INCOTERMS 2010 Slide

TRADE WORKSHOP

29 May 2012

Presentation Contents

History of Incoterms

Why Incoterms?

What do Incoterms cover?

Key Changes of Incoterms 2010

How to use Incoterms 2010

Key Aspects of Incoterms 2010

1Importer applies for

Letter of Credit.

3

Request to advise

& possibly confirm

the Letter of

Credit

Advice

/Confirmation of the

Letter of Credit.

Issuing Bank2

4

Exporter/ Beneficiary

Importer/Applicant

Sales

Contract

Advising/

Confirming Bank

Letters of Credit Issuance

Issuing Bank

2

4

Exporter/

Beneficiary

Importer/App

licant

Document

6

5

Docu

me

nts

Document

3

7

Nominated/

Negotiating Bank

1

GOODS

Flow of Documents & Payment

INCOTERMS ACRONYM

Incoterms

is an acronym for

International

Commercial

Terms

HISTORY

The International Chamber of Commerce first published in

1936 a set of international rules for the interpretation of trade

terms, were known as INCOTERMS 1936

Amendments and additions were later made in :

19531967197619801990 2000 2010 (effective : 1 January 2011)

Thus,the uncertainties of different interpretations of such terms in different countries can be avoided.

Incoterms provide a set of international rules accepted by governments, legal authorities and practitioner worldwide.

For example:FOB American Coy diff FOB UK trader

considerable degree = banyak tafsiran

Why Incoterms ?

What do they cover ?

something goes wrong.

Was the correct Terms used?

Had Risk passed?

Who is responsible for Insurance ?

What was the named placedafter the INCOTERM?

SELLERS COST SELLERS COST SELLERS COST

SELLERS RISK SELLERS RISK

Goods

uncleared

for export

Merchandise Cost

Tracking / Train Cost

Export permit /

Export Tax (if available)

Port of Loading Cost :

Terminal handling Chgs.

Loading chgs

Freight and Insurance Cost

Port of discharge Cost :

Terminal handling chgs,

Unloading chgs

Import Permit /

Import Duties

Tracking / Train Cost

Buyers Works,Factory,Warehouse, etc.

BUYERS COST BUYERS COST

BUYERS RISK BUYERS RISK BUYERS RISK BUYER S

Sellers Works,Factory,Warehouse, etc.

Terminal Handling Charges (if available)

Risks :

Loss or damage of the

goods

The

Buyer

Explanation Cost/Risk/Responsibility

What Do They Cover?

In drawing up a sales contract, the importer and the exporter need to agree how they divide up the

Costs

Risks

Responsibilities

involved in transporting the goods from the exporter to the importer. This agreement is represented by a trade term which is known as an INCOTERM.

COSTS, RISKS And RESPONSIBILITIES

Costs - who will bear the costs involved in

delivering the goods;

Risks - who will bear the risks of loss or

damage to the goods in transit;

Responsibilities - who is responsible for

making all the necessary

arrangements.

COSTS, RISKS And RESPONSIBILITIES

Costs the division of cost between sellers & buyers

Risks the point at which delivery occurs i.e.

the point at which the risk of loss or damage

transfers from the seller to the buyer

Responsibilities which party is responsible

for export and import duties/

clearance

2000 2010

Group E Departure

EXW Ex Works

Group 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)

Group C Main carriage paid

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 and Insurance Paid To (.named place of destination)

Group D Arrival

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 E Departure

EXW Ex Works

Group 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)

Group C Main carriage paid


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

Group D Arrival

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)

STRUCTURE of INCOTERMS

Overview of the Key Changes in

Incoterms 2010

Key themes for changes

Encourage better use of Incoterms

Continue to refine for containers

E.g. terminal handling charges

Significant changes in practice:

Electronic communication

Security

Insurance

Encourage use in the USA

An eye for the commodity trade

Encourage = menganjurkan

Consolidation of D terms

New Incoterms DAT and DAP

DAF, DES, DEQ and DDU abolished

New Incoterms!

Abolished = menghapuskan

DAT in more detail

DAT Unloaded from arriving means of transport

Placed at the disposal of the buyer at the named terminal

Not import cleared

Replaces DEQ

More useful for containers

DAP in more detail

DAP On arriving means of transport ready for unloading

Not import cleared

Replaces DES, DAF and DDU

DAT DAP/DDP

Electronic communications

Incoterms 2000 Electronic data interchange (EDI) message

Parties have to agree to use EDI

Incoterms 2010 Equivalent electronic record or procedure

If the parties so agree, or customary

Customary = biasanya

Security

A2/B2 allocate obligations to obtain assistance in obtaining security related clearance.

