“INCOTERMS 2000” and Export Documentation

Presented by

Sherie Cuddy Mohawk Global Logistics

Incoterms 2000

A quick quiz to see how much we already know.

Incoterms 2000

A. are internationally recognized commercial shipping terms

B. are ocean navigational vectors derived from the Inca Empire of the Andes

C. are federally mandated Insurance premiums and conditions on export transactions.

D. dictate the type of ink and formatting used in International shipping contracts.

Incoterms 2000 were written

A. under the United Nations Convention for the International Sale of Goods (Vienna Convention)

B. by the International Chamber of Commerce

C. under the Kyoto Protocols as adopted in 2000

D. under “fast track” authority granted by the U.S. Congress

To apply to the transaction, Incoterms 2000 must be incorporated into

A. contract of carriage

B. negotiable bill of lading

C. sales contract

D. the Electronic Export Information (EEI)

Incoterms 2000 address

A. ownership rights

B. breaches of contract

C. the risks of loss between the parties

D. type of ship used

“FOB” is only appropriate when goods are shipped via

A. truck

B. rail

C. ship

D. air

Which Incoterms can be used to transfer title to goods at the port of export?

A. EXW

B. FCA

C. FOB

D. None of the above

Incoterms do NOT refer to the title of goods but rather to risks and costs.

The International Shipping Transaction

Request for quotation by the buyer

Pro-forma invoice by the seller

Purchase order created by the buyerSales contract created using proper Incoterms

Payment initiated (open terms, letter of credit)

Documentation created by the sellerCommercial invoicePacking listOther documents required by the buyer

The International Shipping Transaction

Foreign Freight Forwarder – creates transport documents and other documents as required.

Transportation (pre-carriage, main carriage) arranged based on Incoterms in sales contract or purchase order.

Customs clearance performed on behalf of importer of record.

Final delivery arranged based on Incoterms of sale.

Bill of Lading – NVOCC/OTI

A contract for carriage with a common carrier via water

Moves goods between named geographic points at an agreed rateReflects the Incoterms agreed upon by the seller and buyerCan be a document of title for the merchandise named in NVOCC bill of lading

Incoterms Transport Modes- Air, Rail Ocean and Truck

EXW - Ex Works (All Modes)FCA - Free Carrier (All Modes)FAS - Free Along Side (Ocean only)FOB - Free On Board (Ocean only)CPT - Carriage Paid To (All Modes)CIP - Carriage and Insurance Paid (All Modes)CFR - Cost and Freight (Ocean only)CIF - Cost, Insurance and Freight (Ocean only)DAF - Delivered at Frontier (Rail & Truck)DDU - Delivered Duty Unpaid (All Modes)DDP - Delivered Duty Paid (All Modes)DES - Delivered Ex Ship (Ocean only)DEQ - Delivered Ex Quay (Ocean only)

Seller/Exporter Premises

Export Formalities

Named place of Terminal

Loading Port of Shipment

Onboard Ship/Rail/PlaneDischarging Port of Arrival

Named place of Terminal

Import Formalities

Buyer/ Importer Premises

Ship’s Rail

EXWCost

Risk

FCACost

Risk

FASCost

Risk

FOBCost

Risk

CFRCost

Risk

CIFCost

Risk

CPTCost

Risk

CIPCost

Risk

DAFCost

Risk

DESCost

Risk

DEQCost

Risk

DDUCost

Risk

DDPCost

Risk

NOTES: 1. This chart serves as a general outline of costs and risks. For specific guidance, consult Incoterms 2000: ICC Official Rules for the Interpretation of Trade Terms, published by the International Chamber of Commerce. 2. Only CIF and CIP place an obligation on anyone to purchase cargo insurance. However, it is usually a good idea for either the seller or the buyer to purchase insurance to protect against risk.

INCOTERMS 2000 REFERENCE CHART

Seller Buyer

Cost: the cost of transportationRisk: the risk of loss of damage to goods

Key:

LessControl

MoreControl1) “E” group - Departure

2) “F” group - Main carriage unpaid

3) “C” group - Main carriage paid

4) “D” group - Arrival

Seller Buyer

MoreControl

LessControl

14

LessControl

Seller

Four Groups of Incoterms

General Terminology

Pre-carriage – Transportation from shipment origin point to the departure point on the seller’s side

Main Carriage - Transportation from the seller’s side to the buyer’s side. This is usually an ocean or airfreight shipment.

On-Carriage - Transportation from the point of arrival on the buyer’s side to the place where the shipment ends.

