INTERNATIONAL COMMERCIAL

TERMS
2020

- DR. CHARU GROVER

[email protected]
LEARNING OBJECTIVES
 INCOTERMS History
 Process of Formation of INCOTERMS
 Transport Definitions
 Factors influencing INCOTERMS
 Purpose of Shipping Terms
 Various Types of INCOTERMS
 Choosing INCOTERMS for International Trade Deal
INTERNATIONAL COMMERCIAL TERMS
HISTORY
 First set out in 1936 and has been periodically revised (Incoterms
2020 is the 9th revision).
 INCOTERMS are universally accepted, recognized and
administered by all the signatory member countries of the
International Chamber of Commerce (ICC).
 INCOTERMS 2020
 Met 11 times in person
• Received over 2000 suggestions in first request
• Refined suggestions over 4 proposals
• Controlling source document is written in British English and will be
translated into 35+ languages over the next year.
WHAT ARE INCOTERMS 2020?
 Eleven (11) Incoterms 2020
 Available worldwide through 100 International Chamber of Commerce National
Committees
• The terms aren’t law
• Country neutral – they don’t favor one country over another
• Self-contained – all information that determines responsibility and risk are in
one place
• These terms are used in a sales agreement
• They are not enforceable by law until incorporated in a sales contract.
• Defines the costs and risks between Exporter & Importer in an International
Sales Transaction.
• To help parties to avoid misunderstandings
PROCESS OF FORMATION OF INCOTERMS

Group E
Chambers of Commerce
(Departure)
of different countries
Group F (Main
NGO/Pressure Groups Carriage Unpaid)

Trade International Chamber of Group C (Main

Merchant/Associations of Commerce, Paris Carriage Paid)
different countries Group D
Intergovernmental Panel (Delivered)

International Trade
Facilitating Bodies
WHO USES THEM
 Buyers and Sellers, directly
 And indirectly
• Banks
• Insurers
• Carriers/Forwarding Agents
TRANSPORT DEFINITIONS
 Pre-carriage: inland transportation on the seller’s side
 Main Carriage
 On-carriage
TRANSPORT DEFINITIONS

 Door – to – Door
 Door – to – (Air) Port
 (Air) Port – to – (Air) Port
 (Air) Port – to – Door
TRANSPORT DEFINITIONS
Company A

Company B

Door to Door – one contract for all carriage

(pre-, main, and on-carriage)
 TRANSPORT DEFINITIONS

Company A

Door to Port – contract for pre-

carriage and main-carriage
Company B responsible for arranging
pick up at Arrival Airport
A FEW MORE DEFINITIONS

 Omni-modal: Used with terms that use all modes of transportation

(truck, airplane, vessel, train…)
 Marine-restricted: Terms that only apply to carriage by vessel (sea)
 Shipment Contract: Sales/purchase contract where the seller’s
responsibility ends when goods are handed over to the first carrier
 Arrival Contract: Sales/purchase contract where seller’s responsibility
ends when goods have arrived at agreed place
KEY QUESTIONS TO ASK IN STRUCTURING
A TRANSACTION
 Who furnishes the goods?
 Who packages the goods in a manner suitable for shipment (export)?
 Who moves the goods from the seller’s factory to a port, airport, or border crossing in the seller’s
country?
 Who arranges for export clearance in the seller’s country?
 Who arranges for main carriage (international transportation) from the departure port to the
arrival port?
 Who pays for main carriage?
 Who insures the shipment?
 Who arranges for import clearance?
 Who pays import duties?
 Who pays for on-carriage from the arrival port to the delivery destination?
 Who arranges and pays for country-specific documentation (e.g., consular invoices, inspection
reports)?
 VARIOUS TYPES OF INCOTERMS

 In 2020, there are 11 types of INCOTERMS and are divided into 4 distinct
groups
• Group E of INCOTERMS - EXW
• Group F of INCOTERMS – FCA, FAS, FOB
• Group C of INCOTERMS – CFR, CIF, CPT, CIP
• Group D of INCOTERMS – DPU, DAP, DDP
 INCOTERMS
2010 VS. 2020 • EXW – Ex Works
• EXW – Ex Works

• FCA – Free Carrier • FCA – Free Carrier

• FAS – Free Alongside Ship • FAS – Free Alongside Ship
• FOB – Free On Board • FOB – Free On Board

• CFR – Cost and Freight • CFR – Cost and Freight

CIF – Cost, Insurance & Freight
•
• CIF – Cost, Insurance & Freight
• CPT – Carriage Paid To
• CPT – Carriage Paid To
• CIP – Carriage & Insurance Paid
To • CIP – Carriage & Insurance Paid To

