3. International Commercial Terms - PowerPoint Presentation

Slide1

3. International Commercial Terms

3.1 Free on Board (FOB)

3.2 Cost and freight(CFR)

3.3 Cost, insurance and freight(CIF)

3.4 Delivered at Place (DAP)

3.5 Free Alongside Ship (FAS)

3.6 Free Carrier(FCA)

3.7 Ex Works(EXW)

3.8 Delivered at Terminal (DAT)

3.9 Delivered Duty Paid (DDP)

3.10 Cost Insurance Paid to (CIP)

3.11 Carriage Paid to (CPT)Slide2

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 (Uniform Commercial Code) shipment and delivery terms.Slide3

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.Slide4

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.Slide5

What is the importance of Incoterms?

The purpose of

Incoterms

is to precisely define three aspects for international trade:

The allocation of logistics costs between sellers and buyers.

The transmission of risks in transporting the goods.

The documents and customs formalities necessary for export and import operations.

The importance of

Incoterms

is because of its widespread use that makes them internationally known. Therefore, all professionals involved in foreign trade should understand

Incoterms

: exporters and importers, carriers and freight forwarders, customs brokers, insurers, international credit professionals, sales and purchasing managers, consultants, etc

.Slide6

Why Incoterms

Incoterms define

risk,

cost and responsibility

for both the

seller

and

the

buyer

during the

transportation of the cargo from the exporter to the importerIncoterms are universaland can be recognised and understoodinternationally.

The International Commercial Terms were drawn up by the ICC

(International Chamber of Commerce)in

1936

These rules for international trade are used internationally to settle trade disputes between sellers and buyersSlide7

Incoterms are Legally binding

Incoterms are legally binding and the following must be given

consideration:

Which party will

pay the costs

to move the goods from the seller to the buyer?

Which

documents

will be required and at whose expense?

At what point will the

risk,

to which the goods may be subjected to, transfer from the seller to the buyer?

Which party, the exporter or importer, will be responsible for the creation of the

contract of carriage

?Slide8

Named port or placeThere are 13 Incoterms

and they range from the

least amount of risk, cost and responsibility

for the seller, to the most.

In keeping with this an Incoterm must always be followed by a

named port or place.

This must be quoted on the quotation, defining the port or place of receipt and or final destination

.

Example: FCA OR TAMBO SOUTH AFRICA USD 150 000

.Slide9

Important changes for 2010:

11 terms of delivery instead of 13

DAF, DES, DDU and DEQ have been removed

DAP and DAT are new and have been added

Container arrival costs are not expressed (ex:

THC – terminal Handling charges and other

destination charges)

Exact cost transfer points need to be addressed

elsewhere

in the contract

DAT is the only term that specifically tasks the seller

with unloading

FOB changed to on board vessel (‘ship’s rail’

reference removed

)Slide10

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 insurance on minimum cover.Slide11

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.Slide12

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.Slide13

EXWORKS

VENDOR

BUYER

FREE CARRIER

FAS

FOB

CFR

CIF

(Maritime only)

(Maritime only)

Group E:

EXW

– Ex Works:

at vendor’s plant

Group F:

FCA

– Free Carrier:

Land carrier

FAS

– Free Alongside Ship:

At the shipping port

FOB

– Free On Board:

On the Vessel

. Maritime only.

Group C:

CFR

– Cost and Freight:

At the arrival port (On board). Doesn’t include insurance. Maritime

CIF

– Cost Insurance and Freight:

At the arrival port (On board). Includes insurance. Maritime

CPT

– Carriage Paid To:

Same as CFR but used for land

/air

freight

CIP

– Carriage and Insurance Paid To:

Same as CIF but used for land

/air

freight

Group D:

DAP

– Delivered at Place:

Multimodal / Land carrier

DAT

– Delivered at Terminal:

Same as DAP but the shipper is

responsible for the load.

The buyer is responsible for the load.

DDP

– Delivered Duty Paid:

At the buyer’s plant (Insurance, cost and

freight included (Door to Door).

