In this installment in Trade Risk Guaranty's webinar series, we are joined by one of our marine cargo insurance experts to discuss an introduction to incoterms for United States importers. The following topics are covered in detail: - What are Incoterms? - The 5 Most Common Incoterms - Identifying Your Incoterms - Advice from an Expert DOWNLOAD A FULL INCOTERMS EBOOK: http://bit.ly/2HXGbUD Watch the full webinar here: https://youtu.be/IZC5NgukKio

1. THE U.S. IMPORTER’S
INTRODUCTION TO INCOTERMS

2. Nick Esposito
Marketing Executive
Bozeman, Montana
Trade Risk Guaranty Brokerage Services, LLC
nick.esposito@traderiskguaranty.com
1st

3. Felicia Donohoue
Marine Insurance Manager
Bozeman, Montana
Trade Risk Guaranty Brokerage Services, LLC
Felicia.donohoue@traderiskguaranty.com
1st

4. • Located in Beautiful Bozeman Montana
• Established in 1991
• Direct-to-Importer Business Model
• Over 10,000 U.S. Customs Bond & Marine Cargo
Insurance Clients
TRADE RISK GUARANTY BROKERAGE SERVICES, LLC

5. ON FACEBOOK
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6. TODAY’S WEBINAR TOPICS
What are Incoterms?
The 5 Most Common Incoterms
Identifying Your Incoterms
Advice from an Expert

7. WHAT ARE INCOTERMS?

8. WHAT ARE INCOTERMS?
Definition
Incoterms (International Commercial Terms) are a series of
pre-defined commercial terms published by the International
Chamber of Commerce (ICC) that inform sales contracts by
defining respective obligations, costs, and risks involved in
the delivery of goods from the seller to the buyer.
Incoterms rules are intended primarily to clearly communicate
the tasks, costs, and risks associated with the transportation
and delivery of goods.

9. WHAT ARE INCOTERMS?
• Governed by the International Chamber of Commerce (ICC)
• Accepted by governments, legal authorities, and
practitioners worldwide
• Amended about every 10 years
o Last amended in 2010
o Consultations have begun for Incoterms 2020
• Currently there are 11 Incoterms defined by the ICC

10. KNOW YOUR INCOTERMS
• Knowing your incoterms and using them correctly reduces
the likelihood of disputes, misunderstandings, or hedging on
either side.
• Marine cargo insurance can only legally pay on goods that
the policy holder has an insurable interest in. If your
contract says the other person owns and is responsible for
insuring goods, then your MCI policy can’t pay that claim.

11. KNOW YOUR INCOTERMS
• If you don’t have a written agreement of responsibilities, it’s
harder to substantiate a claim.
o If there are no written agreements, you are asking your
insurance provider to take their word as truth at a time
when you are financially motivated to stretch the truth. It
decreases the credibility of your claim which is weighed
heavily during a claim’s review.

12. INSURABLE INTEREST
• An insurable interest is a stake in the value of an entity or
event for which an insurance policy is purchased to mitigate
risk of loss.
o Entities not subject to financial loss from an event do not
have an insurable interest and cannot purchase an
insurance policy to cover that event.
o Whether or not you stand to suffer a financial loss
depends on who owns the goods, or when referencing
incoterms, who “bears the risk”.

13. THE MOST COMMONLY
SEEN INCOTERMS

14. THE MOST COMMON INCOTERMS
• CIF - Cost, Insurance, Freight
• FOB - Freight on Board
• EXW - ExWorks
• DDP - Delivered Duty Paid
• CFR - Cost and Freight

15. COST, INSURANCE, FREIGHT (CIF)
“The seller delivers the goods on board the vessel or procures the
goods already so delivered. The risk of loss of or damage to the
goods passes when the goods are on board the vessel. The seller
must contract for and pay the costs and freight necessary to bring
the goods to the named port of destination”
- Official Definition of CIF Terms

16. COST, INSURANCE, FREIGHT (CIF)

17. COST, INSURANCE, FREIGHT (CIF)
Seller’s Responsibilities
• Delivery of goods and documents
required
• Packaging and wrapping
• Inland transport in the country of origin
• Customs at origin
• Exit charge
• International freight
• Insurance
Buyer’s Responsibilities
• Payment of the goods
• Arrival expenditures
• Customs on arrival
• Inland transport at the
destination country
• Payment of fees

18. FREIGHT ON BOARD (FOB)
“The seller delivers the goods on board the vessel nominated by the
buyer at the named port of shipment or procures the goods already
so delivered. The risk of loss of or damage to the goods passes when
the goods are on board the vessel, and the buyer bears all costs
from that moment onwards.”
- Official Definition of FOB Terms

19. FREIGHT ON BOARD (FOB)

20. FREIGHT ON BOARD (FOB)
Seller’s Responsibilities
• Delivery of goods and documents
required
• Packaging and wrapping
• Inland transportation in the country
of origin
• Customs at origin
• Exit charge
Buyer’s Responsibilities
• Cost of the goods
• International freight
• Insurance
• Arrival expenditures
• Customs upon arrival
• Inland transportation in the
destination country
• Payment of fees

21. EXWORKS (EXW)
“The seller delivers when it places the goods at the disposal of the
buyer at the seller’s premises or at another named place (i.e.,works,
factory, warehouse, etc.). The seller does not need to load the goods
on any collecting vehicle, nor does it need to clear the goods for
export, where such clearance is applicable.”
- Official Definition of EXW Terms