• DAT – Delivered At Terminal • DPU – Delivered At Place

• DAP – Delivered At Place Unloaded
• DDP – Delivered Duty Paid • DAP – Delivered At Place
• DDP – Delivered Duty Paid

Marine Restricted
Omni-Modal
INCOTERMS 2010 V/S 2020

INCOTERM 2010 INCOTERM 2020

DAT-Delivered at Terminal DPU – Delivered at Place
Unloaded
CIF – Institute Cargo Clause C CIF – Institute Cargo Clause C
CIP - Institute Cargo Clause C CIP - Institute Cargo Clause A

• Under Incoterms® 2010 it was assumed that all transport would be

undertaken by a third party transport provider.
• Updates to Incoterms® 2020 allows for the provision for the buyer or seller’s
own means of transport.
FACTORS INFLUENCING CHOICE OF
INCOTERMS

 Mode of Transport
 Location of Country
 Risk Distribution Matrix
 Value and Volume of Cargo
 PURPOSE OF SHIPPING TERMS

 Clarity in Interpretation of Trade Terms and Rules

 Minimization of Losses
 Base of Contract of Sale
 Documentary Evidence
 HOW TO PUT INCOTERMS ON SALES
CONTRACTS
 [Incoterm® rule] [Named port/place/point] Incoterms® 2020
 Examples:
 CIF Longbeach Incoterms® 2020
 DPU 4300 Longbeach Blvd, Longbeach, United States Incoterms® 2020
EX Works (EXW) (Named place of delivery)
Named Place is generally Seller’s Location (or where product initially ships
from)
 Delivery – Seller delivers goods when placed at buyer’s disposal at the name place of
delivery
 Goods are packaged
 Goods are NOT LOADED on the collecting vehicle
 Carriage: Buyer responsibility to arrange for pre-carriage, main carriage, on-carriage
 Insurance: Negotiable
 Export/Import Clearance: Buyer must handle all requirements, pay all associated duties
and fees

Note: Should NOT be used when the buyer cannot carry out export
requirements directly or indirectly
 EXW
Ex Works …(named place)
SELLER BUYER

Seller/ Export Delivered Loading Onboard Discharging Delivery at Import Buyer/

Exporter Documents at named Port of Ship Port of named place of Documents Importer
Premises Formalities place of: Shipment Rail Arrival destination: Formalities Premises
Frontier/ Plane Frontier/
Terminal/ Ship’s Ship’s Terminal/Quay
Quay Rail Rail
Seller’s Buyer’s Risks
Risks

Seller’s Buyer’s Cost

Cost
 Free Carrier (FCA) + Named place
 Named Place is generally Seller’s Place of Business or Another Location on
Seller’s side
 Contract of Carriage: Buyer is responsible to make a contract of Carriage,
however if requested or the buyer does not give instruction in due time, the
seller may contract for carriage on usual terms at the buyer’s risk and expense.
 Risks: passes to buyer at point of delivery
 Insurance: Negotiable
 Export Clearance: Handled by Seller
 Import Clearance: Handled by Buyer – responsible for the customs
formalities and any duties, fees, other charges due upon importation.
 FCA
Free Carrier…(named place)
SELLER BUYER

Seller/ Export Delivered Loading Onboard Discharging Delivery at Import Buyer/

Exporter Documents at named Port of Ship Port of named place of Documents Importer
Premises Formalities place of: Shipment Rail Arrival destination: Formalities Premises
Frontier/ Plane Frontier/
Terminal/ Ship’s Ship’s Terminal/Quay
Quay Rail Rail
Seller’s Risks Buyer’s
Risks

Seller’s Cost Buyer’s Cost

 Free Alongside Ship (FAS) + Named Port

 Delivery: Seller delivers goods to Buyer alongside the vessel chosen by Buyer at the
named port of shipment, packed appropriately
 Carriage:
• Seller handles pre-carriage
• Buyer handles main carriage and on-carriage
 Risks: Pass from Seller to Buyer once goods place alongside the vessel on Seller’s
side
 Insurance: Negotiable
 Export Clearance: Seller Handles
 Import Clearance: Buyer is responsible for requirement and fees associated
Free On Board (FOB) + Named Port of Shipment

 Delivery: Seller delivers goods to Buyer on board the vessel chosen by

the Buyer at the named port of shipment, packaged for shipment
 Carriage:
 Seller handles pre-carriage
 Buyer handles main carriage and on-carriage
 Risks: Pass from Seller to Buyer once goods are placed on board the
vessel on the Seller’s side
 Insurance: Negotiable
 Export Clearance: Handled by Seller
 Import Clearance: Handled by Buyer
 FOB
Free On Board…(named port of shipment)
SELLER BUYER

