Objectives

Origin of Incoterms

Incoterms 2000

Case Studies

ContentsContents

ObjectiveObjective

Good understanding of the cost and

risk responsibilities of each

Incoterms.

Determine and recommend the most

suitable Incoterms for

sales/purchase contract.

Origin Origin

International Chamber of Commerce (ICC) w

as founded in 1919.

In 1936, ICC created International Commerc

ial Terms (Incoterms).

Purpose & Scope Purpose & Scope

Incoterms is a set of rules to facilitate the c

onduct of international trade.

Defines Seller and Buyer obligations when m

oving cargo from origin to destination.

Common MisconceptionsCommon Misconceptions

Misunderstood as applying to the

contract of carriage/insurance/financing.

Wrongly assumed to provide for all the

duties which Seller & Buyer may wish to

include in a sales/purchase contract.

“Shipper and Consignee”

“Seller and Buyer”

When dealing with Incoterms remember

that this is limited to sales/purchase

contract for tangible materials.

Terms & UsageTerms & Usage

Incoterms 2000Incoterms 2000

Amendments and additions made in 1953,

1967, 1976, 1980, 1990, and 2000.

Revisions of Incoterms to adapt to current

practice of international trade.

Different GroupsDifferent Groups

1) Group E Departure

2) Group F Main carriage unpaid

3) Group C Main carriage paid

4) Group D Arrival

Group E DepartureGroup E Departure

• ExW = Ex Works (named place)

ExW :Ex works (named place)ExW :Ex works (named place)

EX Works (…named place)SELLER BUYER

COST RISK COST RISK

Loading onto transport at origin ● ●

Carriage to departure port ● ●

Export customs formalities, taxes and duties ● ●

Unloading from transport at departure port ● ●

Terminal handling at departure port ● ●

Loading onto vessel at departure port ● ●

Carriage from departure port to destination port ● ●

Unloading from vessel at destination port ● ●

Terminal handling at destination port ● ●

Import customs formalities, taxes and duties ● ●

Loading onto transport at destination port ● ●

Carriage to final destination ● ●

Insurance `*Insurance responsibility is not defined for EXW

SELLER CARGO TERMINAL

BUYERCARGO TERMINAL

RISKS

COSTS

RISKS

COSTS

Pop Quiz:

You are selling 350 kg of Plastics Resins E

xW Shyam warehouse.

Do you pay for loading onto the truck?

Group F Main carriage unpaidGroup F Main carriage unpaid

• FCA = Free Carrier (named place)

• FAS = Free Alongside Ship (named port of shipment)

• FOB = Free On Board (named port of shipment)

FCA :Free Carrier (named place)FCA :Free Carrier (named place)

Free Carrier (…named place)SELLER BUYER

COST RISK COST RISK

Loading onto transport at origin ● ●

Carriage to departure port ● ●

Export customs formalities, taxes and duties ● ●

Unloading from transport at departure port ● ●

Terminal handling at departure port ● ●

Loading onto vessel at departure port ● ●

Carriage from departure port to destination port ● ●

Unloading from vessel at destination port ● ●

Terminal handling at destination port ● ●

Import customs formalities, taxes and duties ● ●

Loading onto transport at destination port ● ●

Carriage to final destination ● ●

Insurance `*Insurance responsibility is not defined for FCA

SELLER CARGO TERMINAL

BUYERCARGO TERMINAL

RISKS

COSTS

RISKS

COSTS

Pop Quiz:

1. You buy FCA Tokyo airport.

Do you pay for air freight and insurance?

2. You buy FCA container terminal New York.

Do you pay for sea transport?

3. You sell FCA New Delhi Airport.

Cargo damaged by airport handling staff while loading into airplane. Do you perform the insurance claim?

