery location” [i.e. warehouse or service location of supplier]

Which circumstances can prevent the use of FCA here?

• No transport contracts with service providers for this region

• Special transport is necessary [e.g. silo, valuables]

• Supplier has special supply chains, adapted to the product

[e.g. electronic components]

Which Incoterm must be used then?

Incoterm Usage


86

Incoterm usage - supply contracts with external suppliers ?

• FOB [Free on Board]

• DAP [Delivered at Place]

Incoterm Usage


87

Which Incoterm is used for contracts with

OEM customers ?

Incoterm Usage


88

Incoterm usage - Contracts with OEM customers ?

• Preferably Incoterm “FCA-designated delivery location” should be used, so that customer picks up goods from company’s warehouse or production location

• If customer is not arranging for the transport, then FCA cannot be used

• If above is the case, use Incoterm DAP [Delivered at Place]

Incoterm Usage


89

Is CFR Bangkok Port a correct Incoterm ?

No

Bangkok has two terminals : Bangkok Port & Laem Chabang

Port

Similarly Dubai has two ports : Sharjah & Jebel Ali

Nhava Sheva has three terminals : JNPT, NSICT, GTIL

Incoterms – Scenario 1

The client shipped 10x20’ containers of Gypsum board to India under CFR Mumbai. Unfortunately the vessel could not call on the port

because of a strike. After some weeks delay the goods arrived at an

alternate port as the containers were offloaded at Dubai (due to

strike) and thereafter shipped to the alternate port as the strike in

Mumbai Port continued. This has caused delay and additional charges.

Who [Buyer or Seller] is to bear the extra cost / charges ??

90


Incoterms – Solution Scenario 1

CFR – Seller must pay carriage costs

Buyer not responsible for any carriage costs or extra charges for delay

Buyer can also claim penalty as the delay disrupts the supply chain

Strike is not a part of civil unrest and therefore not a “Force Majeure” condition. Strike is normally a peaceful form of agitation

As per the agreement with the carrier, the carrier should pay for:

Extra costs / charges

Pay for penalties if the buyer raises a claim

The seller sought a claim and got compensated by the carrier for the delay. Additionally, the seller ensured that such unexpected delays are covered under insurance in future

91



Seller:

As America’s premier supplier of cuddly fluffy white rabbits and other soft toys, we deal with customers all over the world. We market by

internet, and our added value selling point is we arrange all the

shipment details for our clients, right up to their point of sale, office or

storage facility. They don’t worry as we do everything for them. Buyer:

I have never imported anything from overseas-and as a small

company, I don’t have the time or staff to arrange this – and what if

something went wrong? I just need this consignment here in time for

the Easter sales, and I know we can double the price we paid, if not

triple it. Give me a delivery date that is guaranteed, and I’ll be happy. Which is the best Incoterm in this scenario?

92



Which is the best Incoterm in this scenario?

DDP [Delivery Duty Paid]

US Factory to Delivery Point U.K.

Great for those buyer’s with little knowledge / expertise in International movement of goods

93



A London based seller in the U.K. supplies to an India buyer (Nahar

Textiles) under the term DAP Himachal Pradesh. Nahar Textiles

billed the seller for internal transportation to his factory on the outskirts

Of Himachal Pradesh (Tikri Khas) which because of hilly terrain and local

union rates cost the UK exporter dearly (INR 60,000 higher @ INR

20,000 per truck)

94



95



The exporter in U.K. had assumed that the importer (Nahar Textiles)

would take delivery at his factory in Paonta Sahib, but Nahar Textiles

preferred to take delivery at their other factory located at Tikri Khas.

Tikri Khas was located at the other extreme of the same state and the

terrain was hilly. Moreover, trucks were not easy to get to this location

and all movements to this area were governed by the local truck union

(irrespective of whether the truck belonged to the state or came from

any other state).

Despite protestations it was held that DAP Himachal Pradesh was not

specific enough for the UK exporter to reject the charges, as Himachal

Pradesh was a state and in absence of a named destination in H.P. the

exporter was obliged to deliver at any location in the state of H.P.