Seller/ Export Delivered Loading Onboard Discharging Delivery at Import Buyer/

Exporter Documents at named Port of Ship Port of named place of Documents Importer
Premises Formalities place of: Shipment Rail Arrival destination: Formalities Premises
Frontier/ Plane Frontier/
Terminal/ Ship’s Ship’s Terminal/Quay
Quay Rail Rail
Seller’s Risks Buyer’s
Risks

Seller’s Cost Buyer’s Cost

FCA, FOB and the Bill of Lading Process
 In Incoterms 2010 to encourage exporters of containerized goods to use the FCA
Incoterm®.
 In reality most parties were still using FOB when they should have been using FCA.
 This is because even experienced sellers still wanted to use FOB because they wanted
the contract to be under a Letter of Credit.
 Therefore provisions have been made to the Incoterms® 2020 to state that the buyer
must instruct the carrier to issue a transport document stating that the goods have been
loaded – i.e a Bill of Lading with an ‘on board’ notation.
 In the past carriers have frequently refused to issue a Bill of Lading with a notation to
the seller if they have received the goods from an intermediary transport (such as a
truck), instead of directly from the seller.
Cost and Freight (CFR) +Named port of Destination

 Delivery: Seller delivers goods packaged for shipment on board the Seller-
designated vessel at the port on Seller’s side
 Carriage:
 Seller handles pre-carriage and main carriage
 Buyer handles on-carriage following delivery to port on Buyer’s side
 Risks: Passes from Seller to Buyer once goods are on board the vessel
 Insurance: Negotiable
 Export Clearance: Handled by Seller
 Import clearance: Buyer is responsible for the customs requirements and
associated costs (fees, duties, etc.)
Even though risk passes from Seller to Buyer on Seller’s side (once loaded per
contract), Seller contracts for and pays freight necessary to bring goods to the
named port on the Buyer’s side
 CFR
Cost and Freight …(named port of destination)
SELLER BUYER

Seller/ Export Delivered Loading Onboard Discharging Delivery at Import Buyer/

Exporter Documents at named Port of Ship Port of named place of Documents Importer
Premises Formalities place of: Shipment Rail Arrival destination: Formalities Premises
Frontier/ Plane Frontier/
Terminal/ Ship’s Ship’s Terminal/Quay
Quay Rail Rail
Seller’s Risks Buyer’s Risks

Seller’s Cost Buyer’s Cost

Cost Insurance Freight (CIF) + Named Port of Destination

 Delivery: Seller delivers goods packaged for shipment on board the

Seller-designated vessel at the port on Seller’s side
 Carriage:
 Seller handles pre-carriage and main carriage
 Buyer handles on-carriage following delivery to port on Buyer’s side
 Risks: Passes from Seller to Buyer once goods are on board the vessel
 Insurance: Seller required to procure minimum coverage against Buyer’s
risk of loss or damage to the goods during carriage
 Export Clearance: Handled by Seller
 Import clearance: Buyer is responsible for the customs requirements and
associated costs (fees, duties, etc.)
Even though risk passes from Seller to Buyer on Seller’s side (once loaded per
contract), Seller contracts for and pays freight necessary to bring goods to
the named port on the Buyer’s side
Same as CPT + Insurance coverage
 CIF
Cost, Insurance and Freight …(named port of destination)
SELLER BUYER

Seller/ Export Delivered Loading Onboard Discharging Delivery at Import Buyer/

Exporter Documents at named Port of Ship Port of named place of Documents Importer
Premises Formalities place of: Shipment Rail Arrival destination: Formalities Premises
Frontier/ Plane Frontier/
Terminal/ Ship’s Ship’s Terminal/Quay
Quay Rail Rail
Seller’s Buyer’s Risks
Risks

