Chapter 3
INTERNATIONAL
COMMERCIAL
TERMS
(Incoterms)
30/09/2020
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Learning Objectives
• Distinguish commercial terms of
Incoterms 2010 and 2020.
• Differentiate the latest version of
Incoterms and the previous ones.
• Calculate and prepare prices in
quotations under different
commercial terms.
• Choose the best quotation, solve
problems which relate to
Incoterms.
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Contents
Purposes of INCOTERMS
History of INCOTERMS
Terminology of INCOTERMS
Structure of INCOTERMS
Contents of INCOTERMS
Notes on use of INCOTERMS
Variations from INCOTERMS
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Purposes of Incoterms
Provide specific rules for
• determining the obligations of both
the seller and the buyer.
• carriage of the goods from seller to buyer
• export, import and security-related
clearance
• explaining the division of costs and
risks between the parties.
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What do Incoterms not deal with?
▪ transfer of property rights in the goods;
▪ unexpected or unforeseeable events;
▪ breaches of contract
▪ method of payment.
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What do Incoterms deal with?
▪ The principal duties of the seller and
buyer
▪ Transfer of risks – place and point in
time.
▪ Allocation of all costs incurred from
dispatch to arrival at the place or port
of destination.
▪ Formalities (e.g. customs formalities)
for import, export or transit.
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History of Incoterms
. Incoterms 1936: 7 terms
. Incoterms 1953: 9 terms
. Incoterms 1967: 11 terms
. Incoterms 1976: 12 terms
. Incoterms 1980: 14 terms
. Incoterms 1990: 13 terms
. Incoterms 2000: 13 terms
. Incoterms 2010: 11 terms
. Incoterms 2020: 11 terms
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Terminology
• Delivery
• Pre-carriage
• Main-carriage
• Onward carriage
• Multimodal
• Carrier
• String sales
• Door-to-door
• Door-to-port
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Terminology
• Port-to-port
• On-board
• Minimum coverage
• Party of risk
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Structure of Incoterms 2010
Classification:
• Group 1: Rules for any mode or modes
of transport
• EXW (Ex Works)
• FCA (Free Carrier)
• CPT (Carriage Paid To)
• CIP (Carriage and Insurance Paid)
• DAT (Delivered at Terminal)
• DAP (Delivered at Place)
• DDP (Delivered Duty Paid)
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Structure of Incoterms 2010
Classification:
• Group 2: Sea and inland waterway
transport
• FAS (Free Alongside Ship)
• FOB (Free On Board)
• CFR (Cost and Freight)
• CIF (Cost, Insurance and Freight)
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Structure of Incoterms 2010
Format
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Contents of Incoterms 2010
• Four categories of Incoterms rules
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1. E GROUP
EXW: Ex Works + Named place
Named place: where the shipment
originates - at the disposal of the buyer,
usually the seller’s premises.
Seller: must have goods available and
packaged
Buyer: must arrange pre-carriage, export
clearance, main carriage, import clearance,
and on carriage.
Neither party is required to insure
Transport mode: All
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1. E GROUP
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2. F GROUP
2.1 FCA: Free Carrier + Named place
Named place: either the place where the
shipment originates such as the seller’s
premises or another place agreed within the
seller’s country.
Seller: must have goods available and
packaged, load collecting vehicle, pre-carriage
and export clearance.
Buyer: must unload delivering vehicle, main
carriage, import clearance and on carriage.
Neither party is required to insure
Transport mode: All
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2. F GROUP
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2. F GROUP
2.2 FAS: Free Alongside Ship + Named port
Named port: alongside a vessel arranged
for and named by the buyer at a named port of
shipment.
Seller: delivers goods, export packed
alongside the buyer-designated ship at the port
on the seller’s side along with export clearance
Buyer: loads vessel, arranges main carriage,
import clearance and on carriage.
Neither party is required to insure
Transport mode: Vessel only
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2. F GROUP
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2. F GROUP
2.3 FOB: Free On Board + Named port
Named port: loaded on a vessel at a port on
the seller’s side.
