INCOTERMS 2010

presented by

Michael Grün

LOG CONNECT AG

www.log-connect.com

A domestic trade took place and for the short way, the selling and the buying party agreed EXW BE-Brussels.

The buyer doesn’t need any documentation, since the goods are already paid and all information have been exchanged prior to the transport.

Transport arrangement, insurance covering was made sufficiently and the loading place has been agreed successfully.

The collecting vehicle arrived and goods are completely packed and ready for pickup.

During the uploading activities, the forklift-driver scratched the shrink-wrap-packing and the machinery inside has been damaged.

No problem – the seller has an insurance, which covers those happenings, fully… or is there any trap?

UNFORTUNATELY YES! THE INSURANCE OF THE SELLER REJECTED ANY SETTLEMENT, EVEN IF THEY CONFESSED, THAT THE DAMAGE HAS BEEN CAUSED BY THEIR OWN WAREHOUSE STAFF.

THE BUYER ISN’T WILLING, TO ANNOUNCE THIS CLAIM TO THEIR OWN INSURANCE, SINCE THEY FEEL NOT RESPONSIBLE FOR THE DAMAGE…

Did you ever face a similar case…?

Well, you may think: ,,Hopefully, we’ll not talk about such

petty things, during the next two hours...’’

So, let’s have a look to the next slide.

In a so called “tri-angle-business”, a trading company from Switzerland sells high-value alloy bars to a German factory, basing on DDP DE-Hamburg.

The Swiss trader, on his part, bought these pipes from a Chinese supplier. They agreed CFR BE-Antwerp and the pipes arrived in time at destination port but in loose condition.

When promising, the delivery-timeframe, the trader announced an import clearance at ANW-seaport and a direct transport to DE-Hamburg.

Since he’s disposing about a fiscal registration, including an EORI-No. the trader should be enabled, to do so…

Everything seems to be fine – right?

UNFORTUNATELY NOT ! THIS DEAL HAS BEEN DONE IN 2014. THE COURT PROCEEDING WILL TAKE PLACE NEXT MONTH. GOODS ARRIVED ONE MONTH TO LATE. A LOT OF EXTRA COSTS DID OCCUR…

Did you ever face a similar case…?

CONTRACT!

DELIVERY DATE???

PACKAGING???

PENALTY!

CUSTOMS

P O A !

VAT- (TAX) ID-NO. ?

FISCAL REP.

€ € €

The Incoterms (International Commercial Terms) …

…define the responsivities of sellers and buyers in exactly four topics.

…take major influence on the activities of exporter and importer.

…have been established in 1936 by the International Chamber of Commerce (ICC) and were adapted several times to the demands of international trading activities as well as to the upcoming technologies.

…in their latest version (2010) became effective on 01st January 2011.

…are suitable for domestic and international trading.

…help, to avoid misunderstanding between the trading parties but their usage isn’t mandatory – however a clear agreement is absolutely recommended.

ICC Incoterms® overview:

1930 1950 1960 1970 1980 1990 2000 2010 1940

They‘re valid only, if mentioned explicitly in the contract or separate agreements.

It’s invalid, to mix-up several Incoterms or amend these rules.

The applied version and the assigned place of fulfilment need to be mentioned (i. e. FCA BE-Antwerp, Incoterms 2010).

Additionally explanations need to be agreed in a separate matter. Those can be: - payment terms of customs duties / taxes (VAT) - kind of customs treatment - named customs broker - transport routing - packaging

Incoterms® in daily practice

What can be settled by Incoterms®?

The Incoterms need to be a part of the sales contract. They give clear indications about the responsibility of: - DELIVERY - DOCUMENTS - RISKS - & COSTS

They exclusively settle the relation between SELLER and BUYER! There’s no (direct) influence on the activities of insurance companies, freight forwarders, carrier or banks.

There‘s a difference between rules, where all topics change at one single point (i. e. EXW; FAS) and those, where different places appear regarding the transfer of the different obligations.

CUSTOMS CUSTOMS

DELIVERY:

At which place and at which time, the seller has to provide the cargo for the buyer and who is responsible for loading & unloading activities…?

DOCUMENTS:

Who is responsible for which announcements, registrations, shipping documents, electronically declarations and applications (also via EDI)…?

IMPORT-

LICENSE

WAYBILL

(CMR, CIM, etc.)

MRN IIIIIIIIIIIIII

EXPORTDECLARATION

EX A

SHIPPING INVOICE

for customs purposes

_________________________

_________________________

_________________________

_________________________

_________________________

_________________________

The four-topics-principle

RISKS:

Who is responsible to takeover the risks regarding damage or loss of the cargo as well as obligations in case of accidents (averages)? Where is the transfer of this responsibility? Only two terms (CIF & CIP)oblige an insurance by seller!

