a good presentation for beginners

1. Incoterms 2010

2.  What are they?
 What do they mean?
 Why do they exist?
 Who uses them?
 Incoterms – Format and Usage
Incoterms 2010

3.  “Incoterms” is an abbreviation of International Commercial―
Terms
 Published by the International Chamber of Commerce, Paris
 Latest version (effective Jan 01, 2011) Incoterms 2010―
What are they ?

4. What are they ?
“The purpose of Incoterms is to provide a set of
International rules for the interpretation of the most
commonly used trade terms in foreign trade.” - ICC

5. Incoterms define at the minimum level
The division of costs between buyers and sellers
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
Which party is responsible for export and import clearance
Incoterms also give some information regarding documentation,
but it is not their primary function
What do they mean ?

6.  Incoterms have been around since the first version 1936 and has
been revised last in 2000. This is now being replaced with the 2010
version
 Shorthand form used in Sales Contracts to define the division
between buyers and sellers of certain minimum obligations, risks
and costs involved in transportation of goods
 Incoterms are only applicable when there is a physical movement of
goods
 Whilst they are mostly used in International Trade, they can be
appropriately used for domestic trade as well
Why do they exist ?

7.  Part of the contract for carriage
 Not used to transfer property rights or title of goods
 Not used to name a carrier
 Not used to determine the effect of breach of contract cases
What Incoterms 2010 are NOT

8. There are 11 Incoterms, subdivided into 2 categories
Rules for any mode or modes of transport
EXW, FCA, CPT, CIP, DAP, DAT, DDP
Rules for Sea and Inland waterway
FAS, FOB, CFR, CIF
Incoterms Categories

9. Incoterms Categories
 Rules for any mode or modes of transport:
 EXW - Ex Works (named place of delivery)
 FCA - Free Carrier (named place of delivery)
 CPT - Carriage Paid To (named place of destination)
 CIP - Carriage and Insurance Paid to (named place of destination)
 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)
 Rules for sea and inland waterway transport:
 FAS - Free Alongside Ship (named port of shipment)
 FOB - Free On Board (named port of shipment)
 CFR - Cost and Freight (named port of destination)
 CIF - Cost, Insurance and Freight (named port of destination)

10. 2 Parts:
NAME (3-letter abbreviation) + specified place (or carrier)
CONTENT (rights and responsibilities of both parties)
Structure of Incoterms

11. E group:
 EXW: Ex Works
Cost and risk transfer
EXPORTER (SELLER)
The seller’s obligation is to make the
goods available at his premises or
another named place, and to
inform the buyer in appropriate time.
Seller not in charge for uploading
goods or export duty procedures.
Seller must prepare invoice and
all documentation / proof from the
contract.
IMPORTER (BUYER)
Buyer bears all costs and risks
from the moment that goods are
made available at the named place.
He /she has to confirm the date
of pick-up.
Loading costs and risk, as well as
export duty procedures are buyer’s
responsibility.

12. F group: FCA (free carrier)
Cost and risk transfer
EXPORTER (SELLER)
The seller’s obligation is to transport
the goods to the beginning of the
main transport and carrier specified
by the buyer, with all appropriate
export duty procedures.
If goods are made available in seller’s
premises, the seller is also in charge
of uploading the goods on the buyer’s
transport mode.
Seller must also provide proof of
delivery.
IMPORTER (BUYER)
Buyer bears all costs and risks from
the moment the goods are made
available to his carrier at the
designated place. He is in charge
of re-loading the goods!

13. F group: FAS (free alongside ship)
Cost and risk transfer
EXPORTER (SELLER)
Seller’s obligations end, when he
places the goods alongside the ship
of the buyer.
He is not in charge of uploading the
goods on to the ship!
IMPORTER (BUYER)
Buyer bears all costs and risks from
the moment the goods are placed
alongside the specified ship.

14. F group: FOB (free on board)
Cost and risk transfer
EXPORTER (SELLER)
Seller’s obligations end, when he
places the goods on board the ship
of the buyer.
He is in charge of uploading the
goods on to the ship and bears all the
risk during this upload!
IMPORTER (BUYER)
Buyer bears all costs and risks from
the moment the goods are placed
on board the ship.

15. Question?
 Mr. Adnan from Pakistan sells 1,000 washing machines to
Tesco in United Kingdom.
 If the arranged Incoterms clause is FCA (seller’s factory):
 Who bears the costs and risks of uploading the goods on to the buyer’s truck in Pakistan?
 Who bears the costs and risks on the transport from Pakistan to the UK?
 If the arranged Incoterms clause is FAS (Port of Karachi):
 Who bears the costs and risks of transport from factory to the Port of Karachi?
 Who bears the costs and risks of uploading the goods on to the ship?
 Who bears the costs and risks during the main transport at sea?
 If the arranged Incoterms clause is FOB (Port of Karachi):
 Who bears the costs and risks of transport from factory to the Port of Karachi?
 Who bears the costs and risks of uploading the goods on to the ship?
 Who bears the costs and risks during the main transport at sea?