SELLER BUYER

Seller/ Exporter Premises

Export Documents Formalities

Delivered at named place

of: Frontier/ Terminal/

Quay

Loading Port of

Shipment

Onboard Ship Rail

Plane Ship’s Ship’s Rail Rail

Discharging Port of Arrival

Delivery at named place of

destination: Frontier/

Terminal/Quay

Import Documents Formalities

Buyer/ Importer Premises

Seller’s Risks

Buyer’s Risks

Seller’s Cost

Buyer’s Cost

16

EXW – Ex Works (named place)

E - Departure

EXW – Ex Works: Usually the seller’s place

Incoterm with minimum seller responsibility

Insurance is not required

Sellers responsibility is to have the goods suitably packed for export at the stipulated place and time

Buyer makes ALL transportation and export clearance arrangements

“I undertake to determine any export license requirements, to obtain any export license or other official authorization, and to carry out any customs formalities for the export of the goods”

Issues with EXW

As an ExporterForeign buyer is responsible for export clearance but who will the BIS or Customs Regulatory Audit visit if there are problems or violations?No control of freight routing. If there are problems with delivery or condition of freight you may be pulled in by the buyer even though you have no responsibility.

As an ImporterYou are now the responsible party for the export Customs clearance with all of the attending liabilities.You are responsible for inland freight from the factory to the carrier.

F – Main-Carriage Unpaid

FCA – Free Carrier: can be the seller’s place with door/door transport, or a buyer-appointed carrier’s terminal on seller’s side.

FAS – Free Along Side: a port on the seller’s side.

FOB – Free On Board: a port on the seller’s side.

SELLER BUYER

Seller/ Exporter Premises

Export Documents Formalities

Delivered at named place

of: Frontier/ Terminal/

Quay

Loading Port of

Shipment

Onboard Ship Rail

Plane Ship’s Ship’s Rail Rail

Discharging Port of Arrival

Delivery at named place of

destination: Frontier/

Terminal/Quay

Import Documents Formalities

Buyer/ Importer Premises

Seller’s Risks

Buyer’s Risks

Seller’s Cost Buyer’s Cost

20

FCA – Free Carrier (named place)

Free Carrier (FCA)

FCA is the most versatile of the F Incoterms.It can be used with any mode of transport, with two likely places on the seller’s side.The two normal delivery points for the seller would be:

The seller’s premises andThe terminal of the buyer appointed carrier, forwarder, or other buyer-appointed party.

On FCA Seller’s Place, the seller must load the truck, container or other conveyance at the seller’s place

Free Carrier (FCA)

On FCA Carrier Terminal seller must load conveyance but buyer must arrange unloading at carrier’s terminal

Export clearance is a seller responsibility.

Buyer is responsible for vessel loading, main carriage, import clearance, and on-carriage.

Insurance is NOT required but buyer should consider coverage outside of the Incoterm.

SELLER BUYER

Seller/ Exporter Premises

Export Documents Formalities

Delivered at named place

of: Frontier/ Terminal/

Quay

Loading Port of

Shipment

Onboard Ship Rail

Plane Ship’s Ship’s Rail Rail

Discharging Port of Arrival

Delivery at named place of

destination: Frontier/

Terminal/Quay

Import Documents Formalities

Buyer/ Importer Premises

Seller’s Risks

Buyer’s Risks

Seller’s Cost Buyer’s Cost

23

FOB – Free on Board (named port of shipment)

Free on Board (FOB)

FOB means loaded on board a vessel at port location on the seller’s side.

Similar to FAS, problems occur since most modern terminals do not load cargo on board after it is delivered by the seller. It may take days after delivery to the terminal before the cargo is loaded “on board”. Again, the 24-hour rule has exacerbated this situation.

Loading or truck, container, or other conveyance is the seller’s responsibility.

Pre-carriage is the seller’s responsibility.

Free on Board (FOB)

Export clearance is a seller responsibility.Vessel loading is a seller responsibility.Main carriage is the buyer’s responsibilityInsurance is NOT required but the buyer should consider it outside the Incoterms.

C – Main-Carriage Paid

CPT – Carriage Paid To: somewhere on the buyer’s side. (suggested that the place be an arrival point on the buyer’s side.)

CIP – Carriage and Insurance Paid: somewhere on the buyer’s side.

CFR – Cost and Freight: a port on the buyer’s side. (Note: this term was formerly called C and F or C&F.)

CIF – Cost, Insurance and Freight: a port on the buyer’s side.