Seller: delivers goods on board the buyer-
designated vessel at the port on the seller’ side
along with export clearance.
Buyer: arranges main carriage, import
clearance and on carriage.
Neither party is required to insure
Transport mode: Vessel only
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2. F GROUP
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3. C GROUP
3.1 CFR: Cost and freight + Named port
Named port: on the seller’s side.
Seller: delivers goods export packed on
board the seller-designated vessel at the port
on the seller’s side, pays transportation costs
to the agreed port on the buyer’s side and
arranges export clearance.
Buyer: arranges vessel unloading, import
clearance and on carriage.
Neither party is required to insure
Transport mode: Vessel only
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3. C GROUP
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3. C GROUP
3.2 CPT: Carriage paid to + Named place
Named place: on the buyer’s side
Seller: delivers goods export packed to the
carrier for transportation to the named place of
destination and will pay all transportation costs
thereto along with arranging export clearance.
Buyer: arranges import clearance and on
carriage.
Neither party is required to insure
Transport mode: All
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3. C GROUP
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3. C GROUP
3.3 CIF: Cost, insurance & freight + Named port
Named place: on the buyer’s side
Seller: delivers goods export packed on board
the seller-designated vessel at port on the
seller’s side, pay all transportation costs to
agreed port on the buyer’s side and arranges
export clearance.
Seller must provide insurance at least minimum
coverage.
Buyer: arranges import clearance and on
carriage.
Transport mode: Vessel only
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3. C GROUP
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3. C GROUP
3.4 CIP: Carriage and insurance paid to +
Named place
Named place: on the buyer’s side
Seller: delivers goods export packed to the
carrier for transportation to the named place of
destination and pay all transport costs thereto
along with arranging export clearance.
Seller must provide at least minimum insurance
coverage.
Buyer: arranges import clearance and on
carriage.
Transport mode: All
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3. C GROUP
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4. D GROUP
4.1 DAT: Delivered at terminal + Named place
Named place: at terminal on the buyer’s side (a
terminal at the destination port or a terminal not far
beyond the destination port where it’s yet to be
cleared by Customs)
Seller: arranges export clearance and delivers
goods export packed to the named destination
terminal, pay all transportation costs thereto and
unloads
Buyer: arranges import clearance and on
carriage.
Neither party is required to insure
Transport mode: All
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4. D GROUP
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4. D GROUP
4.2 DAP: Delivered at place + Named place
Named place: on the buyer’s side.
Seller: arranges export clearance and delivers
goods export packed to the named place of
destination, pay all transportation costs thereto
Buyer: arranges import clearance and on
carriage.
Neither party is required to insure
Transport mode: All
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4. D GROUP
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4. D GROUP
4.3 DDP: Delivered duty paid + Named place
Named place: on the buyer’s side.
Seller: arranges export clearance, delivers
export packed goods cleared for import at the
named destination, pay all transportation costs
thereto
Buyer: is responsible for unloading and on
carriage.
Neither party is required to insure
Transport mode: All
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4. D GROUP
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Notes on use of Incoterms
Notes:
• It is not mandatory to use Incoterms in a sale
contract
• Incoterms are not price clauses, but do have
an impact on the pricing
• Sales contracts which are based on a former
version (e.g. Incoterms 2000) remain valid
according to the terms of that version
• Buyers and sellers should refer to the
appropriate version of the Incoterms
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Changes of Incoterms 2020
compared to Incoterms 2010
1. Layout of the rules (Article A1-A10/ B1-B10).
2. FCA – Bill of Lading (Article B6).
3. Different levels of insurance cover in CIF and
CIP (Article A5).
4. Buyer’s and Seller’s own transport.
5. Updated Costs and Listings (Article A9/B9)
6. DAT changes to DPU.
7. Increase Secutiry requirements (Article A4/A7),
security allocation.
8. More detailed explanations.
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Variations from Incoterms
1. Additions to EXW
2. Additions to FOB
3. Additions to FCA
4. Additions to C-terms
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Questions
1. Which terms were eliminated from
the Incoterms 2010 version?