Seller’s Buyer’s Cost

Costs
Carriage Paid To (CPT) (Named Place on Buyer’s
Side)
 Delivery: Seller delivers goods to a carrier or another person nominated by the
seller, at an agreed place, for transportation to the named destination on the
Buyer's side, appropriately packaged
 Carriage: Seller chooses and pays cost of carriage to bring the goods to the
named place of destination
 Risks: Seller bears all risks until the goods are delivered to the first carrier on the
Seller’s side
 Export Clearance: handled by Seller
 Import clearance: Buyer responsibility for paperwork and all costs
 Insurance: Negotiable
Note: Risk of Loss passes on Seller’s side to Buyer BUT Cost is Seller’s
responsibility to named location on Buyer’s side
Carriage and Insurance Paid To (CIP) +
Named Place (on Buyer’s Side)
 Delivery: Seller delivers goods to a carrier or another person nominated by the
seller, at an agreed place, for transportation to the named destination on the Buyer's
side, appropriately packaged
 Carriage: Seller pays cost of carriage to bring the goods to the named destination
(the final location, not the destination port)
 Risks: Seller bears all risks incurred until the goods are delivered to the first carrier
on the Seller’s side
 Export Clearance: handled by Seller
 Import clearance: Buyer responsibility for paperwork and all costs
 Insurance: Seller required to obtain minimum coverage
Note: Risk of Loss passes on Seller’s side to Buyer BUT Cost is Seller’s
responsibility to named location on Buyer’s side
Delivered at Place Unloaded (DPU) +
Named Place of Destination
 Delivery: Seller delivers goods to named destination terminal on Buyer’s side, packaged
appropriately and unloaded
 Carriage:
• Seller responsible for pre-carriage and main carriage
• Buyer responsible for on-carriage
 Risks: Transfer from Seller to Buyer once goods are unloaded on buyer’s side at terminal
 Export Clearance: Seller Responsibility
 Import Clearance: Buyer Responsibility – documentation and fees associated
 Insurance: Negotiable
 Delivered at Place Unloaded – DPU +
DEQ
Named Place (Buyer’s side)
Delivered Ex Quay…(named port of destination)
SELLER BUYER

Seller/ Export Delivered Loading Onboard Discharging Delivery at Import Buyer/

Exporter Documents at named Port of Ship Port of named place of Documents Importer
Premises Formalities place of: Shipment Rail Arrival destination: Formalities Premises
Frontier/ Plane Frontier/
Terminal/ Ship’s Ship’s Terminal/Quay
Quay Rail Rail
Seller’s Risks Buyer’s
Risks

Seller’s Cost Buyer’s Cost

Delivered at Place (DAP) +
Named Place (Buyer’s Side)
 Delivery: Seller delivers the goods to the buyer at the named place
on the Buyer’s side, appropriately packaged, but not unloaded
 Carriage: Seller handles all carriage to named place on buyer’s
side
 Risks: Transfer from Seller to Buyer once goods are delivered to
the named place on buyer’s side
 Export Clearance: Seller handles
 Import Clearance: Buyer handles and pays associated costs
 Insurance: Negotiable
 DAP
DAF
Delivered at Place + Named Place
(Buyer’s
Delivered Side)
At Frontier…(named place)
SELLER BUYER

Seller/ Export Delivered Loading Onboard Discharging Delivery at Import Buyer/

Exporter Documents at named Port of Ship Port of named place of Documents Importer
Premises Formalities place of: Shipment Rail Arrival destination: Formalities Premises
Frontier/ Plane Frontier/
Terminal/ Ship’s Ship’s Terminal/Quay
Quay Rail Rail
Seller’s Risks Buyer’s
Risks

Seller’s Cost Buyer’s Cost

Delivered Duty Paid (DDP) +
Named Place (Buyer’s Side)

 Delivery: Seller delivers goods to the Buyer, cleared for import on

the arrival transportation, but not unloaded at the final destination
 Carriage: Seller handles all carriage to named place on Buyer’s side
 Risks: Transfer from Seller to Buyer once goods are delivered to the
named place on the Buyer’s side
 Export Clearance: Seller Handles
 Import Clearance: Seller Handles & pays for any charges associated
 Insurance: Negotiable
 DDP
Delivered Duty Paid…(named place of destination)
SELLER BUYER

Seller/ Export Delivered Loading Onboard Discharging Delivery at Import Buyer/

Exporter Documents at named Port of Ship Port of named place of Documents Importer
Premises Formalities place of: Shipment Rail Arrival destination: Formalities Premises
Frontier/ Plane Frontier/
Terminal/ Ship’s Ship’s Terminal/Quay
Quay Rail Rail
Seller’s Risks Buyer’s
Risks

Seller’s Cost Buyer’s Cost

CHOOSING INCOTERMS FOR TRADE DEAL
 Responsibility shifts at Named Port or Place
 Mention of Incoterm Edition
 Clarity on Additional Clauses, if any
 Explicit Understanding of Cost and Risks
 Avoid Risky Incoterm
 Reciprocity of Each Other’s Concerns
 Mode of Transport
 Knowledge of Trade Regime
 Competitive Shipping Helps Win New Markets
EXPORT PRICING
EXPORT PRICING
DISCUSSION -- WILL
CONTAINER INDUSTRY
EVER FORGET FOB – FREE
ON BOARD?
DISCUSSION – IS THERE CONNECTION
BETWEEN INCOTERMS AND SHIPPING
LINE?
DISCUSSION – CAN A SHIPMENT HAVE
MULTIPLE INCOTERMS RULES?
THANK YOU