COSTS: Who is paying for packing / stuffing, freight-costs, port-charges, declarations, administration-fees, handling & security charges …?

?

The four-topics-principle

Not every question, especially in international trading activities, can be settled by these rules. There are a lot of topics, like …

→ Property rights

→ Payment terms

→ Place of jurisdiction

→ (notice of) Defects

→ Time frames

→ Warranty / replacement

→ . . .

They cannot be regulated by the Incoterms.

National / federal laws, the sales contract and additional agreements need to settle those topics.

The obligation, to take out an insurance is given by two Incoterms only! These are CIF & CIP. Any other term only defines, who has to take over the risks! It is urgently recommended, to cover insurances at all transports, anyway. Especially in ocean shipping, the effects of an incident are incalculable!

Not settled by Incoterms®

The latest version (2010) of Incoterms contents the following options:

EXW EX WORKS (applicable for domestic business, only)

FCA FREE CARRIER

FAS FREE ALONGSIDE SHIP

FOB FREE ON BOARD

CFR COST AND FREIGHT

CIF COST, INSURANCE AND FREIGHT

CPT CARRIAGE PAID TO

CIP CARRIAGE AND INSURANCE PAID TO

DAT DELIVERED At Terminal (unloaded)

DAP DELIVERED At Place (on delivery vehicle)

DDP DELIVERED DUTY PAID (import at destination by selling party!)

The former versions are still valid but it isn’t recommendable to make use of them.

To agree the terms in a fully correct way, the place and version need to be mentioned! Only these three elements ensure the avoiding of misunderstandings or wrong. Interpretations (i. e. FCA BE-Antwerp, Incoterms 2010)

Which Incoterms® shall we use?

Group E: “minimum clause”

EXW packed, ready for dispatch, without export-admin., documents (multimodal clause) & any loading activities

Group F: main transport not paid by seller

FCA packed, uploaded on collecting-vehicle, (multimodal clause) incl. export-admin. & documents up to border

FAS placed at port-quay, incl. export-admin. & port fees at origin (maritime clause)

FOB placed on vessel, incl. export-admin. & port fees at origin (maritime clause)

Please notice:

Multimodal clause means applicable for any mode of transportation the maritime clauses should be used for ocean- and inland waterway transports, only!

Some Incoterms® depend on modality…

Group C: main transport paid by seller

CFR costs & delivery up to port of destination; risks up to set down (maritime clause) on vessel; export-admin & documents up to border of origin country

CIF costs, delivery up to port of destination, insurance up to set (maritime clause) down on vessel; export-admin & documents up to border of origin country

CPT costs, delivery & documents up to (air-) port of destination; (multimodal clause*) risks up to uploaded on collecting-vehicle

CIP costs, delivery & documents up to (air-) port of destination; (multimodal clause*) insurance up to uploaded on collecting-vehicle

Please notice:

* It isn’t recommendable, to make use of CPT & CIP at road-transportation, since DAP & DAT fit much better to these modes. These terms fit ideally to airfreight or railroad shipments.

Some Incoterms® depend on modality…

Group D: delivery (“maximum”) clauses

DAT delivery & risks up to a “terminal”, unloaded; no import (multimodal clause) clearance at destination country

DAP delivered at (defined) place, not unloaded; no import (multimodal clause) clearance at destination country

DDP delivered at final destination, not unloaded; completed import (multimodal clause) clearance at destination country

Please notice:

A “terminal” in meaning of the Incoterms may be a railway terminal, o port quay, a hub for road transportation or any other handover-substation. When using DDP, please check carefully and in an early stage, if seller can be fully responsible for import at the destination country, without any assistance from seller. Otherwise, always agree DAP instead!

Some Incoterms® depend on modality…

DOCUMENTS (EDI)

RISKS

IF INCLUDED IN OCEAN RATES / AS PER SEPERATE AGREEMENT

SELLER BUYER

COSTS DELIVERY

DDP

FCA

EXW FOR DOMESTIC TRADING, ONLY!

FAS

FOB

CFR

CIF

UNLOADED!

DAT

DAP

CPT

CIP

Overview: Incoterms® 2010 CUSTOMS CUSTOMS

COMPLETE INSURANCE BY SELLER !

EXW – ex works

Minimum responsibility for the seller (maximum for buyer);

No uploading by seller

(in case, loading is done by seller, he acts on behalf of buyer) ;

No paperwork or EDI-announcements (export-declaration) by seller;

Therefore unsuitable for international trading;

Complete liability for damages (transport, loading, handling, unloading, etc.), loss

and average claims at buyer;

Obligation for seller about announcement regarding readiness for dispatching,

only;

Incoterms 2010 are indicating clearly, that this clause should

be applied in case of domestic trading activities, only!