2. How many categories does
Incoterms 2010 have?
3. Which term does the seller assume
the maximum obligations, including
clearing goods for import?
4. Which term does the seller assume
the minimum obligations?
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Questions
5. What is the difference between:
FOB & FCA, CIF & CIP, CFR &
CPT?
6. Distinguish Incoterms 2000 and
Incoterms 2010.
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Questions
7. Which term is suitable for the following
case: The exporter arranges the main
carriage to Numbai port – India, clears export,
delivers the goods to the shipping company
at CY in Saigon port?
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Questions
7. Which term is suitable for the following
case: The exporter arranges the main
carriage to Numbai port – India, clears export,
delivers the goods to the shipping company
at CY in Saigon port?
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Questions
8. Which term is suitable for the following
case: Company A exports its goods to
Company B (Singapore). The goods are
packaged in containers. Company A will clear
export and deliver the goods to the shipping
company’s agent at CY in Saigon port.
Shipping company is appointed by the buyer.
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Exercise
9. Company A (VN) wants to buy peanut from company B
in India. There are 02 offers for the peanut with the same
quality.
Offer 1: The offered price is USD 600/ MT, CIF, Saigon
port, VN, Incoterms 2010. Payment will be made right after
delivery.
Offer 2: The offered price is USD 595/ MT FOB, Numbai,
India, Incoterms 2010. 70% of the contract value will be
paid right after delivery. The remaining amount will be
paid 03 months after delivery.
Where the freight from Numbai to HCMC is USD 100/ MT.
Premium rate 2% (under 110% CIF). Interest rate is
11%/year.
Which offer has better price?
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Exercise
10. Company A (VN) offers 10,000 MT of rice for a French
company with the price of USD625/MT CIF Le Harve
(France), Incoterms 2010. Payment will be made 1 month
after the delivery date. However, the French company
wants to purchase 10,000 MT of rice under FOB, HCMC
port, Incoterms 2010 and 80% of payment will be made
one month after delivery date, the remaining will be made
two months after delivery date.
Calculate the price under the term chosen by the
French company.
Where, the freight from HCMC to Le Harve is USD40/ MT;
the premium rate is 2% (under 110% CIF); Interest rate is
12%/year.
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CASE STUDIES
1. When will the importer choose EXW?
2. A contract under EXW term, the importer
fails to give notice about the date and
place of taking delivery in time as
stipulated in the contract. Therefore, the
exporter cannot deliver the goods which
are stored in the stock. During the time in
the stock, the quality of the goods is
affected badly. Who is responsible for this
case?
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CASE STUDIES
3. An import contract uses EXW, the goods
are loaded onto a means of transport at the
seller’s premise. Will the obligation and costs
be for the seller’s account?
4. Under EXW of Incoterms 2010, the
obligation of the seller is minimum, does the
seller need to pay attention to the transport of
the buyer in order to pack the goods in
proper way?
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CASE STUDIES
A contract under FCA term, the goods will
be in containers. When the buyer clears
customs for the goods, he opens the
container for the customs authority to
inspect the goods, he finds that the
goods’ packages have been torn and
affected the quantity. Who is responsible
for this?
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CASE STUDIES
5. Under Incoterms 2010, is FCA different from
“EXW + export clearance”?
6. Under EXW, the buyer must be responsible for
export clearance. In case the buyer cannot perform
well this duty because of the complicated formalities.
Therefore, the buyer cannot take delivery and does
not make payment? Does the buyer breach the
contract? 114
7. Under EXW, the seller fulfils his obligation after
placing the goods at the disposal of the buyer at the
agreed point. Does the seller have any obligation
related to checking the goods before exporting? Who
will pay the cost?
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CASE STUDIES
8. Under FCA, after delivering the goods to the
carrier (shipping company), the seller receives
“Received for shipment” which is not a transport
document. Is this document acceptable? Why?
9. Under FAS, the seller delivers the goods
alongside the ship. Does the ship owner need to
issue transport document to the seller or not? If
not, how can the seller prove that he has fulfilled
his delivery obligation?