FAS :Free Alongside Ship (named port of shipment) FAS :Free Alongside Ship (named port of shipment)

Free Alongside Ship (…named port of shipment)SELLER BUYER

COST RISK COST RISK

Loading onto transport at origin ● ●

Carriage to departure port ● ●

Export customs formalities, taxes and duties ● ●

Unloading from transport at departure port ● ●

Terminal handling at departure port ● ●

Loading onto vessel at departure port ● ●

Carriage from departure port to destination port ● ●

Unloading from vessel at destination port ● ●

Terminal handling at destination port ● ●

Import customs formalities, taxes and duties ● ●

Loading onto transport at destination port ● ●

Carriage to final destination ● ●

Insurance *Insurance responsibility is not defined for FAS

SELLER CARGO TERMINAL

BUYERCARGO TERMINAL

RISKS

COSTS

RISKS

COSTS

Pop Quiz:

1. You buy FAS New York.

Do you pay for maritime freight?

2. You sell FAS Mumbai port.

Do you pay for the costs of loading onto vessel?

FOB :Free On Board (named port of shipment)FOB :Free On Board (named port of shipment)

Free On Board (…named port of shipment)

SELLER BUYER

COST RISK COST RISK

Loading onto transport at origin ● ●

Carriage to departure port ● ●

Export customs formalities, taxes and duties ● ●

Unloading from transport at departure port ● ●

Terminal handling at departure port ● ●

Loading onto vessel at departure port ● ●

Carriage from departure port to destination port ● ●

Unloading from vessel at destination port ● ●

Terminal handling at destination port ● ●

Import customs formalities, taxes and duties ● ●

Loading onto transport at destination port ● ●

Carriage to final destination ● ●

Insurance *Insurance responsibility is not defined for FOB

SELLER CARGO TERMINAL

BUYERCARGO TERMINAL

RISKS

COSTS

RISKS

COSTS

Pop Quiz:

1.You sell FOB Kolkata port.

Do you pay for marine freight?

2. You buy FOB South Africa, Durban.

Do you pay for the maritime freight?

• CFR = Cost and Freight (named port of destination)

• CIF = Cost, Insurance and Freight (named port of destination)

• CPT = Carriage Paid To (named place of destination)

• CIP = Carriage & Insurance Paid To (named place of destination)

Group C Main carriage paidGroup C Main carriage paid

CFR :Cost and Freight (named port of destination)CFR :Cost and Freight (named port of destination)

Cost and Freight (…named port of destination)

SELLER BUYER

COST RISK COST RISK

Loading onto transport at origin ● ●

Carriage to departure port ● ●

Export customs formalities, taxes and duties ● ●

Unloading from transport at departure port ● ●

Terminal handling at departure port ● ●

Loading onto vessel at departure port ● ●

Carriage from departure port to destination port ● ●

Unloading from vessel at destination port ● ●

Terminal handling at destination port ● ●

Import customs formalities, taxes and duties ● ●

Loading onto transport at destination port ● ●

Carriage to final destination ● ●

Insurance *Insurance responsibility is not defined for CFR

SELLER CARGO TERMINAL

BUYERCARGO TERMINAL

RISKS

COSTS

RISKS

COSTS

Pop Quiz:

1. You buy CFR Chennai Port.

Cargo damaged at sea, do you perform marine insurance claim?

2. You sell CFR San Francisco.

Do you pay for marine freight?

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

Cost Insurance & Freight (…named port of destination)

SELLER BUYER

COST RISK COST RISK

Loading onto transport at origin ● ●

Carriage to departure port ● ●

Export customs formalities, taxes and duties ● ●

Unloading from transport at departure port ● ●

Terminal handling at departure port ● ●

Loading onto vessel at departure port ● ●

Carriage from departure port to destination port ● ●

Unloading from vessel at destination port ● ●

Terminal handling at destination port ● ●

Import customs formalities, taxes and duties ● ●

Loading onto transport at destination port ● ●

Carriage to final destination ● ●

Insurance ● ●

SELLER CARGO TERMINAL

BUYERCARGO TERMINAL

RISKS

COSTS

RISKS

COSTS

Pop Quiz:

1.You buy CIF Mumbai Port.

