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Incoterms® 2010 – International Commercial Terms

The Incoterms rules explain a set of three letter trade terms reflecting business to business practice in contracts for the sale of goods. The Incoterms rules describe mainly the tasks, costs and risks involved in the delivery of goods from sellers to buyers. Incoterms rules have traditionally been used in international sale of contracts where goods pass across national borders. In various areas of the world, however, trade blocs, like the European Union (EU), have made border formalities between different countries less significant. Consequently, the subtitle of the Incoterms® 2010 rules formally recognised that they are available for application to both international and domestic sale of contracts. As a result, the Incoterms® 2010 rules clearly state in a number of places, that the obligation to comply with export/import formalities exists only where applicable. The eighth published set of pre-defined terms, Incoterms® 2010 covers 11 rules, reducing the 13 used in Incoterms 2000 by introducing two new rules (“Delivered at Terminal”, DAT; “Delivered at Place”, DAP) that replace four rules of the previous version (“Delivered at Frontier”, DAF; “Delivered Ex Ship”, DES; “Delivered Ex Quay”, DEQ; “Delivered Duty Unpaid”, DDU). In the previous version, the rules were divided into four categories: (1) Group E term, (2) Group F terms, (3) Group C terms and (4) Group D terms, with increasing responsibilities, costs and risks for the seller and decreasing responsibilities, costs and risks for the buyer. However, the 11 pre-defined terms of Incoterms® 2010 are subdivided into two categories based only on method of delivery. The larger group of seven rules applies regardless of the method of transport, with the smaller group of four being applicable only to sales that solely involve transportation over water. The 11 Incoterms® 2010 rules are presented in two distinct classes. The first class included the seven Incoterms® 2010 rules that can be used irrespective of the mode of transport selected and irrespective of whether one or more than one mode of transport is employed. EXW, FCA, CPT, CIP, DAT and DDP belong to this class. They can be used even when there is no maritime transport at all. It is important to remember, however, that these rules can be used in cased where a ship is used for part of the carriage. In the second class, the point of delivery and the place to which the goods are carried to the buyer are both ports, hence the label “sea and inland waterway” rules. FAS, FOB, CFR and CIF belong to this class. Under the last three Incoterms rules, all mention of the ship’s rail as the point of delivery has been omitted in preference for the goods being delivered when they are “on board” the vessel. This more closely reflects modern commercial reality and avoids the rather dated image of the risk swinging to and fro across an imaginary perpendicular line.

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[Figure 4] Quick Reference for 11 Incoterms® 2010 Rules

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(i) Rules for Any Mode or Modes of Transport EXW(공장)

EX WORKS EXW (insert named place of delivery) Incoterms® 2010 : The seller fulfills his/her obligation by having the goods available for the buyer to pick up at his premises or another named place (i.e. factory, warehouse, ect.). Buyer bears all risks and costs starting when he/she picks up the products at the seller’s location until the products are delivered to his location. Seller has no obligation to load the goods or clear them for export.

FCA(운송인인도)

FREE CARRIER FCA (insert named place of delivery) Incoterms® 2010 : The seller delivers the goods export cleared to the carrier stipulated by the buyer or another party authorised to pick up goods at the seller’s premises or another named place. Buyer assumes all risks and costs associated with delivery of goods to final destination including transportation after delivery to carrier and any customs fees to import the product into a foreign country.

CPT(운송비지급인도)

CARRIAGE PAID TO CPT (insert named place of destination) Incoterms® 2010 : The seller clears the goods for export and delivers them to the carrier or another person stipulated by the seller at a named place of shipment. Seller is responsible for the transportation costs associated with delivering goods to the named place of destination but is not responsible for procuring insurance.

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CIP(운송비보험료지급인도)

CARRIAGE AND INSURANCE PAID TO CIP (insert named place of destination) Incoterms® 2010 : The seller clears the goods for export and delivers them to the carrier or another person stipulated by the seller at a named place of shipment. Seller is responsible for the transportation costs associated with delivering goods and procuring minimum insurance coverage to the named place of destination.

DAT(터미널인도)

DELIVERED AT TERMINAL DAT (insert named terminal at port/place of destination) Incoterms® 2010 : The seller clears the goods for export and bears all risks and costs associated with delivering the goods and unloading them at the terminal at the named port or place of destination. Buyer is responsible for all costs and risks from this point forward including clearing the goods for import at the named country of destination.

DAP(목적지인도)

DELIVERED AT PLACE DAP (insert named place of destination) Incoterms® 2010 : The seller clears the goods for export and bears all risks and costs associated with delivering the goods to the named place of destination not unloaded. Buyer is responsible for all costs and risks associated with unloading the goods and clearing customs to import the goods into the named country of destination.

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DDP(관세지급인도)

DELIVERED DUTY PAID DDP (insert named place of destination) Incoterms® 2010 : The seller bears all risks and costs associated with delivering the goods to the named place of destination ready for unloading and cleared for import.