22. EXWORKS (EXW)

23. EXWORKS (EXW)
Seller’s Responsibilities
• Delivery of goods and
documents required
• Packaging and wrapping
Buyer’s Responsibilities
• Payment of the goods
• Inland transportation in the country of
origin
• Customs at place of origin
• Exit charge
• Arrival expenditures
• Customs upon arrival
• Inland transportation in the destination
country
• Payment of fees
• International freight
• Insurance

24. DELIVERED DUTY PAID (DDP)
“The seller delivers the goods when the goods are placed at the
disposal of the buyer, cleared for import on the arriving means of
transport ready for unloading at the named place of destination. The
seller bears all the costs and risks involved in bringing the goods to
the place of destination and has an obligation to clear the goods not
only for export but also for import, to pay any duty for both export
and import and to carry out all customs formalities.”
- Official Definition of DDP Terms

25. DELIVERED DUTY PAID (DDP)

26. DELIVERED DUTY PAID (DDP)
Seller’s Responsibilities
• Delivery of goods and documents required
• Packaging and wrapping
• Inland transport in the country of origin
• Customs at origin
• Exit charge
• International freight
• Insurance
• Arrival expenditures
• Customs on arrival
• Payment of fees
• Inland transport at the destination country
(depending on agreed location)
Buyer’s Responsibilities
• Payment of the goods
• Inland transport at the
destination country
(depending on agreed
location)

27. COST AND FREIGHT (CFR)
“The seller delivers the goods on board the vessel or procures the
goods already so delivered. The risk of loss of or damage to the
goods passes when the goods are on board the vessel. the seller
must contract for and pay the costs and freight necessary to bring
the goods to the named port of destination.”
- Official Definition of CFR Terms

28. COST AND FREIGHT (CFR)
Insert Graphic

29. COST AND FREIGHT (CFR)
Seller’s Responsibilities
• Delivery of goods and documents
required
• Packaging and wrapping
• Inland transport in the country of origin
• Customs at origin
• Exit charge
• International freight
Buyer’s Responsibilities
• Payment of the goods
• Insurance
• Arrival expenditures
• Customs on arrival
• Inland transport at the
destination country
• Payment of fees

30. IDENTIFYING YOUR
INCOTERMS

31. ALIBABA EXAMPLE

32. ALIBABA EXAMPLE

33. FOB VS. CIF EXAMPLE
Importer A (FOB)
• Free On Board (FOB)
• $3.99/unit
• 1000 units ordered
Importer B (CIF)
• Cost Insurance Freight (CIF)
• $4.15/unit
• 1000 units ordered
• Total costs: $3,990 • Total costs: $4,150

34. FOB VS. CIF EXAMPLE
Importer A (FOB)
• Total costs: $3,990
Importer B (CIF)
• Total costs: $4,150
• Does NOT Include:
– Cost of International Freight
– Payment of fees
– Customs Costs
– Cost of Insurance
• Includes:
– Cost of International Freight
– Cost of Insurance
• Does NOT Include:
– Payment of fees
– Customs Costs

35. FOB VS. CIF EXAMPLE
Commodity: LED Flashlights
HTS Code: 8513.10.2000
Duty Rate: 12.5%
# of Flashlights per FCL: 432,000
Origin Port: Ningbo, China
Destination: Seattle, USA

36. FOB VS. CIF EXAMPLE
Importer A (FOB)
• Free On Board (FOB)
• $1.12/flashlight (-0.88%)
• 3 FCL shipments per year
• Shipment by shipment
insurance, clauses (A)
• Contracts own freight
Importer B (CIF)
• Cost Insurance Freight (CIF)
• $1.13/flashlight (+0.88%)
• 3 FCL shipments per year
• Insurance contracted by
shipper, clauses (C)
• Shipper contacts freight

37. FOB VS. CIF EXAMPLE
Importer A (FOB) Costs/Shipment
Flashlights: $483,840.00
Duty: $60,480.00
Freight: $2296.75
Insurance*: $1458.41
Total Cost/Shipment: $548,075.16
*Per shipment insurance at 0.30/100

38. FOB VS. CIF EXAMPLE
Importer B (CIF) Costs/Shipment
Flashlights: $488,160.00
Duty: $61,020.00
Freight: No additional charge
Insurance: No additional charge
Total Cost/Shipment: $549,180.00

39. FOB VS. CIF EXAMPLE
Importer A (FOB)
• $548,075.16/shipment
• $1,644,225.48/year
Importer B (CIF)
• $549,180.00/shipment
• $1,647,540.00/year
Difference of $3,314.52 per year!

40. ADVICE FROM AN EXPERT

41. ADVICE FROM AN EXPERT
1.
Always have incoterms written on one of your
sales documents BEFORE IT SHIPS.

42. ADVICE FROM AN EXPERT
2.
Don’t let software autofill in your incoterm. Make
sure you know what you are using and why.

43. ADVICE FROM AN EXPERT
3.
You do not need to use the same incoterm with
every contact/supplier.

44. ADVICE FROM AN EXPERT
4.
Be able to substantiate your claim no matter the
perceived trust that has been in the relationship.

45. COVERED IN TODAY’S WEBINAR
What are Incoterms?
The 5 Most Common Incoterms
Identifying Your Incoterms
Advice from an Expert

46. SUBMIT YOUR QUESTIONS
AND/OR FEEDBACK

48. Alt Email:
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YouTube:
marketing@traderiskguaranty.com
International Trade Professionals - TRG
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