logistics - university of northern iowaschragec/web-14.pdfglobal trade management college of...

Global Trade Management

College of Business, University of Northern Iowa 1

Logistics

World Trade PracticesChapter 14

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Containerized Cargo

1 TEU – 20’ long container2 TEUs per 40’ long container

FCL= full container loadLCL= less than full container load (door to door)

Twenty-Foot Equivalent Units (intermodal shipping container)

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Specialized Containers

Reefers

Side Loading

Open top

Ventilated

Insulated

Flat rack

Non-containerized

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RoRo Bulk

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Air Containers

Can be owned and loaded by airline

Some companies choose to own the units for ease of loading and security issues

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Movement from Ship



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Customs Trade Partners Against Terrorism

Validation process

Security profile

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Airport CodesWorld Air Codes

Usaircode

Leonards guide

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INCO Terms

ICC Publishing Inc.

Publication # 560

ISBN: 92-842-1199-9

http:www.iccbooksusa.com

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What are INCOTERMS?

13 terms of sale created for use in international sales transactionsCreated by International Chamber of CommerceTranslated into 20 languagesWidely understood by experienced foreign tradersPeriodically updatedALWAYS accompanied by geographic location

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WHERETransfer of risk takes place

WHATCost factors are included

WHOHas responsibility for forwarder and carrier selection

WHATDocuments each party must provide

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Reference cards for quick review



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INCOTERMS are not:

Law- need to identify in sales agreementAll inclusiveMade to be used in U.S. Domestic sales

Use the UCC terms instead

Conveyors of titleSolutions for all potential foreign trade challenges

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Four Groupings

E – reflects departure point

F – Main carriage (freight) unpaid

C – Main carriage paid

D – Arrival point

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EXW (ExWorks)

Departure TermsBuyer Possession at the seller’s premises

Little risk of transport to sellerONLY term seller is not responsible for export clearance.

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EXW- Exworks (named place)

Example: EXW Parkersburg, IowaSeller makes goods available at premises to the buyer (factory or warehouse)Not responsible for lading goods on vehicle provided by buyer• Loading is potential conflict with union rules• Very difficult for buyer to handle U.S. export clearance

Buyer bears all costs and risks involve in movement of goodsMinimum obligation for the sellerTransfer of risks at seller’s facility

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Group F

Main Carriage is unpaid

Buyer selects carrier and pays for the freight

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FAS

Free Alongside Ship

Risk remains with seller until the product is in the port ready to load onto the ship



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FAS Free Along Ship(named port of shipment)

Example: FAS Port of MilwaukeeSeller fulfills his obligation once the goods have been placed alongside the vessel either by delivery on the pier or by bringing alongside via other conveyance.Costs beyond delivery point are buyer’sExport clearance is now a seller obligation under INCOTERMS 200.Can only be used for marine or inland waterway transport.Transfer of risk occurs when seller delivers to the vessel designated by the buyer.

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FCA

Free Carrier

Buyer chooses a delivery location

Transfers of title and risk occurs at buyers chosen site

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FCA Free Carrier (named place)

Example: FCA Port of CharlestonFCA Waterloo Airport ALO

Seller fulfills delivery responsibility when goods, cleared for export, are loaded on the means of transport by the buyer chosen carrier at the seller’s premises, or delivered to the terminal of the buyer’s appointed carrier, forwarder or other appointed party. (Simplified 2000 version)Costs of delivery to the first carrier or person are for seller.All costs beyond first delivery are for buyer.Transfer of risk takes place when seller delivers to the carrier or person determined by the buyer.