Do you pay for maritime freight?

2.You sell CIF Malaysia.

Do you perform India export formalities?

CPT :Carriage Paid To (named place of destination)CPT :Carriage Paid To (named place of destination)

Carriage Paid To (…named place of destination)

SELLER BUYER

COST RISK COST RISK

Loading onto transport at origin ● ●

Carriage to departure port ● ●

Export customs formalities, taxes and duties ● ●

Unloading from transport at departure port ● ●

Terminal handling at departure port ● ●

Loading onto vessel at departure port ● ●

Carriage from departure port to destination port ● ●

Unloading from vessel at destination port ● ●

Terminal handling at destination port ● ●

Import customs formalities, taxes and duties ● ●

Loading onto transport at destination port ● ●

Carriage from port to named place ● ●

Unloading from transport at named place ● ●

Loading onto transport at named place ● ●

Carriage from named place to final destination ● ●

Insurance *Insurance responsibility is not defined for CPT

SELLER CARGO TERMINAL

BUYERCARGO TERMINAL

RISKS

COSTS

RISKS

COSTS

Pop Quiz:

1.You buy CPT Kolkata port.

Do you pay for marine transport?

2. You sell CPT Seoul.

Do you pay for marine insurance?

CIP :Carriage and Insurance Paid To (named place of destination)CIP :Carriage and Insurance Paid To (named place of destination)

Carriage Paid to (…named place of destination)

SELLER BUYER

COST RISK COST RISK

Loading onto transport at origin ● ●

Carriage to departure port ● ●

Export customs formalities, taxes and duties ● ●

Unloading from transport at departure port ● ●

Terminal handling at departure port ● ●

Loading onto vessel at departure port ● ●

Carriage from departure port to destination port ● ●

Unloading from vessel at destination port ● ●

Terminal handling at destination port ● ●

Import customs formalities, taxes and duties ● ●

Loading onto transport at destination port ● ●

Carriage from port to named place ● ●

Unloading from transport at named place ● ●

Loading onto transport at named place ● ●

Carriage from named place to final destination ● ●

Insurance ● ●

SELLER CARGO TERMINAL

BUYERCARGO TERMINAL

RISKS RISKS

COSTSCOSTS

Pop Quiz:

1. You buy CIP Tri-net Warehouse.

Do you pay for the costs of import formalities into In

dia?

2. You sell CIP New Delhi railway station.

Do you pay for export formalities?

3. You sell CIP Ho Chi Minh port, Vietnam.

Do you pay for loading on truck at destination port?

• DAF Delivered At Frontier (named place)

• DES Delivered Ex Ship (named port of destination)

• DEQ Delivered Ex Quay (named port of destination)

• DDU Delivered Duty Unpaid (named place of destination)

• DDP Delivered Duty Paid (named place of destination)

Group D ArrivalGroup D Arrival

DAF :Delivered At Frontier (named place)

Delivered At Frontier(…named place)

SELLER BUYER

COST RISK COST RISK

Loading onto transport at origin ● ●

Carriage to departure port ● ●

Export customs formalities, taxes and duties ● ●

Unloading from transport at departure port ● ●

Terminal handling at departure port ● ●

Loading onto vessel at departure port ● ●

Carriage from departure port to frontier ● ●

Unloading from transportation at frontier ● ●

Loading onto transportation at frontier ● ●

Carriage from frontier to destination port ● ●

Unloading from vessel at destination port ● ●

Terminal handling at destination port ● ●

Import customs formalities, taxes and duties ● ●

Loading onto transport at destination port ● ●

Carriage to final destination ● ●

Insurance *Insurance responsibility is not defined for DAF

SELLER CUSTOMS AT DESTINATION

BUYERCUSTOMS AT ORIGIN

RISKS

COSTS

RISKS

COSTS

Pop Quiz:

Your cargo is in Kolkata & selling DAF India

-Nepal border.