SELLER BUYER

Seller/ Exporter Premises

Export Documents Formalities

Delivered at named place

of: Frontier/ Terminal/

Quay

Loading Port of

Shipment

Onboard Ship Rail

Plane Ship’s Ship’s Rail Rail

Discharging Port of Arrival

Delivery at named place of

destination: Frontier/

Terminal/Quay

Import Documents Formalities

Buyer/ Importer Premises

Seller’s Risks Buyer’s Risks

Seller’s Cost Buyer’s Costs

27

CPT - Carriage Paid To (named port of destination)

Carriage Paid To (CPT)

CPT is a direct extension of the FCA Incoterm. It switches the contract of main-carriage task from the buyer to the seller.The stipulated place used for CPT is the place on the buyer’s side to which the freight is prepaid, however, the seller is not responsible for the goods beyond the point where they have been handed over to the first carrier.CPT can be used for all transportation modes.Loading or truck, container, or other conveyance is the seller’s responsibility.Pre-carriage is the seller’s responsibility.Export clearance is a seller responsibility.

Carriage Paid To (CPT)

The seller pays for vessel loading as part of the contract of carriage, however, the seller is NOT responsible for the condition of the goods during vessel loading, since loading always takes place after the goods have been delivered to the carrier.

The contract of main-carriage and the payment of freight costs are seller responsibilities. Remember that the seller is NOT responsible for the condition of the goods while they are in transit.

Insurance is NOT required but the buyer should consider it outside the Incoterms

SELLER BUYER

Seller/ Exporter Premises

Export Documents Formalities

Delivered at named place

of: Frontier/ Terminal/

Quay

Loading Port of

Shipment

Onboard Ship Rail

Plane Ship’s Ship’s Rail Rail

Discharging Port of Arrival

Delivery at named place of

destination: Frontier/

Terminal/Quay

Import Documents Formalities

Buyer/ Importer Premises

Seller’s Risks Buyer’s Risks

Seller’s Cost Buyer’s Cost

30

CIP – Carriage and Insurance Paid to(named port of destination)

Carriage and Insurance Paid (CIP)

CIP is the same as CPT except for insurance coverage.CIP obligates the seller to obtain cargo insurance “such that the buyer, or any other person having an insurable interest in the goods, shall be able to claim directly from the insurer”.Insurance is a seller obligation but only minimum cover (commonly called “free of particular average”) is required by the Incoterm. Since this is inadequate in most situations, the buyer and seller should agree to additional coverage outside of the Incoterm.

SELLER BUYER

Seller/ Exporter Premises

Export Documents Formalities

Delivered at named place

of: Frontier/ Terminal/

Quay

Loading Port of

Shipment

Onboard Ship Rail

Plane Ship’s Ship’s Rail Rail

Discharging Port of Arrival

Delivery at named place of

destination: Frontier/

Terminal/Quay

Import Documents Formalities

Buyer/ Importer Premises

Seller’s Risks Buyer’s Risks

Seller’s Cost Buyer’s Cost

32

CFR – Cost and Freight (named port of destination)

Cost and Freight (CFR)

Cost and Freight (CFR, formerly abbreviated C&F) CFR may only be used with vessel shipments.The seller is responsible for:

Loading the truck, train, barge or other conveyance at the seller’s facilityPre-carriageExport clearanceVessel loadingMain-carriage, however, the seller is NOT responsible for the condition of the goods while they are in main-carriage transit.

Cost and Freight (CFR)

As with FOB, the actual risk transfer point is the ship’s rail.

Insurance is NOT required but the buyer should consider it outside the Incoterms.

The stipulated place used for CFR is the port on the buyer’s side to which the freight is prepaid. (Note: CFR and CIF terms end with a port location on the buyer’s side. Do not stretch them by stipulating an inland location as the place. If an inland location is desired, consider CPT, DDU or DDP).

SELLER BUYER

Seller/ Exporter Premises

Export Documents Formalities

Delivered at named place

of: Frontier/ Terminal/

Quay

Loading Port of

Shipment

Onboard Ship Rail

Plane Ship’s Ship’s Rail Rail

Discharging Port of Arrival

Delivery at named place of

destination: Frontier/

Terminal/Quay

Import Documents Formalities

Buyer/ Importer Premises

Seller’s Risks

Buyer’s Risks

Seller’s Costs

Buyer’s Cost

35

CIF – Cost, Insurance and Freight (named port of destination)

Cost, Insurance and Freight (CIF)

CIF is the same as CFR, except for the insurance coverage. Like CFR, CIF is a direct extension of the FOB Incoterm.CIF may only be used with vessel shipments.The seller is responsible for:

Loading the truck, train, barge or other conveyance at the seller’s facilityPre-carriageExport clearanceVessel loadingMain-carriage, however, the seller is NOT responsible for the condition of the goods while they are in main-carriage transit.