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CASE STUDIES
10. The export goods are frozen and transported
in container by sea. Is FOB a good choice?
11. A sales contract specifies the export price of
530 USD/MT FOB Saigon Port, Vietnam. Is this
way of writing correct?
12. When should the buyer choose F terms?
13. The difference between FOB Incoterms 2000
and FB Incoterms 2010
14. How to reduce risks caused by shipping
companies when these companies do not follow
strictly the regulations of the shipping contract
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CASE STUDIES
15. Under F terms, the seller agrees to arrange
the means of transport for the buyer. Because of
some reasons, that means of transport cannot
carry the goods in the agreed time, which affects
badly the goods’ quality. Who will bear that risk?
16. Under F terms, if the buyer fails to give notice
in details for the collecting vehicle to collect the
goods in time, so the seller does not identify the
goods within the agreed time. May the seller
transfer the risks soon to the buyer
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CASE STUDIES
13. In case the goods are transacted under C
terms. On the way of shipment, the ship master
must transship the goods to avoid unexpected
events as strikes, wars, frozen sea … who will
bear the costs of transhipment?
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CASE STUDIES
14. Are there any differences between CFR FI,
CIF FI and CFR, CIF of Incoterms 2010 or not?
15. Under CIP and CIF, when will the insurance
take place?
16. An import contract with CFR or CIF and
payment method is documentary credit. The ship
reached the port but the documents have yet to
reach the bank. What will the importer do to take
delivery?
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CASE STUDIES
17. In a sales contract under FOB, the buyer often makes
his own decision on tolerance, for example “10,000 MTS
+/- 105 at buyer’s option”. If CIF or CFR is applied, will
the seller or the buyer decide the tolerance?
18. Compare CIF and DAT.
19. If the buyer wants to take delivery at VICT HCMC
under DAT, is this way of writing correct “DAT Hochiminh
city port, Vietnam” ?
20. What factors do we base on to choose a term in D
terms Incoterms 2010?
21. An import contract under D terms, does the buyer
need to have B/L to take delivery or not? Why?
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CASE STUDIES
22. Under F terms, if the buyer fails to give
notice in details for the collecting vehicle to
collect the goods in time, so the seller does
not identify the goods within the agreed time.
May the seller transfer the risks soon to the
buyer?
23. Under F terms, the buyer hires means of
transport. After receipt of the goods, the ship
master will issue, and sign a bill of lading.
Can the ship master give that B/L to the
buyer?
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CASE STUDIES
24. Một hợp đồng NK theo điều kiện “DAT
kho sóng thần Bình Dương” khi làm thủ tục
hải quan tại Tân Cảng, TpHCM thì gặp trục
trặc không thông quan NK được. Vậy ai
chịu rủi ro?
25. Theo tinh thần của Incoterms 2010 khi
XK theo điều kiện DDP Hoa Kỳ, người bán
VN phải làm thủ tục NK tại thị trường Hoa
Kỳ. Hỏi các doanh nghiệp VN làm sao có
thể làm được thủ tục này?
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CASE STUDIES
26. Sau khi nhận hàng theo điều kiện
nhóm D, người mua mới phát hiện ra hàng
hóa bị hư hại do quá trình vận chuyển, hỏi
ai chịu rủi ro đó?
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Exercise
Company A (VN) wants to buy Robusta coffee from Company
B in Indonesia. There are two offers as follows:
▪ Offer 1: Price: 1,344.00 USD / MT, CIF, Saigon port, VN,
Incoterms 2010. Payment will be made 3 months after
delivery.
▪ Offer 2: Price: 1,335.00 USD / MT FOB, Jakatar, Indonesia,
Incoterms 2010. 60% of payment will be made right after
delivery. The remaining will be made 02 months after
delivery. Commission paid for the broker is 1% per contract
value (for the buyer’s account) .
▪ Freight from Jakatar to HCMC is 20 USD / MT. Premium
rate is 2% (under 110% CIF).. Interest rate is 8%/year.
▪ Which offer is better?
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