(ii) Rules for Sea and Inland Waterway Transport FAS(선측인도)

FREE ALONGSIDE SHIP FAS (insert named port of shipment) Incoterms® 2010 : The seller clears the goods for export and delivers them when they are placed alongside the vessel at the named port of shipment. Buyer assumes all risks/costs for goods from this point forward.

FOB(본선인도)

FREE ON BOARD FOB (insert named port of shipment) Incoterms® 2010 : The seller clears the goods for export and delivers them when they are on board the vessel at the named port of shipment. Buyer assumes all risks/costs for goods from this point forward.

CFR(운임포함인도)

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COST AND FREIGHT CFR (insert named port of destination) Incoterms® 2010 : The seller clears the goods for export and delivers them when they are on board the vessel at the port of shipment. Seller bears the cost of freight to the named port of destination. Buyer assumes all risks for goods from the time goods have been delivered on board the vessel at the port of shipment.

CIF(운임보험료지급인도)

COST, INSURANCE AND FREIGHT CIF (insert named port of destination) Incoterms® 2010 : The seller clears the goods for export and delivers them when they are on board the vessel at the port of shipment. Seller bears the cost of freight and insurance to the named port of destination. Seller’s insurance requirement is only for minimum cover. Buyer is responsible for all costs associated with unloading the goods at the named port of destination and clearing goods for import. Risk passes from seller to buyer once the goods are on board the vessel at the port of shipment.

(iii) FCA/CPT/CIP vs. the Traditional FOB/CFR/CIF Similarities

All of these are symbolic delivery and the corresponding sales/purchase contracts are shipment contracts.

The seller is responsible for export clearance, and the buyer is responsible for import clearance.

FCA is somewhat like FOB, CPT like CFR, and CIP like CIP. Differences

Modes of transportation: FCA/CPT/CIP are applicable to all modes of transport, including rail, road, air, sea, inland waterway and multimodal transport. FOB/CFR/CIF can be used only for sea or inland waterway transport.

Different point of risk dividing: in FCA/CPT/CIP, the risks are divided when the goods are delivered to the carrier, while the traditional ones are on board the vessel.

Charges for loading and unloading the goods: for FCA/CPT/CIP, the carrier is responsible for loading and unloading; therefore no derived terms are used.

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[Figure 5] Two Classes of Incoterms® 2010 Rules and Obligations of Seller and Buyer

Rules for Any Mode or Modes of Transport

Rules for Sea and Inland Waterway Transport

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Expressions and Choice of Trade Terms

Trade terms are also referred to as “price terms” or “delivery terms”. Trade terms are a set of uniform rules codifying the interpretation of trade terms defining the price composition and the rights and obligations of the buyer and the seller in global business transactions (GBT) or international transactions. Different expressions or choice of trade terms can lead to different meanings; as a result, we should pay more attention to the expression and choice of trade terms. (i) Expressions of Trade Terms: Trade terms are expressed in the unit price for goods. In an international sales contract, the unit price usually contains unit, amount and a trade term which is followed by a name port or place of shipment or destination. (ii) Choice of Trade Terms: Different trade terms mean different obligations to the buyer and the seller. At present, symbolic delivery trade terms are widely used. Korean trade enterprises are traditionally inclined to arrange shipment and effect insurance by themselves. The purpose is to develop both Korean ocean transport industry and insurance industry. Therefore, they often adopt FOB or FCA in their import deals and try to adopt CIF or CIP n their export deals. Sometimes they also adopt CFR or CPT in the circumstances when the other party’s countries require insurance to be effected by their own insurance companies. The following factors should be taken into consideration when choosing trade terms.

Adopting to the Modes for Transportation: Since FOB/CFR/CIF are used for sea

or inland waterway transport, it is necessary to adopt FCA/CPT/CIP when the cargos are transported by rail or air. Even by ocean transport, when containers are used, it is better to adopt FCA/CPT/CIP because the seller will lose the control of the goods when the cargos are delivered to the carrier.

Avoiding Risks: When importing bulk cargoes by charter, basically, FOB should be

adopted. In this case, we (the buyer) shall charter the ship or book shipping space and effect insurance, thus avoiding the risks of going up of the seller and the carrier. They may take advantage of the charter B/L to deceive the buyer into making payments.

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Key Expressions & Technical Terms advise 통지하다

Agreement Phase 협정단계

allocation of costs 비용의 분담

authority 관계당국/재가, 인가

bid(s) 입찰

Bill of Lading (B/L) 선하증권

bulk cargoes 살물화물

business process 비즈니스프로세스(운영)

