Ing. Viktória Valachovičová, PhD.

Phone: +421-910 908 321

Email: valachovicova.viki@gmail.com

25.9.2012, Bratislava

Publication and importance of INCOTERMS as delivery terms of sales contract

Delivery, costs, risks and other obligations of seller & buyer according to the INCOTERMS

Changes in INCOTERMS® 2010 in comparison to INCOTERMS 2000

Calculation of price according to the INCOTERMS Issues to be careful with at the INCOTERMS’s

application Couple of real life scenarios

International Commercial Terms were first established in1936

Prepared by International Chamber of Commerce (www.iccwbo.org), Paris, approved by UNCITRAL

From 1th Jan of 2011, 7th revision published in Sept 2010 is applied

From 12/2010 – available Slovak translation (bilingual Slovak-English version) published by National Committee of the ICC in the SR in collaboration with the Slovak chamber of commerce & industry (www.sopk.sk)

They are applied at the business with goods, i.e. according to the Customs law n. 199/2004 and Law on VAT n. 202/2004 moveable tangible things and energy, delivery of services, business with paper securities, real estates

INCOTERMS are not a legislation, they become bound after their introduction in the sales contract (SC) or as a customary practice according to the CISG

„Soft law“

They determine They do not determine

Point of delivery

Transfer of costs (e.g. for transport, customs clearance, etc.)

Transfer of risks (the risk of loss and damage)

Other obligations of the contracting parties . These are grouped within INCOTERMS under 10 fields, for seller in A1–A10, for buyer in B1–B10

Transfer of ownership Price & payment conditions Dispute solution Relations to the banks, carriers,

forwarders, insurers Complaints of the quality of

goods, etc. On some of these aspects, e.g. on

the contracting parties within the Contract of Carriage, Forwarding contract or price, INCOTERMS have an indirect influence

Usually contract of sale includes:

Definition of the contracting parties

Description of the goods and its price

Rights and duties of the contracting parties

Transfer of ownership

Period for/date of delivery, place of delivery

Payment terms

Delivery terms – INCOTERMS

Date, place and the signatures of the contracting parties

Other requisites (packaging of the goods, period of guarantee, after-guarantee services, complaints, dispute solution, etc.)

Article of the SC, in which delivery term is determined:

Besides of sale contract, INCOTERMS are usually included in invoice (possibly in order, price offer) and subsequently in contract of carriage, documents of payment, etc.

Term Agreed place introduced in the SC behind term

EXW

FCA

CPT

CIP

DAT

DAP

DDP

FAS

FOB

CFR

CIF

Place of delivery

Place of delivery

Place of destination

Place of destination

Terminal at port/place of destination (=p. of delivery)

Place of destination (=place of delivery)

Place of destination (=place of delivery)

Port of shipment (=place of delivery)

Port of shipment (=place of delivery) Port of destination Port of destination

Terms is introduced together with the agreed place and version applied, e.g.: Abbreviation of term (agreed place), INCOTERMS® 2010, e.g: „FCA (TSOK/CCIS, Michalska 7, 2nd floor, 811 01 Bratislava), INCOTERMS® 2010“

Source: http://www.gw-world.sk/sk

Seller´s obligations Buyer´s obligations

General obligations

Licences, security clearances & other formalities

Contracts of carriage and insurance

Delivery

Risks´ transfer

Allocation of costs

Notices to the buyer

Delivery document

Checking, packaging, marking

Assistance with information and related costs

General obligations

Licences, security clearances and other formalities

Contracts of carriage and insurance

Taking delivery

Risks´ transfer

Allocation of costs

Notices to the seller

Proof of delivery

Inspection of goods

Assistance with information and related costs

Buyer Seller

EXW

FCA

FAS

FOB

(FCA) CPT CIP DAT DAP DDP (FAS) (FOB) CFR CIF

Reduction of their number to 11 terms: 4 were excluded (DAF,DES,DEQ,DDU), 2 added (DAT&DAP)

Shift of delivery point in three terms (FOB, CFR and CIF) from „across the ship´s rail“ to the „on board“

Accentuation of their possible application in the inland business directly in the title (cause of the USA, business zones and customary practice)

FOB, CFR and CIF in INCOTERMS 2000: „across the ship’s rail“

FOB, CFR and CIF in INCOTERMS® 2010: „on board the vessel“

FCA, CPT and CIP: carrier takes over the goods in a terminal

Two possibilities of delivery within the maritime terms

More detailed introduction to the individual terms including the graphical presentation of delivery point instead of the general too long preface in INCOTERMS 2000