DAP

DAT

DDP

Tax Control

Warehouse

(Almac

é

n Fiscal)

Buyer Plant

INCOTERMS

Vendor Plant

(Maritime only)

(Maritime only)Slide14

The Categories

Incoterms

Code

Ex works EXW

Free carrier FCA

Free alongside ship FAS

Free on board FOB

Cost & freight CFR

Cost, insurance & freight CIF

Carriage paid to CPT

Carriage and insurance paid to CIP

Delivered at frontier DAF

Delivered ex ship DES

Delivered ex quay DEQ

Delivered duty unpaid DDU

Delivered duty paid DDP

E Terms

F Terms

C Terms

D TermsSlide15

DAF

DELIVERED AT FRONTIER means the seller fulfils its obligation to deliver when the goods have been made available, cleared for export, at the named point and place at the frontier, but before the customs border of the adjoining country.

The term "frontier" may be any frontier, not just the country of export.

For this reason it is important to precisely define the point and place it in the term.

DELIVERED AT FRONTIER requires the seller to clear the goods for export.

DELIVERED AT FRONTIER is intended to be used when goods are to be carried by road or rail, but it may be used for any mode of transport. Slide16

DES

DELIVERED EX SHIP means the seller fulfills its obligation to deliver when the goods have been made available to the buyer on board the ship

uncleared

for import at the named port of destination.

If the parties wish the seller to bear the costs and risks of discharging the goods, then use the term DEQ - DELIVERED EX QUAY.

DELIVERED EX SHIP can only be used for sea or inland waterway transport. Slide17

DEQ

DELIVERED EX QUAY means the seller fulfils its obligation to deliver when the goods are placed at the disposal of the buyer not cleared for import on the quay (wharf) at the named port of destination.

The seller has to bear costs and risks involved in bringing the goods to the named port of destination and discharging the goods on the quay (wharf).

The buyer clears the goods for import and pays for all formalities, duties, taxes and other charges upon import.

This is the opposite of the previous version of

Incoterms

.

If the parties wish to include in the seller’s obligations all or part of the costs payable upon import of the goods, this should be made clear by adding explicit wording to this effect in the contract of sale.

If the parties wish to include in the seller’s obligations the risks and costs of the handling of the goods from the quay to another place (warehouse, terminal, etc.) in or outside the port, then one of the following terms should be used:

DDU - DELIVERED DUTY UNPAID (... named place of destination)

DDP - DELIVERED DUTY PAID (... named place of destination)

DELIVERED EX QUAY can only be used for:

Sea or inland waterway transport

Multimodal transport

Discharging from a vessel onto the quay (wharf) in the port of destination. Slide18

DDU

DELIVERED DUTY UNPAID means the seller fulfills its obligation when the goods arrive by any means of transportation to the named place of destination.

The seller has to bear the costs and risks involved in bringing the goods thereto (excluding duties, taxes and other official charges payable upon importation) as well as the costs and risks of carrying out customs formalities.

The buyer pays the duty.

The buyer has to pay any additional costs and to bear any risks caused by its failure to clear the goods for import in time.

If the parties wish the seller to carry out customs formalities and bear the costs and risks, or pay any taxes, this has to be made clear by adding words to this effect.

DELIVERED DUTY UNPAID can be used for all modes of transport. Slide19

DDP

DELIVERED DUTY PAID means the seller fulfills its obligation when the goods arrive by any means of transportation to the named place of destination.

The seller has to bear the costs and risks involved in bringing the goods thereto (including duties, taxes and other official charges payable upon importation) as well as the costs and risks of carrying out customs formalities.

The seller pays the duty.

DELIVERED DUTY PAID represents the seller's maximum obligation.

The buyer has to pay any additional costs and to bear any risks caused by its failure to clear the goods for import in time.

DELIVERED DUTY PAID should not be used if the seller is unable to obtain an import license.

If the parties wish the seller not to carry out customs formalities and bear the costs and risks, or not pay any taxes, this has to be made clear by adding words to this effect.

DELIVERED DUTY PAID can be used for all modes of transport. Slide20

The Steps of Global Logistics

Main

International Transportation

4

Handling

Inbound

Customs

Clearance

Duties

Final

Transportation

Unloading

Packing

Loading

Preliminary

Transportation

Customs Clearance

for Export

Handling

Outbound

Insurance

1

2

3

5

6

7

8

9

10

11Slide21

Acronym

(…named location)

Goods

Seller’s Risk

Seller’s Cost

PRE -CARRIAGE

MAIN CARRIAGE

ON-CARRIAGE

SELLER

BUYER

Export

Clearance

Import

Clearance

Acronym dictates mode and where the lines are drawnSlide22

3.1 Free on Board (FOB)

"Free on Board" means that the seller delivers when the goods pass the ship's rail at the named port of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that point. The FOB term requires the seller to clear the goods for export.

