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Empower Your Supply Chain Seminar

Negotiating with Your Supplier:

Terms to Protect Your Company

6


Incoterms: Negotiating with Your Supplier

What are Incoterms?• 11 Terms of shipment and delivery for use in contracts for B2B sales/purchase goods • Developed by the International Chamber of Commerce • Effective as of January 1, 2011

What Use is Most Effective?• Always use in the Abbreviated Form – i.e. “CIF” • Accompanied by a Precise Geographic Place – i.e. “50 United Avenue, Anycity, IL USA”• Lists the Current Version of Incoterms: “Incoterms 2010”.

Are Incoterms Part of International Law?No. In fact, they must be specified in order to apply.

What is the Purpose of Incoterms?• Division of: Costs, Risks and Responsibilities between sellers and buyers. • Greatly reducing the potential for seller-buyer misunderstandings.



Incoterms: Useful Definitions

Pre-CarriageInland transportation on the seller’s side.

a. International: from the place where the shipment starts to the departure point on seller’s side.b. Domestic: from the place where the shipment starts to subsequent carriage.

Main Carriagea. International: transportation from the point of departure on the seller’s side to arrival point on

buyer’s side.b. Domestic: subsequent transportation beyond pre-carriage

On-Carriagea. International: transportation from the arrival point on the buyer’s side.b. Domestic: subsequent transportation beyond main carriage.


Empower Your Supply Chain SeminarIncoterms: Negotiating with Your Supplier

Transfer of Risk

International Use: The buyer contracts for main carriage. They are therefore in charge of carrier and usually also forwarder selection.

Seller’s Disadvantage: Buyer’s appointed forwarder should

file Electronic Export Information (EEI)HOWEVER

The seller is tasked with filing Export Clearance

Buyer’s Advantage: Control of Main Carriage Frequent carrier selections offer

lower freight costs Responsible for 10+2 reporting

Incoterms: Overview of F-Terms


Example of FOB (Free On Board)


SHIPMENT/DELIVERY TERMS

FOB Port of Shanghai, China, Incoterms 2010

MERCHANDISE TOTALExport Packing Pre-carriage to portTerminal Handling

US$ 20,000.00250.00500.00150.00


Incoterms: Overview of C-Terms


International Use: The seller contracts for main carriage and is in charge of forwarder selection.

Buyer’s Disadvantage: Must be an experienced buyer to

obtain low freight costs Risk of responsibility for condition of

goods while in transit Supplier is responsible for 10+2

reporting.

Seller’s Advantage: They are in the position to give

instructions to carrier and forwarder THEY appoint.

Export reporting is a seller responsibility Position to negotiate favorable freight

rates

Transfer of Risk


Example of CIF (Cost, Insurance & Freight)


CIF Port of Tacoma, USA, Incoterms 2010

MERCHANDISE TOTALExport Packing Pre-carriage to portTerminal HandlingMain CarriageInsurance

US$ 20,000.00250.00500.00150.00

3500.00135.00



Incoterms: Overview of D-Terms


International Use: The seller contracts for main carriage and is in charge of carrier/forwarder selection.

Seller’s Advantage: Contract for transportation Export reporting

Buyer’s Disadvantage: Risk is far less than with C-Group rules Suppliers provide 10+2 reporting No control over freight

Transfer of Risk


Example of DAP (Delivered At Place)

MERCHANDISE TOTALExport Packing Pre-carriage to portTerminal HandlingMain CarriageDeliveryInsurance

US$ 20,000.00250.00500.00150.00

3500.00450.00135.00


DAP 50 United Avenue, Anycity, WI, USA Incoterms 2010



Example: EXW (ExWorks)


Seller’s Advantage: Only requirement is to provide

goods when promised.

Buyer’s Disadvantage: Coordination of origin inland

transportation Filing of export declarations Responsible for all origin & destinations

charges

Buyer Advantage: Control of Goods Door to Door Using Nominated Logistics Partner

Immediate Transfer of Risk


Example: EXW (ExWorks)

MERCHANDISE TOTAL US$ 20,000.00

SHIPMENT/DELIVERY TERMSEXW 200 Overseas Lane, Shanghai, China Incoterms 2010



Incoterms & Insurance


Know the point in transit at which the seller has fulfilled its obligation so that risk of loss has passed to the buyer

Control the insurance locally, buy on FOB or CFR and sell on CIF

Exposure to countless financial risks when cargo is not insured


Recovering losses from the carrier’s limited liability:

Air - $20.00 per kg

Ocean - $500 per shipping unit

Protect your financial interest with “All Risk” insurance coverage

Protects against physical loss or damage to the cargo from external causes

Insurance is calculated by C + I + F + 10% value

$0.58 per $100 value

$10,000 (merch) + $4,000 (freight) + $81.20 (insurance) = $15,489.32 (policy amount)

Incoterms & Insurance



Incoterms: Full Overview


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