A10/B10 compel seller and buyer to talk

Compel = memaksa/mendorong

Insurance

Institute of Cargo Clauses updated

A3/B3 Information to Insurance

NB. CIF and CIP only require minimum cover by Seller

Commodities - string sales

-Commodities sold several times via string of sale contracts. -More than one seller and only the firstseller will have been responsible for shipping the goods. -For example, CIF and CFR now refer to an obligation to contract or procure a contract for the carriage of the goods.

Domestic and international

Apply to both international and domestic

Encourage use in USA in place of the former US Uniform Commercial.

Encourage = menganjurkan

Terminal Handling Charges

Described clearly who should pay the Terminal Handling Charges.

Avoid paying for the same service twice by buyer (double exposure)

For example : CIF/CFR

Better use

The biggest problem with Incoterms is

using them incorrectly

And this is not just the first time exporter/importer

Cause Dispute, Litigation, Financial loss.

DAT and DAP replaces DAF, DES, DEQ and DDU

Domestic and international Electronic communication Insurance Security Terminal handling charges String sales Maritime made secondary Guidance notes

In summary

How To Use Incoterms 2010

Incorporate into contract

Choose the right rule

Specify the place/port precisely

e.g. FCA Jl HR Rasuna Said Blok X 5

Kav. 2 3, Jakarta Indonesia

Incoterms 2010

OBLIGATIONS OF SELLER: OBLIGATIONS OF BUYER:

Structure of the Incoterms 2010 Rules

The Sellers obligations are set out in articles A1-A10, and the Buyers obligations in mirror fashion in B1-B10, as follows:

A1 General obligations of the seller

A2 Licenses, authorizations security

clearances and other formalities

A3 Contracts of carriage and

insurance

A4 Delivery

A5 Transfer of risks

A6 Allocation of costs

A7 Notices to the buyer

A8 Delivery document

A9 Checking-packaging-marking

A10 Assistance with information and

related costs

B1 General obligations of the buyer

B2 Licenses, authorizations security

clearances and other formalities

A3 Contracts of carriage and insurance

B4 Taking delivery

B5 Transfer of risks

B6 Allocation of costs

B7 Notices to the seller

B8 Proof of delivery

B9 Checking-packaging-marking

B10 Assistance with information and

related costs

In addition, the text of the rules in A1-A10 and B1-B10 is supplemented by a short Introduction, setting out important features

of the new Incoterms 2010 rules generally, and Guidance Notes at the beginning of each rule, giving guidance on use and

application of the rule.

RULES FOR ANY MODE OR MODES OF TRANSPORT

Group C CPT Carriage Paid To (..named place of destination)CIP Carriage and Insurance Paid To (.named place of destination)

Group D 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)

Any Mode of TransportGroup E EXW Ex Works (..named place)Group F FCA Free Carrier (.named place)

RULES FOR SEA AND INLAND WATERWAY TRANSPORT

Sea and inland waterway transport only

Group F

FAS Free Alongside Ship (.named port of shipment)FOB Free On Board (named port of shipment)

Group C


How to use Incoterms

Incorporate into contract

Choose the right rule

Specify the place/port precisely

e.g. FCA 38 Cours Albert Ier, Paris, France

Incoterms 2010

Any Mode of Transport

EXW (EX WORKS) Any mode or modes of transport Delivery when Seller places goods at Buyers disposal at

named place Buyer loads goods onto collecting vehicle Buyer pays transport Buyer responsible for export where applicable Minimum Seller obligation Best used for domestic/intra-trading bloc contracts

INCOTERMS 2010

Seller Buyer

A B

C D

E F

EXW

Risk & Responsibilities

Cost/Expense

Real life - EXW

You buy Ex-Works (London) Incoterms 2010. You have no presence in the European Union

Any problems?

Presence = kehadiran

You buy Ex-Works (loaded) (Jakarta) Incoterms 2010

The goods are damaged in loading

Real life - EXW

Who is responsible for the cost of repairing the damaged goods? a. You b. The Seller

c. Both You and the Seller d. Unclear

Incoterms Variants Incoterms 2010 rules do not prohibit variants to

Incoterms as long agreed by all parties.

Such alterations extremely clear incorporated in their contract.

When using Variants, you are strongly advised to clarify exactly whose cost, risk & responsibility.