This term can be used only for sea or inland waterway transport. If the parties do not intend to deliver the goods across the ship’s rail, the FCA term should be used.Slide23

FOB: “Free on Board” Port of Departure.Exporter responsible for goods until they are on the ship, then importer is responsible.

Dividing point is ship’s rail.

The rail around the deck that prevents you from falling off the deck. Meaning, the 'edge' of the ship, or to refer when goods are said to be on board the ship.Slide24

FOB - Free on Board

Under this term, the seller is responsible for delivering the goods on board the ship at the named port of loading. The responsibility for, and risk of damage to or loss of, the goods pass from the seller to the buyer when the goods pass a ship’s rail.Slide25

FOB

(…named port of shipment)

Goods

Seller’s Risk

Seller’s Cost

PRE-CARRIAGE

MAIN CARRIAGE

ON-CARRIAGE

SELLER

BUYER

Export

Clearance

Import

Clearance

Buyer

nominates carrier,

contracts carriage

pays freight

Seller

clears export customs,

delivers and loads goods on ship

evidence of deliverySlide26

FOB Example

FOB, New Orleans for 3 ice makers. You as the exporter are responsible for all costs in delivering the goods to New Orleans and loading the icemakers on board a vessel named by the German firm. You are responsible for arranging any export clearances (licenses, taxed, fees). The German firm is responsible for booking space for cargo and pays for the ocean freight. Slide27

3.2 CFR - Cost and Freight

The seller is responsible for paying the costs and freight to bring the goods to the named port of destination. The risk of loss or damage to the goods is transferred from the seller to the buyer when the goods pass the ship’s rail at the port of loading.Slide28

CFR

(…named port of destination)

Goods

Seller’s Risk

PRE-CARRIAGE

MAIN CARRIAGE

ON-CARRIAGE

SELLER

BUYER

Export

Clearance

Import

Clearance

Seller’s Cost Slide29

3.3 CIF - Cost, Insurance & Freight

This term is the same as CFR, except the seller has to procure, and pay for, marine insurance for the goods during their carriage.Slide30

CIF

(…named port of destination)

Goods

Seller’s Risk

PRE-CARRIAGE

MAIN CARRIAGE

ON-CARRIAGE

SELLER

BUYER

Export

Clearance

Import

Clearance

Seller’s Cost + InsuranceSlide31

3.4 Delivered at Place (DAP) (named place)

Named place on buyer’s side

Seller

arranges export clearance, delivers export packed goods to the named place of destination and pays all transportation costs thereto

Buyer

arranges import clearance and on carriage

Neither party

is required to insure

Transport mode: All ModesSlide32

3.5 FAS - Free Alongside Ship

Under this term, it is the seller’s responsibility to deliver the goods alongside the ship on the quay in the port of loading, having cleared the goods through Customs in the country of export. The buyer must bear all the costs and risks from that point onwardsSlide33

FAS

(…named port of shipment)

Goods

Seller’s Risk

Seller’s Cost

PRE-CARRIAGE

MAIN CARRIAGE

ON-CARRIAGE

BUYER

Export

Clearance

Import

Clearance

SELLER

Buyer

export documents

nominates carrier,

contracts carriage

pays freight

Seller

delivers goods alongside ship

evidence of deliverySlide34

3.6 FCA - Free Carrier at

The seller is responsible for delivering the goods into the custody of the transport carrier at the named point, having cleared the goods through Customs in the country of export. The responsibility for, and the risks of damage to or loss to the goods is transferred from the seller to the buyer at this point. It is based on the same principle as FOB except that the seller fulfils his obligations when s/he delivers the goods into the custody of the carrier at the named point.Slide35

FCA

(…named place)

Goods

Seller’s Risk

Seller’s Cost

PRE-CARRIAGE

MAIN CARRIAGE

ON-CARRIAGE

SELLER

BUYER

Export

Clearance

Import

Clearance

Buyer

nominates carrier,

contracts carriage

pays freight

Seller

clears export customs,

delivers goods to carrier

evidence of deliverySlide36

3.7 EXW - Ex Works

The seller makes the goods available, packed and ready for collection at the place of receipt

(

factory). The buyer must bear all the risks and charges in taking the goods to the required destination. This term carries the minimum obligation for the seller.Slide37

E Terms: Departure

EXW (named place)

Under E-terms, the seller minimizes his risk by only making the goods available at his own premises.