Do you pay for the transport to Nepal borde

r?

DES :Delivered Ex Ship (named port of destination)DES :Delivered Ex Ship (named port of destination)

Delivered Ex Ship (…named port of destination)

SELLER BUYER

COST RISK COST RISK

Loading onto transport at origin ● ●

Carriage to departure port ● ●

Export customs formalities, taxes and duties ● ●

Unloading from transport at departure port ● ●

Terminal handling at departure port ● ●

Loading onto vessel at departure port ● ●

Carriage from departure port to destination port ● ●

Unloading from vessel at destination port ● ●

Terminal handling at destination port ● ●

Import customs formalities, taxes and duties ● ●

Loading onto transport at destination port ● ●

Carriage to final destination ● ●

Insurance *Insurance responsibility is not defined for DES

SELLER CARGO TERMINAL

BUYERCARGO TERMINAL

RISKS

COSTS

RISKS

COSTS

Pop Quiz:You buy DES Mumbai port.

Do you pay for the costs of unloading from th

e vessel at Mumbai port?

DEQ :Delivered Ex Quay (named port of destination)DEQ :Delivered Ex Quay (named port of destination)

Delivered Ex Quay (…named port of destination)

SELLER BUYER

COST RISK COST RISK

Loading onto transport at origin ● ●

Carriage to departure port ● ●

Export customs formalities, taxes and duties ● ●

Unloading from transport at departure port ● ●

Terminal handling at departure port ● ●

Loading onto vessel at departure port ● ●

Carriage from departure port to destination port ● ●

Unloading from vessel at destination port ● ●

Terminal handling at destination port ● ●

Import customs formalities, taxes and duties ● ●

Loading onto transport at destination port ● ●

Carriage to final destination ● ●

Insurance *Insurance responsibility is not defined for DEQ

SELLER CARGO TERMINAL

BUYERCARGO TERMINAL

RISKS

COSTS

RISKS

COSTS

Pop Quiz:

You buy DEQ Chennai port.

a) Do you pay the import custom duties?

b) Unloading from vessel fees at Chennai port?

DDU :Delivered Duty Unpaid (named place of destination)DDU :Delivered Duty Unpaid (named place of destination)

Delivered Duty Unpaid (…named place of destination)

SELLER BUYER

COST RISK COST RISK

Loading onto transport at origin ● ●

Carriage to departure port ● ●

Export customs formalities, taxes and duties ● ●

Unloading from transport at departure port ● ●

Terminal handling at departure port ● ●

Loading onto vessel at departure port ● ●

Carriage from departure port to destination port ● ●

Unloading from vessel at destination port ● ●

Terminal handling at destination port ● ●

Import customs formalities, taxes and duties ● ●

Loading onto transport at destination port ● ●

Carriage to final destination ● ●

Unloading from transport at final destination ● ●

Insurance *Insurance responsibility is not defined for DDU

SELLER CARGO TERMINAL

BUYERCARGO TERMINAL

RISKS

COSTS

RISKS

COSTS

Pop Quiz:

You sell DDU New Delhi airport.

Do you pay for the import formalities?

DDP :Delivered Duty Paid (named place of destination)

Delivered Duty Paid (…named place of destination)

SELLER BUYER

COST RISK COST RISK

Loading onto transport at origin ● ●

Carriage to departure port ● ●

Export customs formalities, taxes and duties ● ●

Unloading from transport at departure port ● ●

Terminal handling at departure port ● ●

Loading onto vessel at departure port ● ●

Carriage from departure port to destination port ● ●

Unloading from vessel at destination port ● ●

Terminal handling at destination port ● ●

Import customs formalities, taxes and duties ● ●

Loading onto transport at destination port ● ●

Carriage to final destination ● ●

Unloading from transport at final destination ● ●

Insurance *Insurance responsibility is not defined for DDP

SELLER CARGO TERMINAL

BUYERCARGO TERMINAL

RISKS

COSTS

RISKS

COSTS

Pop Quiz:

You buy DDP Shyam warehouse, New Delhi.

a) Do you pay for maritime freight?

b) Do you pay for transportation to Shyam warehouse?