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FOBFree on BoardAs soon as the cargo passes over the side of the ship, risk and title are transferred

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FOB Free on Board(Named Port of Shipment)

Example: FOB Port of TemaFOB USS Iowa, Port of San Diego

Seller fulfills his obligation when goods have passed over the ship’s rail at the named port of shipmentCosts beyond ship’s rail at the named port of shipment are responsibility of buyerSeller is required to clear the goods for exportCan only be used for marine or inland transport. • When the ship’s rail provides no purpose (such as RORO) use FCA term

Transfer of risk occurs when cargo passes ship’s rail

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Group C

Main Carriage is PaidFreight is prepaid

Seller selects carrier



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CFR

Cost and Freight Paid

Seller arranges for transport

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CFR Cost and Freight(named port of Destination)

Example: CFR SingaporeSeller pays costs and freight necessary to bring goods to named port of destination

Buyer pays costs beyond destination port

Can only be used for marine or inland waterway transport.• When the ship’s rail provides no purpose (such as RORO) use CPT term

Transfer of risk occurs when cargo passes ship’s rail

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CIF

Cost

Insurance

Freight

Marine insurance obligation of seller

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CIF Cost, Insurance, Freight(named port of transportation)

Example: CIF Hamburg, GermanySeller has same obligations as CFRAdditional seller obligation includes contracting for marine insurance against buyer’s risk of loss or damage of goods during the carriage.Seller is only required to obtain minimum coverageCan only be used for marine or inland waterway transport.• When the ship’s rail provides no purpose (such as RORO) use CIP term

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CPT

Carriage Paid to a particular point

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CPT Carriage Paid to(named place of Destination)

Example: CPT Heathrow AirportCPT Accra, Ghana

Similar to CFR termUsed for any mode of transport including intermodalSeller fulfills responsibility when goods have been delivered to the carrierSeller responsible for export clearance, fees and carriage costs up to named destination placeTransfer of risk takes place when goods are delivered to the first carrier.



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CIP

Carriage and Insurance Paid to a certain point

Marine insurance obligation of seller

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CIP Carriage & Insurance Paid(named place of destination)

Similar to CIF term

Seller has same obligations under the CPT with addition of insurance responsibilities of CIF

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Group D

Arrival Terms Seller Delivers to a Destination Point

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DAFDelivered at frontierDelivered to an accessible siteCleared for export but not cleared for importCan be used for multimodal, but designed primarily for truck/rail transportExample: DAF Laredo, Texas- Seller responsible for cost and risk of cargo to Laredo, Texas border crossing- buyer assumes risk and cost when freight crosses U.S. border.

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DAF Delivered at Frontier(named place)

Example: DAF Laredo, Texas

DAF Canadian BorderSeller fulfills obligations to deliver when goods have made available (cleared for export) at named point and place at the frontier• But before customs border of adjoining country

DAF term primarily for goods transported by rail or road, but can be used for any mode of transport

Transfer of risks occurs when goods have been transferred at the frontier.

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DES

Delivered to Ex-Ship

Seller arranges carriage

Risk transfers when buyer has access (on ship)



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DES Delivered Ex Ship(named port of destination)

Example: DES Hamburg, GermanySeller fulfills his obligation to the deliver when the goods have been made available to the buyer on board the ship but uncleared for import at the named port of destinationSeller bears all costs and risks involved in bringing the goods to this point.Can only be used for marine or inland waterway transportTransfer of risk takes place when vessel arrives at destination port

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DEQ

Delivered Ex-Quay

Carriage arranged by seller

Risk transfers to seller when good are place at disposal of the buyer on the quay

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DEQ Delivered Ex Quay Duty Paid(named port of destination)

Example: DEQ Hamburg, GermanySeller fulfills obligation when goods have been made available on the quay of at the port of destination, cleared for importation.

Seller bears all costs including duties, taxes, and other charges and risks to deliver the goods to port unloaded.

Import clearance is now a buyer obligation under INCOTERMS 2000.

Can only be used for marine and inland waterway transport.

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DDU

Delivered Duty Unpaid

Delivered cleared through customsImport documentation and duty responsibility with buyer

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DDU Delivered Duty Unpaid(named place of destination)

Example: DDU Toronto, CanadaSeller fulfills obligation to deliver when goods have been made available at the named place in the country of importationSeller bears all costs involved in bringing the goods to this point EXCLUDING duties, taxes, and other official charges payable upon importation, as well as the costs and risks of carrying out customs formalities.Used for all modes of transportTransfer of risk takes place when goods delivered to destination point not cleared by customs or duty paid.