For eample: - Ex Work Loaded

- Ex Work Cleared

- CIF Maximum cover

- DDU cleared

You buy Ex-Works (Sellers premises Jakarta) Incoterms 2010.You expected to collect from SurabayaThe Seller insists on delivery at their premises in Jakarta

Real life - EXW

Who pays for the additional transport costs from

Jakarta to Surabaya? a. You b. The Seller

c. Both You and the Seller c. Unclearinsists = menentukan

FCA (FREE CARRIER)

Any mode or modes of transport

Delivery when Seller delivers goods to carrier or other Buyer nominee at Sellers premises or another named place

Buyer arranges and pays for transport BUT

If commercial practice or at Buyers request, Seller may (but is not required to) arrange transport at Buyers cost and risk

Seller responsible for export where applicable

Buyer responsible for import where applicable

INCOTERMS 2010

Seller Buyer

A B

CD

E F

FCA


Cost/Expense

Real life - choosing Incoterms

The Buyer wants you to deliver to Istanbul railway station

The Buyer will then move the goods by rail to Germany

Which Incoterm should you use?

EXW, FCA or FOB?

You sell FCA (Medan Indonesia Container Terminal) Incoterms 2010

There is a fire at the port destroying the container terminal and your

container

Real life - FCA

Must you replace the goods?

You sell FCA (Pontianak Indonesia Container Terminal) Incoterms 2010

The Buyer demands that you provide an on board bill of lading

Real life - FCA

Do you have to provide one?

a. Yes b. No

Real life - FCA

You sell FCA (Manado Indonesia Container Terminal) Incoterms 2010

The carrier demands payment of a new terminal charge to take custody

You pay.

Can you charge it to the Buyer?a. Yes b. No

custody = pemeliharaan

You buy FCA (Southampton Container Port) Incoterms 2010The UK has introduced a new mandatory container screening before containers can be loaded.

Real life - FCA

Who is obliged to pay?

a. You (Buyer) b. Seller c. BothMandatory = bersifat perintah

CPT (CARRIAGE PAID TO)


NB: Risk and cost shift to Buyer at different places

Delivery when Seller hands goods over to carrier (risk passes) BUT

Seller pays for transport (but does not have risk of transport)



INCOTERMS 2010

Seller Buyer

A B

C D

E F

CPT


Cost/Expense

1st Carrier

CIP (CARRIAGE AND INSURANCE PAID TO)



Delivery when Seller hands goods over to carrier (risk passes) BUT


Seller contracts for minimum cover insurance against buyers transport risk



INCOTERMS 2010

Seller Buyer

A B

C D

E F

CIP


Cost/Expense

(Cover Insurance)

1st Carrier

Real life CPT and CIP

You sell CPT (Buyers warehouse Aceh Indonesia) Incoterms 2010

You load the container onto a truck in Medan Indonesia

In transit the truck has an accidentCargo destroyed

Do you need to replace the goods?

a. Yes b. No c. Case by Case

You sell CPT (Brindisi Port, Italy) Incoterms 2010The shipping contract does not include unloading costsShip refuses to handover to the Buyer, until Buyer pays unloading costs


Can Buyer charge you the unloading costs? a. Yes b. No

You buy CIP (Damascus Airport) Incoterms 2010The goods arrive damagedThe insurer refuses to payInsurer states out of scope of Clause C Cargo Insurance


How to mitigate the risk cover?

DAT (DELIVERED AT TERMINAL)


Delivery when Seller unloads and places them at Buyers disposal at named terminal

Seller pays for transport



INCOTERMS 2010

Seller Buyer

A B

C D

E F

DAT

Terminal


Cost/Expense

DAP (DELIVERED AT PLACE)


Delivery when Seller places the goods at Buyers disposal not unloaded on arriving means of transport at named place




INCOTERMS 2010

Seller Buyer

A B

C D

E F

DAP


Cost/Expense

- Seller Not Responsible for Import

- Seller Not Unloaded

DDP (DELIVERED DUTY PAID)


Delivery when Seller places the goods, cleared for import, at Buyers disposal not unloaded on arriving means of transport at named place



Seller also responsible for import where applicable

INCOTERMS 2010

Seller Buyer

A B

C D

E F

DDP


Cost/Expense

-- Seller responsible for Import-- Seller Not Unloaded

Real life DAT, DAP and DDP

Your French customer asks you to deliver on a DDP basis

Do you agree?

You buy DAP (Buyers warehouse

Bogor) Incoterms 2010, from Dubai.

The goods are held at the Jakarta

border due to customs

Who is responsible for the delay?

a. You (Buyer) b. The Seller

c. Both


You are asked to deliver to Belawan(Medan Indonesia)s container terminal

Do you use DAT, DAP or DDP?