Electronic communication has the large possibilities, however not specified in INCOTERMS (see A1 and B1 of any term)

New term: „security clearances“ in A2/B2 and „security-related information” in A10/B10

Obligation to provide the business partner with the necessary information for obtaining insurance was moved from A10/B10 to A3b)/B3b)

Emphasis of the only minimal insurance cover within CIF and CIP term

In new version, in A3a) of FAS and FOB, we can find the possibility to procure the contract of carriage by seller at the buyer’s risks and expenses

Wording of the INCOTERMS® 2010 in A3a) of FCA, FAS & FOB

Terms for any mode of transport

Terms for maritime and inland waterway transport

EXW Ex works

FCA Free Carrier

CPT Carriage Paid To

CIP Carriage and Insurance Paid To

DAT Delivered At Terminal

DAP Delivered At Place

DDP Delivered Duty Paid

FAS Free Alongside Ship

FOB Free On Board

CFR Cost and Freight

CIF Cost, Insurance and Freight

Inconspicuous preference of universal terms (K. Vanheusden): Division of terms according to the suitability for specific modes

INCOTERMS is introduced in basic business documents: price offer, purchase order, contract of sale and invoice

Term agreed influences the price - term and price are depending variables: when the seller accepts more risks, costs and obligations on his side, price is higher, i.e. in general, EXW price is lowest and DDP price is the highest

EP = PC + TN + profit margin EP = export price PC = procurement/ production price TC = transaction costs

P0 < P1 < P2 < P3

Costs of inspection, packaging and labeling

Costs of issuance of necessary documents

Costs of loading, unloading and other terminal fees

Costs of carriage

Cost of insurance

Taxes, duties and costs for various licenses and authorizations concerning the export & import

Transit costs

Costs of information

Supplementary costs (if basic duty is not fulfilled)

Introduction of the intended version (some companies still intend to realise their contracts according to the INCOTERMS 2000)

Application of the „maritime term“ at other mode of transport

Application of EXW at the business operations outside the business zones

Real possibility of repayment of VAT at the DDP

Accurate specification of the handling costs (loading, unloading of the goods) as buyer at the „C“ and „D“ – terms can not influence the Contract of Carriage

Variation of INCOTERMS, e.g. FOB trimmed, DAPunloaded

Limited insurance at the CIP and CIF

Risk of so called broken insurance (individual transport stages are insured by several insurance companies or insurance of the part of transport by exporter and other part by importer, e.g. at the application of CIF)

At application of DDP within EU, in position of the seller to verify, whether the goods is subject of excise duty in the country of destination

If not DDP within EU is applied, in position of the buyer to verify, whether the goods were already customs cleared for import to the EU

Asian seller and European buyer agrees in the contract of sale on: „CFR Hamburg INCOTERMS® 2010“

The goods are shipped in Singapore, but on the basis of wrong instructions of the seller to the carrier, they are discharged at Southampton.

Who now bears the cost of transshipping the goods from Southampton to Hamburg?

If goods are damaged by fire or stolen while in Southampton, who bears the risk of their damage/loss?

At the CFR, costs to the port of destination pays the seller

However, the buyer bears all risks after delivery of goods

on board the vessel in the port of shipment

In this case, costs are for the seller’s account and risks

for the buyer’s

It depends upon the seller to admit

the mistake and compensate the

buyer in order to keep the business

partner as well as goodwill

Case study n.1 - Solution

American seller delivered under “DAT Paris, INCOTERMS® 2010” to the French importer

Goods were carried in containers by sea transport from Philadelphia to Le Havre and on-carriage was operated by railway

It is now a week since the goods were removed by the buyer from the agreed terminal in Paris

Buyer has today discovered that goods in 2 containers were damaged

Can the buyer claim the part of the price back from the seller or to require the addition to the next delivery?

Case study n.2 - Assignment

Case study n.2 – A map

Buyer made mistake that he did not check containers with goods directly at the terminal

If the contract of sale would be on DAP Paris INCOTERMS® 2010, buyer could claim some refund from seller, but in the case that he already took over the goods from terminal and carried them to own premises, it is not possible to prove that the goods were damaged during the main carriage managed by seller and not by loading, on-carriage and unloading operated by the buyer on his own.

Case study n.2 - Solution