• FAS• FOB• CIF• CFR• DES• DEQ

Which Mode of Transportation?Which Mode of Transportation?

• ExWork• FCA• DAF• CIP• CPT• DDU• DDP

Dispute ResolutionDispute Resolution

• Arbitration rules must be clear and specific in the sales contract.

• Recommendation by ICC:

“ All disputes arising out of or in connection with present contract shall be finally settled under Rules of Arbitration of International Chamber of Commerce by one or more arbitrators appointed in accordance with said rules”

Case Study 1Case Study 1 A India exporter’s factory is situated in New Delhi and they have entered int

o a sales contract with a Buyer whose premises are located in Malaysia, Ku

ala Lumpur. The Incoterms in the contract is CIF Malaysia, Kuala Lumpur.

Q1) Express the Incoterm in full.

Q2) For which part of the journey from India to Malaysia will the exporter have to pay for the t

ransport costs ?

Q3) What is the exporter’s responsibility in terms of insurance.

Q4) The cargo was damaged during voyage. Who should perform the marine insurance clai

m?

Case Study 2Case Study 2A Company in Asia exports branded shoes (non-containerized) approximately US$10 millio

n per year. This company has several hundred export clients around the world, but most of

them are located in just four countries:

Country A is in Western Europe – it has a well-organized port of discharge and efficient inland t

ransportation by rail and truck but is known for labor disturbances.

Country B is in Latin America – it is known for congestion at its port of discharge. The waiting t

ime of ships varies from 10 to 90 days. Inland transportation is excellent.

Country C is in Eastern Europe – it does not have the same difficulties as A and B, but the buy

ers here are not entirely reliable because of difficult economic conditions.

Country D is in the Asia-Pacific area – it has all of the advantages and none of the disadvantag

es of the above countries

The Shoe Company is often very unhappy and disturbed by the above conditions, as it will affect i

ts annual sales. The company also wish to maintain good relationship with its customers.

Q1) Which Incoterms would you suggest for the shoe company’s sales contracts with buyers in

each of the four countries?

Case Study 3Case Study 3

Choose the most suitable Incoterms for each scenario:

Q1) A seller is located in India who does not wish to handle the domestics

transportation, marine transportation, insurance and customs

formalities.

Q2) A buyer located in India wish to receive the cargo quickly by airfreight

without any hassle. The seller is located in United Kingdom.

Q3) A seller is located in India and the cargo have to be delivered to a

buyer at Pakistan border.

Q4) A seller is requested by the buyer to transport the cargo by sea to port

of destination in Hong Kong. Seller was also requested to pay for the

marine freight, insurance and unloading at the port of destination.

Q5) A buyer have different suppliers in Japan. Buyer consolidated his

purchase at a freight forwarder’s premise. Buyer is paying for the

freight charges and marine insurance.

Case Study 3 continue…Case Study 3 continue…

Choose the most suitable Incoterms for each scenario:

Q6) A seller was requested to pay for the freight charges by the buyer. Buyer informed that he will take care of the marine insurance. Port of destination is in Taiwan.

Q7) A seller factory is located in Thailand and has a own railway connection. Seller delivers full container with insurance to buyer in PSA port, Singapore.

Q8) A seller has a buyer in South Africa. Seller has to pay for both sea freight and marine insurance for the containers.

Q9) A buyer purchase cargo from seller located in US and do not wish to handle any freight, insurance and customs formalities.

Q10) A seller is loading bulk cargo onto vessel schedule to depart for destination in India. Seller’s sales price includes sea freight and marine insurance. But seller does not want to take the voyage risk.