You buy DAT (Beirut container terminal) Incoterms 2010

The carrier tries to charge for unloading from ship and movement to stack

Do you pay? a.Yes b. No


Stack - tumpukan

You sell DAP (Buyers warehouse Istanbul)

Incoterms 2010

The container is damaged

when being unloaded

Who is responsible?

a. You (Seller) b. Buyer


You sell DDP (Hong Kong) by air Incoterms 2010

Buyer wants Seller to pay for transport between airport and warehouse

Must the Seller pay?

a. Yes b. No


Maritime only

FAS (FREE ALONGSIDE SHIP)

Sea or inland waterway transport only

Delivery when goods are placed alongside vessel at port ofshipment

Seller may also deliver by procuring goods already delivered as above (a string sale)

Buyer pays transport



INCOTERMS 2010

string sale = penjualan rutin

Seller Buyer

A B

C D

E F

FAS


Cost/Expense

FOB (FREE ON BOARD)


Delivery when goods are placed on board vessel at port of shipment


Buyer pays transport



INCOTERMS 2010

Seller Buyer

A B

C D

E F

FOB


Cost/Expense

Real life FAS and FOB

You buy goods FOB (Hamburg) Incoterms 2010.

When does title (ownership) pass?

You sell FOB (Makassar-Indonesia) Incoterms 2010

You deliver the container to the container stack

The containers contents are stolen


Stack = tumpukan

Do you need to replace the goods?a. Yes b. No

You buy FOB (Hamburg) Incoterms 2010


In loading a cable snapsThe cargo lands on the deck and is damaged

Who is responsible? a. You (Buyer)b. The Seller c. Both You and Seller

CFR (COST AND FREIGHT)



Delivery when goods are placed on board vessel at port of shipment (risk passes) BUT





INCOTERMS 2010

Seller Buyer

A B

C D

E F

CFR


Cost/Expense

CIF (COST INSURANCE AND FREIGHT)



Delivery when goods are placed on board vessel at port of shipment (risk passes) BUT



Seller contracts for minimum cover insurance against buyers transport risk



INCOTERMS 2010

Seller Buyer

A B

C D

E F

CIF


Cost/Expense

(Cover Insurance)

Real life CFR and CIF

You sell CIF (Semarang) Incoterms 2010.

Who is responsible for the inland haulage from Solo to Semarang?

a. You (Seller) b. Buyer

Haulage = angkutan

Real life CFR and CIF

You buy CFR (Jakarta port) Incoterms 2010

The Seller hands over to a truck at Johor

The cargo is loaded onto a ship at Singapore

The cargo was damaged between Johor and Singapore

Who is responsible?

a. You (Buyer) b. The Seller

FOB cannot be used as the delivery point is not on to a ship.

EXW it is unusual to use EXW where delivery is not at the sellers premises.

FCA risk passes on delivery.

Under A4 delivery is on delivery not unloaded at the container

terminal.

Therefore assuming delivery has happened then the risk is on the

Buyer.

CPT risk passes on delivery (A5).

In A4 delivery is when the goods are handed over to the carrier

contracted in accordance with A3. NB. Note the delivery point is

early it is not the place where the Seller has paid for carriage to.

CIP Under A5 risk passes to the Seller on delivery.

Under A4 delivery is when the goods were handed over to the

carrier.

DDP A Seller will normally avoid DDP as it will not want to bear responsibility for import clearance.

DAT. Under DAT the Seller is responsible for unloading from the ship and handling costs until the container is in the terminal.

DAP will extend the Sellers obligations to include all handling cost including costs of loading the Buyers vehicle.

FAS Under A4 the Seller must deliver the goods alongside the ship.

If the Buyer has not specified a loading point, then the Seller may

select the point within the port which best suits its purpose.

CIF Under A5 risk passes on delivery.

Under A4 delivery is when goods are placed on board.

Therefore the goods have been delivered and are at the risk of the

Buyer.

CFR Under A5 risk passes on delivery.

Under A4 the Seller delivers by placing them on board the vessel.

Therefore the cargo is at Sellers risk until loading at vessel.

The Seller is responsible for damage to the cargo before loading

goods at port of loading.

Transfer of risk from the seller to the buyer

DAT (ex DEQ)

FOB

CFR

CIF

Transport &

Insurance Paid

Transport Paid

FAS

DAP (ex DDU)

DDP

EXW FCA

CPT

CIP

Transport Paid

Transport & Insurance Paid

DAP (ex DES)

The

Buyer

First

carrier

Loading

PortDestination

Port

Frontier

DAP (ex DAF)

Thank you

INCOTERMS 2010 Slide

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