Buy-Ship-Pay Model (BSP) 매입-선적-결제 모델/BSP모델

cargo declaration 운송화물 신고

charter 용선

claims & dispute 하자청구(클레임) 및 분쟁

clear goods 물품 통관

Commercial Invoice 상업송장

commercial procedures 상거래 절차

comply with ~에 순응하다/일치하다/~를 준수하다

Conditions of Insurance 보험 조건

confirmation of order 주문확인서

consignee/consignor 수화인(수탁인)/송화인(화주)

contracting parties 계약당사자

costs and risks 비용 및 위험부담

credit guarantee 신용보증

credit inquiry 신용조회

credit note 대변표

credit rating 신용등급

customer 고객

customs clearance 통관

debit note 차변표

delivery of goods 물품 인도

Delivery Terms 인도 조건

despatch(dispatch) advice 발송 통지

dispute settlement procedure 분쟁해결절차

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documentation 증빙서류

enforceable 시행(집행)할 수 있는

financial procedures 재무(금융)절차

Follow-up Phase 후속단계

formation of contract 계약의 성립

freight forwarder 운송주선인

frontier customs house 국경세관

General Terms and Conditions 일반거래조건(협정서)

Health Certificate 위생증명서/검역증명서

Implementation Phase 실행단계

Information Phase 정보단계

Inspection, Claim, Arbitration 검사, 클레임, 중재

inspection certificate 검사증명서

insurance policy 보험증권

insure cargo 부보화물

intermediary 중개인

international contract of sale 국제매매계약

international rules and conventions 국제 규칙 및 협약 Incoterms® 2010 - ICC rules for the use of domestic and international trade terms Incoterms® 2010년 – 국내 및 국제무역거래조건의 사용에 관한 국제상업회의소 규칙

Global Business Transactions (GBT) 글로벌비지니스(무역)거래

guaranteed payment 지급보증

Letter of Credit (L/C) 신용장

logistics/logistical procedures 물류/물류절차

market share 시장점유율

minimum cost of operation 최소운영비용

modes of transport 운송수단(방식)

named place of destination 지정 목적지

named port of destination 지정 목적항

named port of shipment 지정 선적항

negotiation 협상

offer & acceptance 청약 및 승낙

optimum profit 수익극대화(최적화된 수익)

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order 주문/~을 주문하다

overseas market research 해외시장조사

payment 지급/결제

performance of contract 계약의 이행

Port Authority/Receiving Authority 항만관리청(항만공사)/수입(인수)당국

Price Terms 가격 조건

procurement 조달

quoting prices 가격 책정(견적)

receipt advice 수령 통지

regulatory procedures 규제(규정)절차

responsibilities and liabilities 의무 및 책임

restraints/restrictions 억제/제한(한계)

Revised American Foreign Trade Definitions 1990 개정미국무역정의

rights and duties(obligations) 권리 및 의무

supply chain security 공급망(사슬)보안/물류보안

termination of contract 계약의 종료

terms and conditions 거래약관

Terms of Packing 포장 조건

Terms of Payment 결제 조건

Terms of Quality/Quantity 품질/수량 조건

Terms of Shipment 선적 조건

trade terms 무역(정형거래)조건

trading partners 교역상대(국)

transfer of risks 위험의 이전

transport/transportation 수송/운송

Standards Institutes 규격협회(표준화협회)

statement 입출금 내역서

status reports 주문현황

supplier 공급인(자)

Warsaw-Oxford Rules for CIF Contract 1932 와르소옥스포드 규칙

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Check-up Questions 03

Q1. Translate the paragraph below into Korean.

The Buy-Ship-Pay (BSP) model developed by UN/CEFACT describes the main processes and parties in the global supply chain. The supply chain ensures the goods are ordered, shipped and paid for while complying with regulatory requirements and supporting trade security. The BSP model identifies the key commercial, logistical, regulatory and payment procedures, involved in the global supply chain and provides an overview of the information exchanged between the parties throughout its various phases.

Q2. The BSP model identifies four main business partner types: customer, supplier, intermediary and authority. These types are paired with possible actors and their roles as below. Which is NOT correct?

① Customer – Buyer, Consignee, Payor, Ship to ② Supplier – Consignor, Payee, Seller, Ship from ③ Authority – Consular, Customs, Standards Institute ④ Intermediary – Chamber of Commerce, Licensing, Receiving Authority

Q3. What are the four phases of Global Business Transactions (GBT)? Briefly explain the major activities for each phase in both English and Korean.

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Q4. Translate the paragraph below into Korean.

Trade terms, also known as price terms or delivery terms, are a set of uniform rules codifying the interpretation of trade terms defining the price composition and the rights and obligations of the buyer and the seller in global business transactions. Trade terms are standardised terms used in sales contracts that describes the place and means of transfer of goods from the seller and the buyer. These terms, such as free on board (FOB) and cost, insurance, and the price, identify the time when the risk of loss shifts from the seller to the buyer, and the costs of freight and insurance. The use of trade terms greatly simplifies the process of negotiation of contract, thus saving time and cost for business transactions.

Q5. Which one of the 11 Incoterms® 2010 rules below can ONLY be used for Sea and Inland Waterway Transport?

① FCA (Free Carrier) ② CIP (Carriage, and Insurance Paid to) ③ DAT (Delivered at Place) ④ CFR (Cost and Freight)

Q6. Translate the paragraph below into Korean.

Please quote your best prices CIF Busan for 500 each of these coats in medium and small sizes and let us know if you could ship them within a fortnight of receipt of an order No. 47684.