Goods

Seller’s Risk

Seller’s Cost

PRE -CARRIAGE

MAIN CARRIAGE

ON-CARRIAGE

SELLER

BUYER

Export

Clearance

Import

ClearanceSlide38

EXW = Ex Works

The seller fulfills his obligation to deliver when he has made the goods available at his premises to the buyer.

The seller

is not responsible for loading

the goods on the vehicle provided by the buyer

The seller

is not responsible for clearing

the goods for export, unless agreed.

The

buyer bears all costs and risks

involved in taking the goods from the seller’s premises to the desired destination.Slide39

“E” Terms:

EX WORKS...NAMED PLACE

(

usually the seller’s premises)

Abbreviation: EXW

Transport mode: all

Minimum requirements for the

seller

Seller’s

cost and risk end when seller places the goods at the

disposal

of the buyer at sellers premises or another named placeLoading is buyer’s responsibilityPre-carriage is buyer’s responsibilityMain-carriage

is buyer’s responsibilitySlide40

Seller’s cost & risk end when goods are at the disposal of

the

Buyer at the Seller’s

premises

or named place.

EXW

=

ExWorks

(Named Place)Slide41

DAF (…named place)

Goods

Seller’s Risk

Seller’s Cost

PRE-CARRIAGE

MAIN CARRIAGE

ON-CARRIAGE

SELLER

BUYER

Export

Clearance

Import

ClearanceSlide42

DES (…named port of destination)

Goods

Seller’s Risk

Seller’s Cost

PRE-CARRIAGE

MAIN CARRIAGE

ON-CARRIAGE

SELLER

BUYER

Export

Clearance

Import

ClearanceSlide43

DEQ (…named port of destination)

Goods

Seller’s Risk

Seller’s Cost

PRE-CARRIAGE

MAIN CARRIAGE

ON-CARRIAGE

SELLER

BUYER

Export

Clearance

Import

ClearanceSlide44

3.8 Delivered at Terminal (DAT)(named place)

Named place at terminal on 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, pays all transport costs thereto and unloads

Buyer

arranges import clearance and on carriage

Neither party

is required to insure

Transport Mode: All ModesSlide45

3.9 DDP- Delivered Duty Paid

The seller is responsible for delivering the goods to the named place of destination having cleared them for import into the country of destination. This term represents the maximum obligation for the seller.Slide46

3.10 CIP - Carriage & Insurance Paid

This term is the same as CPT but the seller also has to procure, and pay for, marine insurance for the goods. Similar to CIF, CIP is suitable for multimodal transportation

.Slide47

3.11 CPT - Carriage Paid to..

The seller is responsible for arranging the carriage and paying the freight to the named destination, but the risk of loss of, and damage to, the goods, passes from the seller to the buyer when the goods have been delivered into the charge of the carrier in the country of exportSlide48
Slide49
Slide50
Slide51

What are Incoterms 2011?

There is no such version as

Incoterms

2011.

The most recent revision is called as

Incoterms

2010, which came into force on 1

st

January 2011. The Revisions of the rules take place around every ten years or so

.Slide52

What is Incoterms 2010's connection with transfer of title to the goods?

The

Incoterms

rules are silent on the issue of when title in the goods passes from seller to buyer. This should be dealt with elsewhere in the commercial agreement. The issue of title to the goods is related to that of revenue recognition, which matters to those organizations who want the best figures in their financial reports

.Slide53

What Incoterms rules work best with letters of credit?

Where possible use CIF, CIP, CFR or CPT

.

For all these rules, delivery takes place before the main carriage. The carrier gives the seller a transport document which (usually) serves as a mechanism for control of the goods – it will be presented to the bank under the letter of credit, and then passed on to the buyer so that the goods can be claimed

.Slide54

Can we still use Incoterms 2000 in our agreements?

Yes.

Many

companies have complex agreements with their counterparties and service providers, which will be time‐consuming to redraft. Therefore parties are free to continue to refer to

Incoterms

2000 (or any other revision!)–Provided that this is specified unambiguously In their agreementsSlide55

Can I still use the Incoterms® 2000?