96



You are a manager in an export firm namely R R Exports. You receive an inquiry from a

buyer in USA namely Home Art Inc. who are located in Harrisburg in the state of

Pennsylvania. The port of entry of goods in USA would be New York from where the goods

would be transported to Harrisburg. You quote to the prospective client for artistic lamps &

shades at USD 600 a dozen basis CIP Nhava Sheva, but the client reverts that the quote is

rather high.

97



On CIP terms, the seller pays for ocean freight and insurance till the

goods reach the destination. The terms should be followed by the port at

destination i.e New York

CIP Nhava Sheva – Incorrect

CIP New York – Correct

98



You are the head of exports in Shahi Exports and are exporting

garments worldwide. You have executed an order recently to Marseilles,

France and confirm to the buyer as follows;

We confirm having shipped out to you 3,700 pairs of ladies tops & skirts

at Euro 60 per pair basis FOB Marseilles.

99



On FOB terms, the seller’s responsibilities end when he delivers the goods at the port of shipment (port of loading), i.e. port of loading in

India. The term should be followed by the port at origin i.e Nhava Sheva

or Mundra, as the case may be.

FOB Marseilles – Incorrect

FOB Nhava Sheva or FOB Mundra – Correct

100



You are the Director in a company by the name of Arts & Crafts Pvt Ltd.

You have been requested by your client located at Corso Sardegna,

Genoa, Italy to quote for tables with marble tops. Total order quantity is

40 tables. You quote to the client “40 Tables with Marble Tops – DDP

Nhava Sheva.”

101



On DDP terms, the seller must physically deliver the goods to the buyer

at a named place in the import country, i.e. named place of destination

should be added to DDP terms. The term DDP should be followed by

Corso Sardegna (place of delivery), Genoa (city), Italy to avoid any

ambiguities.

DDP Nhava Sheva – Incorrect

DDP Corso Sardegna, Genoa, Italy – Correct

102



Seller Says:

This suits us; our main business is manufacturing car parts. We are

always happy, to help our customers, but would outsource all the

transport arrangements to a third party.

Buyer Says:

I am the shipping manager for a large multinational company. Our

centralized buying department has arranged this shipment as the first of

a twice monthly shipment from Pittsburgh to Dagenham. We buy parts

on Just-in-time basis from 136 suppliers all over the globe. I always get

a quote because I can do a great deal with the main shippers – they are

pleased to offer volume discounts to our organization.

Which is the most suitable term which could be used in such a

scenario?

103



EXW [Ex-works]

US Factory to Delivery point UK

The most cost effective way for the buyer

104



Seller Says:

I’ve been caught out like this before – the company at the other end, do not plan

for the payment to the customs, and the consignment gets impounded – then

there is a huge row over who pays what. But using XXX, we both know

exactly who pays what?

Buyer Says:

I really do not know anything about importing goods from the USA. I however

know and am confident that we will make a good profit on the American Sports

Gear. My supplier is adamant that I pay the EU duty and arrange for the customs

formalities at my end. They can put me in touch with their usual UK agent, and

they will do this for us for a small fee.

Which is the most suitable term which could be used in such a scenario?

105



DDU [Delivery Duty Unpaid]

US Factory to Delivery point UK

Advantageous for the seller – seller is not responsible for customs duties, VAT or demurrage while payment of duties are made to the customs.

106



Buyer Says:

We hope to get more business from this company. Quoting XXX means we

really can make a great return on this shipment of books, and both parties

are happy. In the best American tradition, we want to meet all our customer’s

needs, but really with a one-off shipment, managing the transport to the UK

port is easy to fit in with our regular clients.

Seller Says:

This is my first really big shipment from the US book supplier, but I cannot

afford for them to do all the work… I can deal with the UK side, and by contracting to the Institute of Freight Forwarders, I can get hold of a

reputable company, who can sort out everything in the UK – but will only

insure from the UK quayside. They can even arrange delivery direct to the

conference centre on the day we are setting up, so I don’t have to any storage

charges.

Identify the most suitable Incoterm that can be applied in this case.

107



CIF [Cost Insurance Freight]

USA Port to Delivery point UK ?? [ or delivery port UK]

Seller buys marine insurance – but only has to cover legal minimum

108


109


Documents

INCOTERMS - Revealthoughtrevealthought.weebly.com/uploads/3/2/1/7/32172955/incoterms.pdfIncoterms 2010 have been effective from 1st January 2011 7 Ashok Advani - Jaipuria Institute