INCOTERMS 2013
The International Chamber of Commerce (ICC ) published the
8th and current version of its International Commercial Terms, also known as
INCOTERMS® on January 1, 2011.
The revised rules, originally designated “INCOTERMS 2010″,
contain a series of changes, such as a reduction in the number of terms to 11
from 13. The DAF, DES, DEQ, and DDU designations have been eliminated, while
two new terms, Delivered at Terminal (DAT) and Delivered at Place (DAP), have
been added. INCOTERMS 2010 also attempt to better take into account the roles
cargo security and electronic data interchange now play in international trade.
WHAT INCOTERMS ARE
INCOTERMS are a set of three-letter standard trade terms
most commonly used in international contracts for the sale of goods. First
published in 1936, INCOTERMS provide internationally accepted definitions and
rules of interpretation for most common commercial terms. In the US, INCOTERMS
are increasingly used in domestic sales contracts rather than UCC shipment and
delivery terms.
WHAT INCOTERMS DO
INCOTERMS inform the sales contract by defining the
respective obligations, costs and risks involved in the delivery of goods from
the Seller to the Buyer.
WHAT INCOTERMS DO NOT DO
INCOTERMS by themselves DO NOT:
Constitute a
contract;
Supersede the law
governing the contract;
Define where title
transfers; nor,
Address the price
payable, currency or credit terms.
These items are defined by the express terms in the sales
contract and by the governing law.
INCOTERMS are grouped into two classes:
1. TERMS FOR ANY TRANSPORT MODE
EXW – EX WORKS (…
named place of delivery)
The Seller’s
only responsibility is to make the goods available at the Seller’s premises.
The Buyer bears full costs and risks of moving the goods from there to
destination.
FCA – FREE CARRIER
(… named place of delivery)
The Seller
delivers the goods, cleared for export, to the carrier selected by the Buyer.
The Seller loads the goods if the carrier pickup is at the Seller’s premises.
From that point, the Buyer bears the costs and risks of moving the goods to
destination.
CPT – CARRIAGE
PAID TO (… named place of destination)
The Seller
pays for moving the goods to destination. From the time the goods are
transferred to the first carrier, the Buyer bears the risks of loss or damage.
CIP – CARRIAGE AND
INSURANCE PAID TO (… named place of destination)
The Seller
pays for moving the goods to destination. From the time the goods are
transferred to the first carrier, the Buyer bears the risks of loss or damage.
The Seller, however, purchases the cargo insurance.
DAT – DELIVERED AT
TERMINAL (… named terminal at port or place of
destination)
The Seller
delivers when the goods, once unloaded from the arriving means of transport,
are placed at the Buyer’s disposal at a named terminal at the named port or
place of destination. “Terminal” includes any place, whether covered or not,
such as a quay, warehouse, container yard or road, rail or air cargo terminal.
The Seller bears all risks involved in bringing the goods to and unloading them
at the terminal at the named port or place of destination.
DAP – DELIVERED AT
PLACE (… named place of destination)
The Seller
delivers when the goods are placed at the Buyer’s disposal on the arriving
means of transport ready for unloading at the names place of destination. The
Seller bears all risks involved in bringing the goods to the named place.
DDP – DELIVERED
DUTY PAID (… named place)
The Seller
delivers the goods -cleared for import – to the Buyer at destination. The
Seller bears all costs and risks of moving the goods to destination, including
the payment of Customs duties and taxes.
2. MARITIME-ONLY TERMS
FAS – FREE
ALONGSIDE SHIP (… named port of shipment)
The Seller
delivers the goods to the origin port. From that point, the Buyer bears all
costs and risks of loss or damage.
FOB – FREE ON
BOARD (… named port of shipment)
The Seller
delivers the goods on board the ship and clears the goods for export. From that
point, the Buyer bears all costs and risks of loss or damage.
CFR – COST AND
FREIGHT (… named port of destination)
The Seller
clears the goods for export and pays the costs of moving the goods to
destination. The Buyer bears all risks of loss or damage.
CIF – COST
INSURANCE AND FREIGHT (… named port of destination)
The Seller
clears the goods for export and pays the costs of moving the goods to the port
of destination. The Buyer bears all risks of loss or damage. The Seller,
however, purchases the cargo insurance.
PRACTICE POINTS
BE SPECIFIC:
If you use
INCOTERMS in the Sales Contract or Purchase Order, you should identify the
appropriate INCOTERM Rule [e.g. FCA, CPT, etc.], state “INCOTERMS 2010″ and
specify the place or port as precisely as possible.
RECOGNIZE WHERE
THE RISK OF LOSS TRANSFERS:
A common
misconception when the Seller pays the freight is that the Seller has the risk
of loss until the goods are delivered to the place or port specified on the
bill of lading or airway bill. Actually, when using INCOTERMS CPT, CIP, CFR or
CIF, risk transfers to the Buyer when the Seller hands the goods over to the
carrier at origin, not when the goods reach the place or port of destination.
Understand
that under CIP and CIF, the Seller is only obliged to obtain insuranceon
minimum cover.
UNDERSTAND WHO HAS
RESPONSIBILITY FOR LOADING AND UNLOADING CHARGES. FOR EXAMPLE:
DAT obliges
the Seller to place the goods at the Buyer’s disposal after unloading at the
named terminal at port or place of destination.
DAP and DDP
oblige the Seller to place the goods at the Buyer’s disposal on the delivering
carrier ready for unloading at the named place of destination.
CPT, CIP, CFR
or CIF on the other hand, require the parties to identify as precisely as
possible the point at the agreed port of destination because the costs up to
that point are for the account of the Seller.
Under FCA
terms, the seller satisfies his obligation to deliver when he has handed over
the goods, cleared for export, into the charge of the carrier named by the
buyer at the named place or point. The buyer is responsible for inland freight,
unloading at port of embarkation and loading on ocean carrier/airline.
UNDERSTAND WHO HAS
RESPONSIBILITY FOR U.S. CUSTOMS ENTRY DECLARATIONS:
DDP is the
only INCOTERM where the Seller has responsibility for U.S. Customs entry
declarations.
IMPORTANT
NOTE: An important factor to be considered when asking the Seller to be
responsible for international carriage, is if the goods ship by Ocean Freight,
an Importer Security Filing (ISF) must be electronically submitted to Customs
24 hours before the cargo is laden on the vessel bringing the cargo to the U.S.
The Buyer should specify in the contract either (a) the shipper is responsible
for the ISF or (b) the Seller is responsible for providing the required data in
a timely manner (i.e. 72 hrs before lading) to the Buyer’s appointed agent
(e.g. Customs Broker). In practice, when the broker and the international
forwarder are unrelated parties, this requirement is honored more in the breach
than in the observance. The Buyer responsible for customs entry should
indemnify against the penalties (US$5,000) for filing a late, inaccurate or
incomplete ISF. The ISF does not apply at this time to airfreight shipments
DETERMINE THE
IMPORTANCE OF SUPPLY CHAIN VISIBILITY
When CPT, CIP,
CFR or CIF are used the Seller fulfills its obligation to deliver when it hands
the goods over to the carrier, not when the goods reach the place of
destination.
DAT, DAP and
DDP the Seller fulfills its obligation to deliver at the named destination. The
Seller has no obligation to provide transit status updates.
.
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