Cost, Insurance and Freight (CIF)

As with FOB, the actual risk transfer point is the ship’s rail.

Insurance is a seller obligation but only minimum cover (commonly called “free of particular average”) is required by the Incoterm.

D - Arrival

DAF – Delivered at Frontier: a border location.

DDU – Delivered Duty Unpaid: somewhere on the buyer’s side.

DDP – Delivered Duty Paid: somewhere on the buyer’s side.

DES – Delivered Ex Ship: a port on the buyer’s side.

DEQ – Delivered Ex Quay: a pier on the buyer’s side.

SELLER BUYER

Seller/ Exporter Premises

Export Documents Formalities

Delivered at named place

of: Frontier/ Terminal/

Quay

Loading Port of

Shipment

Onboard Ship Rail

Plane Ship’s Ship’s Rail Rail

Discharging Port of Arrival

Delivery at named place of

destination: Frontier/

Terminal/Quay

Import Documents Formalities

Buyer/ Importer Premises

Seller’s Risks

Buyer’s Risks

Seller’s Cost Buyer’s Cost

39

DDU – Delivered Duty Unpaid(named place of destination)

Delivered Duty Unpaid (DDU)

DDU removes all transport responsibilities up to the stipulated place from the buyer’s shoulders. All the buyer needs to do is arrange for import clearance and accept delivery at the stipulated place at the agreed time.The seller must arrange for delivery and is responsible for the condition of the goods until this happens.DDU may be used for all means of transportation.The seller is responsible for:

Loading the truck, train, barge or other conveyance at the seller’s facilityPre-carriageExport clearanceVessel loadingMain-carriageOn-carriage (a seller responsibility unless the stipulated place is the arrival point on the buyer’s side).

Delivered Duty Unpaid (DDU)

The buyer is responsible for import clearance.

Neither party is required to insure under DDU, but keep in mind that the seller is responsible for the goods until they are delivered to the stipulated place. In other words, the seller bears the transit risk, usually right up to the buyer’s premises. For this reason, the seller should insist that adequate insurance be covered outside the Incoterm.

SELLER BUYER

Seller/ Exporter Premises

Export Documents Formalities

Delivered at named place

of: Frontier/ Terminal/

Quay

Loading Port of

Shipment

Onboard Ship Rail

Plane Ship’s Ship’s Rail Rail

Discharging Port of Arrival

Delivery at named place of

destination: Frontier/

Terminal/Quay

Import Documents Formalities

Buyer/ Importer Premises

Seller’s Risks

Buyer’s Risks

Seller’s Cost Buyer’s Cost

42

DDP – Delivered Duty Paid (named place of destination)

Delivered Duty Paid (DDP)

DDP is the exact opposite of Ex Works (EXW). This term removes all transport and import clearance responsibility from the buyer’s shoulders. The stipulated place can be the arrival point or any other location on the buyer’s side, including the buyer’s own premises.DDP may be used for all means of transportation.The seller is responsible for:

Loading the truck, train, barge or other conveyance at the seller’s facilityPre-carriageExport clearanceVessel loadingMain-carriageOn-carriage (a seller responsibility unless the stipulated place is the arrival point on the buyer’s side).

Delivered Duty Paid (DDP)

Import clearance is a seller responsibility. The seller is also responsible for payment of import duty. Many countries impose a value added tax (VAT). Since VAT is not import duty, but is normally collected with the import duty, the seller and buyer should agree outside the Incoterm how this is to be handled.Neither party is required to insure under DDU, but keep in mind that the seller is responsible for the goods until they are delivered to the stipulated place. In other words, the seller bears the transit risk, usually right up to the buyer’s premises. For this reason, the seller should insist that adequate insurance be covered outside the Incoterm.

Delivered at Frontier (DAF)

For DAF, the seller pays transportation costs and handles export clearance up to the stipulated place. The buyer handles the import clearance and transportation costs beyond the stipulated place. DAF can be used for all modes of transportation, if the delivery point is a land border.The seller is responsible for loading, pre-carriage, export clearance.The buyer is responsible for import clearance and on-carriage.Neither party is required to insure under DAF.

Best Practices for International Sales

1. CIP or CIF – Addl. Profit & Control of the Freight

2. CPT or CFR- Addl. Profit & Control of the Freight

3. DDU- Addl. Profit & Control of the Freight

4. FCA – Allows you to control the export clearance

Note: If using a Letter of Credit use a C-Term to allow you to process the L/C with the bank.