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DDP

Delivered Duty Paid

Delivered cleared through customsImport documentation and duty responsibility with seller



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DDP Delivered Duty Paid(named place of destination)

Example: DDP Duseldorf, GermanySeller fulfills obligation to deliver when goods have been made available at the named place in the country of importation.

Seller bears all costs and risks INCLUDING duties, taxes, and other charges of delivering the goods, cleared for importation.

This term should not be used if seller is not able to directly or indirectly obtain and import license.

Used for all modes of transport

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ANY MODE OF TRANSPORTATION

EXW (named place)Usually seller’s place

FCA (named place)Seller’s place with door/door transportBuyer appointed carrier’s terminal on seller’s side

CPT (named destination)Somewhere on buyer’s side

CIP (named destination)Somewhere on buyer’s side

DAF (named place)A border location

DDU (named destination)Somewhere on buyer’s side

DDP (named destination)Somewhere on buyer’s side

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Marine and Inland Waterway transport only

FAS (named port of shipment)A port on the seller’s side

FOB (named port of shipment)A port on the seller’s side

CFR (named port of destination)A port on the buyer’s side

CIF (named port of destination)A port on the buyer’s side

DES (name port of destination)Usually used for chartersA port on the buyer’s side

DEQ (duty paid) (name port of destination)A pier on the buyer’s side (unloaded)

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INCOTERMS

Seller delivers shipment to foreign destination

Risk transfers at foreign destination delivery

location

DAF

DDU

DDP

DDU

DDP

DDU

DDP

DES

DEQ

Seller delivers to carrier selected by seller.

Seller pays shipping to destination location

Risk transfers when carrier has possession

CPT

CIP

CPT

CIP

CPT

CIP

CFR

CIF

Seller delivers shipment to carrier selected by buyer

Risk transfers at delivery

FCAFCAFCAFAS

FOB

Seller’s premises

Risk tranfers at pickupEXWEXWEXWEXW

DELIVERY POINT

Risk TransferTruck/Rail Transport

Air Transport

Ocean Transport

FCL/RoRo/LCL

Ocean Transport

Breakbulk/LCL

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Questions1. What mode of transportation?

If ocean transport, what type of shipment?

2. What Delivery Point?3. What specific INCOTERMS trade term will

be selected?4. What is place and geographic location?Example: 1) Air

2) Delivery Point F 3) FCA4) Warehouse, Chicago, IL

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Factors to Consider

Buyer

Country

Method of shipment

Type of cargo

Payment method

Origin of shipment

Easiest term



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Buyer

Indirect export buyers usually require delivery to a Domestic point

EXW, FCA, FAS, FOB are most common

Buyer designates main carrier and freight collect

Use “F” terms unless carrier restricts freight collect

Common when selling to government entities

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Country

Country requirements or restrictions must be followed to avoid any penalties!

If main carriage must be prepaid�eliminates utilization of E or F groupsIf regulations require marine insurance must be with a insurance company in buyer’s country�Restricts use of CIF or CIP

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Method of Shipment

Terms used specifically for marine or inland waterway only

Terms used for all modes

DAF used for all modes, but generally for rail or truck with delivery obligations at Frontier

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Type of Cargo

FCL, RoRo, LCL delivered to carrier’s terminal

Eliminates FAS, FOB, CFR, CIF, DEQ, and DES

Hazardous materials restrict mode of transportationEXW shouldn’t be used for products with validated licenses

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Payment Method

EXW, FCA, FAS, FOB for less than a container

Allows buyer to select carrier and freight forwarder

Seller should control shipment to ensure service providers perform on its behalf

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Origin of Shipment

Sellers may be in better position to select routing if buyer unfamiliar with inland freight procedures.

Sellers may be in better position to negotiate rates of transport.



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Easiest Term

Is the buyer experienced in trading with home country?

What terms are your competitors offering?

Do you cover the risks of quoting freight costs?