According to the International Chamber of Commerce, all contracts made under

Incoterms

® 2000 remain valid even after 2011. In addition, although the ICC recommends using

Incoterms

® 2010 from January 2011 onward, parties to a sales contract can agree to use any version of

Incoterms

® after 2011. It is important, however, to clearly specify the chosen version of

Incoterms

® being used (i.e.

Incoterms

® 2010, Incoterms® 2000, or any earlier version).Slide56

Discover

The key to getting along with others

How to build relationships with other people

continuedSlide57

Discover

The part self-esteem plays in relationships

How to deal with conflicts between peopleSlide58

Why It’s Important

Getting along with others will help you at home, at school, and on the job.Slide59

Key Terms

relationships

respect

empathize

self-esteem

conflict

prejudice

continuedSlide60

Key Terms

mediator

compromise

conflict resolutionSlide61

Building Relationships

Think about all your

relationships

—your connections or dealings with other people.Slide62

Building Relationships

The key to getting along with people is

respect

, or consideration for others.Slide63

Respect Is the Key

Employers take social skills seriously.

They know that employees who have social skills have the key to good relationships in the workplace.Slide64

Getting Along With Others

When you get along with coworkers and others at work, you will do a better job.

You will also enjoy your work more.Slide65

Ways to Build Relationships

continued

Graphic Organizer

Treat people as you would like to be treated.

Be thoughtful and considerate.

Try to understand the other person’s side.

Empathize

—Try to see things from the other person’s point of view and understand his or her situation.

Speak carefully.

Think of the way others will feel when they hear what you have to say.Slide66

Ways to Build Relationships

Graphic Organizer

Listen when others talk.

Let other people know you’re interested in them.

Help others.

Lend a hand if you see someone having trouble doing something.

Be friendly.

Be pleasant and smile.

Have a sense of humor.

Find ways to see the light side of a situation.Slide67

Getting Along With Yourself

How you feel about yourself

—your self-esteem—affects how you get along with others.

Self-esteem

is your recognition and regard for yourself and your abilities.Slide68

Dealing With Conflict

Even when people do their best to get along, conflicts can arise.

A

conflict

is a strong disagreement.Slide69

Causes of Conflicts

Conflicts have a variety of causes.

Some are based on misunderstandings.Slide70

Causes of Conflicts

Other conflicts come about because people have different beliefs or opinions, or because of gossip and teasing, or jealousy.Slide71

Causes of Conflicts

Prejudice is another cause of conflict.

Prejudice

is a negative attitude toward a person or group that is not based on facts or reason.Slide72

Resolving Conflicts

No matter what its cause, a conflict is like any other problem.

To deal with a conflict, you need good problem-solving skills.Slide73

Resolving Conflicts

If you can’t agree, you may need to ask someone to act as a mediator.

A

mediator

is someone who helps opposing people or groups

compromise

, or reach an agreement.Slide74

Resolving Conflicts

At work, a step-by-step process called

conflict resolution

may be used to settle disagreements.Slide75

Steps in Conflict Resolution

Graphic Organizer

Take turns describing the problem from different points of view.

1. Define the problem.

Offer solutions to the problem.

2. Suggest possible solutions.

Discuss the suggested solutions.

3. Evaluate possible solutions.

Brainstorm possible compromises. Then try to agree to a compromise solution.

4. Come to a compromise.

Invite a third person to listen and make suggestions for a solution.

5. Get another point of view.

Ask a mediator to make the final decision.

6. Ask someone else to decide.Slide76

Preventing Conflicts

When you feel yourself getting angry, try these ways of cooling off:

Take a deep breath and count to 10.

Go for a walk or do something else that is physical.

continuedSlide77

Preventing Conflicts

Laugh it off and walk away.

Take a few minutes to have a “talk” with yourself.

Remind yourself of the reasons you don’t want to get angry.Slide78

Can you have good relationships with other people if you have low self-esteem? Explain.

If you are not positive and respectful to yourself, you will have a much more difficult time being positive and respectful toward other people.

Critical Thinking Review

Critical Thinking

Q

A

continuedSlide79

How does learning to do something new help increase your self-esteem?

When you learn to do something new, you realize what you are capable of doing, and the experience gives you confidence in yourself.

Critical Thinking Review

Critical Thinking

Q

A