The Incoterms® 2010, separated…

FCA – free carrier

Delivery-, cost- & risk-liability change from seller to buyer, when cargo has been

placed on collecting vehicle (carrier acts on behalf of the buyer);

Place for handover may be…

a) company premises, workshop or external warehouse of the seller;

b) any other substation, controlled by seller;

Documentation & (EDI-) announcements up to the boarder of origin country

(invoice, packing list, delivery note, export declaration, C. o. O., etc.) by seller;

FCA is the most suitable term, when the physical goods flow should be

arranged completely by the buying party, applicable for all modes of

transport and in international business cases!

The Incoterms® 2010, separated…

FAS – free alongside ship (vessel / barge)

Seller delivers, carries costs & risks up to the quay, where collecting vessel lands;

Documentation & (EDI-) announcements up to the port of origin country by seller

(same as FCA but including port registration / administration);

Maritime clause;

FOB – free on board

Sellers responsibility for risks, costs & delivery up to the moment, when cargo has

been placed on vessel (new);

Documentation & (EDI-) announcements up to the port of origin country by seller

(same as FAS);

Maritime clause (sometimes applied with airfreight, by mistake);

The Incoterms® 2010, separated…

CFR – costs & freight

Seller delivers & carries costs up to port of arrival; vessel-unloading / port-

handling may be included in ocean freight or settled by general port conditions –

please clarify prior to shipping;

Risks are changing from seller to buyer when goods have been placed on vessel at

port of departure (same as FOB);

Documentation & (EDI-) announcements up to the port of destination country

by seller (same as FAS but including waybill / bill of lading, etc.);

Maritime clause;

CIF – costs, insurance & freight

Same as CFR but including insurance coverage by seller up to final destination;

Obligation for minimum insurance, only – additional clarifications for need;

The Incoterms® 2010, separated…

CPT – carriage paid to

Seller carries costs up to (named) place of destination;

Pre carriage, main transport & on carriage have to be arranged by seller;

Risks are changing from seller to buyer with goods handover to the carrier

(same as FCA);

Documentation & (EDI-) announcements up to the border of destination country

(no import responsibility) by seller;

CIP – carriage & insurance paid to

Same as CPT but including insurance coverage by seller up to final destination;

Obligation for minimum insurance, only – additional clarifications for need

The Incoterms® 2010, separated…

DAP – delivered at place

New term since 2011 (replacement for DDU);

Delivery-, cost- & risk-liability change from seller to buyer, when cargo arrives

at (named) place of destination on the delivery vehicle;

Place of delivery needs to be agreed definitely (any premises of the buyer);

Buyers responsibility, costs & risk for unloading from delivery vehicle;

All documents & (EDI-) announcements, except customs treatment at country of

destination, need to be provided by selling party

(buyer takes care for import clearance, as well as for duties & taxes);

DAP is the most suitable term, when the physical goods flow should be

arranged by the selling party, except unloading & import clearance at destination

country, applicable for all modes of transport and in international business cases!

The Incoterms® 2010, separated…

DAT – delivered at terminal

New term since 2011 (replacement for DDU);

Delivery-, cost- & risk-liability change from seller to buyer, when cargo has been

placed at defined terminal

(warehouse, railway station, air- / sea-port or else premises, defined by buyer);

Sellers responsibility, costs & risk for unloading from delivery vehicle;

All documents & (EDI-) announcements, except customs treatment at country of

destination, need to be provided by selling party

(buyer takes care for import clearance, as well as for duties & taxes);

Please check carefully, if unloading activities at the place of delivery

(in a foreign country) can be performed by the seller!

The Incoterms® 2010, separated…

DDP – delivered, duties paid

Maximum responsibility for the seller (minimum for buyer);

Seller delivers completely, carries all costs & risks up to (named) place of

destination, (goods provided on delivery vehicle);

Buyers responsibility, costs & risk for unloading from delivery vehicle;

All documents & (EDI-) announcements, including customs treatment at country

of destination, need to be provided by selling party; especially Import clearance,

customs duties & taxes need to be settled by seller (import license or registration

at local authorities maybe required);

DDP is only applicable, if the seller can be responsible for import procedure at the

destination country, without any assistance from seller and if he’s also willing

(able) to pay all duties and taxes (entitlement for VAT / tax refund)!

The Incoterms® 2010, separated…

Recommendable readings

MANY THANKS FOR YOUR PATIENCE

LOG CONNECT AG Lochackerstrasse 4 8424 Embrach Schweiz

www.log-connect.com

Ralf Keller Managing Director

Direct: +41 43 266 55 21 Mobile: +41 79 443 68 72 E-Mail: r.keller@log-connect.com

LOG CONNECT AG Lochackerstrasse 4 8424 Embrach Schweiz

www.log-connect.com

Michael Grün Vice Director

Direct: +41 43 266 55 23 Mobile: +41 79 693 35 41 E-Mail: m.gruen@log-connect.com