16. C group: CFR (cost and freight)
Transfer of costs
Transfer of risks
EXPORTER (SELLER)
The seller must place the goods on
board the ship, and contract and
pay for the main ship transport.
As soon as the goods are on board,
his risks and obligations end.
Contract for main ship transport must
be made and paid under “usual
ship transport terms”. Not in charge
for insurance!
Must provide B/L to the customer.
IMPORTER (BUYER)
The main ship transport is paid by
the seller under “usual ship
transport terms”, however the buyer
bears the risk on the main ship
transport route.
The buyer is in charge of insurance!

17. C group: CIF (cost, insurance and freight)
Transfer of costs
Transfer of risks
EXPORTER (SELLER)
Same as with CFR + seller in charge
of ship transport insurance!
Insurance under “usual terms”.
Minimal coverage 110%!
IMPORTER (BUYER)
Same as with CFR +
buyer NOT in charge of insurance,
which is on seller’s part!

18. C group: CPT (carriage paid to)
Transfer of costs
Transfer of risks
EXPORTER (SELLER)
Seller’s obligations end, when the
goods are made available by the
contracted carrier to the named place
or destination. No insurance!
Seller bears all risks until the goods
have been made available to the
first carrier.
Useful for multimodal transport!
IMPORTER (BUYER)
Buyer bears all risk from the time the
goods are made available to the first
carrier.
Buyer in charge of insurance!

19. C group: CIP (cost and insurance paid to)
Transfer of costs
Transfer of risks
EXPORTER (SELLER)
Same as with CPT + seller in charge
of transport insurance!
Insurance under “usual terms”.
IMPORTER (BUYER)
Same as with CPT +
buyer NOT in charge of insurance!

20. Question?
 Mr. Adnan from Pakistan sells 1,000 washing machines to Tesco
in United Kingdom.
 If the arranged Incoterms clause is CIF (Port of Blackpool):
 Who bears the costs and risks of uploading the goods on to the ship in Port of Karachi?
 Does the ship transport have to be insured?
 If so, by whom does the ship transport have to be insured?
 Who bears the risk on the main ship transport between Karachi and Blackpool?
 Who pays for the potential damages, if something happens at sea?
 Who bears the cost and risks of loading the goods from the ship in Port of Blackpool on to the pier?

21. D group: DAT (delivered at terminal)
EXPORTER (SELLER)
Seller’s obligations end, when the
goods are made available unloaded,
on the specified means of transport,
at the named place of delivery
at the terminal.
IMPORTER (BUYER)
The buyer must unload and take
hold of the delivery on the
specified means of transport, at
the named place of delivery at the
terminal.
Transfer of cost and risks

22. D group: DAP (delivered at place)
Transfer of cost and risks
EXPORTER (SELLER)
Simply put, the seller does everything
and brings the goods to the customer’s
door, but he doesn’t pay for
the import duty charges.
IMPORTER (BUYER)
Buyer only has to take care of
import duty charges.

23. D group: DDP (delivered duty paid)
Transfer of cost and risks
EXPORTER (SELLER)
Simply put, the seller does everything
and brings the goods to the customer’s
door, and also pays for the import duty
charges!
IMPORTER (BUYER)
Buyer only has to receive the
Shipment (and of course
pay the bill).

24. Question?
 Mr. Adnan from Pakistan buys 1,000 tons of steel from Croatia.
 If the arranged Incoterms clause is DAP (Border Pass Bregana)
 Who bears the costs and risks of unloading the goods before the border pass?
 Who pays for the import duty charges?
 If the arranged Incoterms clause is DAT (Port of Karachi):
 Who bears the costs and risks of unloading from the ship in Karachi?
 Who bears the costs and risks of uploading the goods on to a truck for Lahore?
 Who pays for the import duty charges?
 If the arranged Incoterms clause is DDP (Lahore)
 Who bears the costs and risks of unloading from the ship in Karachi?
 Who bears the costs and risks of uploading the goods on to a truck for Lahore?
 Who pays for the import duty charges?

25. Example 1: shipping the goods by air

26. Example 2: Accident
 Car falls into the water, when being uploaded on the ship…

27. Example 3: Build up of sea costs

28. ExerciseExercise

29. An overview