INCOTERMS 2000 & 2010

1. INCOTERMS 2000 & 2010 Terms of Delivery “What has changed?”

2. Incoterms 2000 & 2010 .

3. “The Incoterms rules are a perfect example of an efficient standardization of an international business tool. Their day-to-day use in international sales contracts brings legal certainty to business transaction while simplifying the drafting of international contracts.”    - Emmanuel Jolivet General Counsel of the International Court of Arbitration

4. International Commercial Terms History • Initially created in 1936 by the International Chamber of Commerce (ICC) and have been periodically revised (Incoterms® 2010 is the 8th revision) • Incoterms® are generally good for approximately 10 years ~ not a magic number, but historically about accurate • Incoterms® reflect world-wide trade practices, as practices change, Incoterms® are revised • Incoterms® 2010 were written by the ICC, represented by 8 individuals from various countries/areas of the world • Met 11 times in person • Received over 2000 suggestions in first request • Refined suggestions over 4 proposals • Controlling source document is written in British English and will be translated into 35+ languages over the next year.

5. What are Incoterms ® 2010? • Eleven (11) Incoterms® 2010 (used to be 13 terms) • Four (4) terms were deleted and two (2) new terms were created • Incoterms® 2010 will begin January 1, 2011, but you don’t have to use them on that date • Available worldwide through 100 International Chamber of Commerce National Committees • The terms aren’t law; no laws that require their use and are not all inclusive • Country neutral – they don’t favor one country over another • Self-contained – all information that determines responsibility and risk are in one place

6. Purpose • Simplify some terms of an international sales agreement • What do Incoterms not do? • Take the place of a sales agreement or terms and conditions • Supply all terms for an international sale • Not for service contracts • Do not determine transfer of title • Do not determine breach of contract or remedies • Do not protect parties from their own risk of loss • Do not cover goods before or after delivery

7. Purpose • Apply to contract of sale • Not contract of carriage • Not contract of insurance • Not documents related to financing • Even if those documents and the Incoterm Rule chosen have some implications for one another

8. Purpose • Terms covered by Incoterms • Warehousing • Packing and loading • Inland freight • Terminal charges • Freight forwarder’s fees • Ocean/air freight • Duty, taxes, & customs clearance • Delivery • Security Clearances (new to 2010)

9. Key Definitions • What is Delivery? • It is not always: • When the goods arrive in your customer’s hands or • When the goods leave your dock • Defined the same in all countries • You must know your contract and your Incoterm® • Note: A Purchase Order and a matching Acknowledgement will constitute a “contract” if there isn’t a separate stand-alone contract related to the transaction. As defined in Incoterms® 2010, “it is used to indicate where the risk of loss of or damage to the goods passes from the seller to the buyer.”

10. Transportation Definitions • Pre-carriage: inland transportation on the seller’s side • Domestic: from the place where the shipment starts to any subsequent transportation carriage • International: from the place where the shipment starts to the departure point on the seller’s side • Main Carriage: • Domestic: subsequent transportation beyond pre-carriage • International: transportation from the point of departure on the seller’s side to the arrival pint on the buyer’s side • On-carriage: • Domestic: subsequent transportation beyond main carriage • International: transportation from the arrival pint on the buyer’s side

11. Transportation Definitions • Door – to – Door • Contract of carriage that includes pre-carriage, main-carriage and on-carriage by the same carrier • Door – to – (Air) Port: • Contract of carriage including pre-carriage and main-carriage to airport or ocean port or truck terminal port or rail port • (Air) Port – to – (Air) Port: • Contract of carriage for main carriage only • (Air) Port – to – Door: • Contract of carriage including main carriage and on-carriage

12. Type of Transportation? • Company A • Company B Door to Door – one contract for all carriage (pre-, main, and on-carriage)

13. Type of Transportation? • Company A Door to Port – contract for pre-carriage and main-carriage Company B responsible for arranging pick up at Arrival Airport

14. A Few More Definitions….. • Omni-modal: Used with terms that use all modes of transportation (truck, airplane, vessel, train…) • Marine-restricted: Terms that only apply to carriage by vessel • Shipment Contract: sales/purchase contract where the seller’s responsibility ends when goods are handed over to the first carrier • Arrival Contract: sales/purchase contract where seller’s responsibility ends when goods have arrived at agreed place

15. Packaging Definitions • The packaging of the goods to comply with any requirements under the contract of sale. • The packaging of goods so that they are fit for transportation. • The stowage of the packaged goods within a container or other means of transport. Only Definition 1 & 2 are addressed in Incoterms® 2010. Definition 3 must be addressed within the contract between the parties.

16. What Questions to Ask? • Who furnishes the goods? • Who packages the goods in a manner suitable for shipment (export)? • Who moves the goods from the seller’s factory to a port, airport, or border crossing in the seller’s country? • Who arranges for export clearance in the seller’s country (if applicable)? • Who arranges for main carriage (international transportation) from the departure port to the arrival port? • Who pays for main carriage? • Who insures the shipment? • Who arranges for import clearance? • Who pays import duties? • Who pays for on-carriage from the arrival port to the delivery destination? • Who arranges and pays for country-specific documentation (e.g., consular invoices, inspection reports, licenses)?

17. Now that we have some basic definitions…

22. INCOTERMS 2010 EXW – Exworks FCA – Free Carrier 3) CPT – Carriage paid To 4) CIP- Carriage and Insurance Paid To 5) DAT- Delivered at Terminal 6) DAP- Delivered at Place 7) DDP – Delivered Duty Paid 8) FAS- Free Alongside Ship 9) FOB- Free on Board 10) CFR- Cost and Freight 11) CIF – Cost, Insurance and Freight

24. 2010 Changes • Two new rules: • DAT (delivered at terminal) • Delivered at a named place, at buyer’s disposal, unloaded • Replaces DEQ • DAP (delivered at place) • Delivered at a named place, at buyer’s disposal, not unloaded • Replaces DAF, DES, DDU

25. 2010 Changes • 2 Groups of Incoterms Rules • Rules for Any Mode of Transport • EXW, FCA, CPT, CIP, DAT, DAP, DDP • Rules for Sea and Inland Waterway Transport • FAS, FOB, CFR, CIF

26. 2010 Changes • Domestic-User-Friendly • Now state that Rules can be used domestically • Obligation to comply with export /import formalities is “where applicable” • Coincided with declining use of UCC terms • May be used within the EU

27. 2010 Changes • Guidance Notes • Explain fundamentals, usage, risk, costs, etc. • Review and use them • Electronic Communication • Electronic means of communication now given same effect as paper as long as parties agree or where customary • Security-Related Clearances • Rules now allocate responsibility for these

28. 2010 Changes • String Sales • Rules now recognize that seller may fulfill its obligations by procuring goods that have been shipped • Terminal Handling Charges • Now specifically allocated so that buyer is not charged twice (seller and terminal)

29. Transition to 2010 Rules • Existing contracts (even if performance continues into 2011) • Continue to apply 2000 edition • Contracts entered into before January 2011 • Should specify which version will apply • Contracts entered into beginning in January 2011 • 2010 will apply

30. Rules for any mode of transport • Ex Works (EXW) • Free Carrier (FCA) • Carriage Paid To (CPT) • Carriage and Insurance Paid To (CIP) • Delivered at Terminal (DAT) • Delivered at Place (DAP) • Delivered Duty Paid (DDP)

32. Main changes in INCOTERMS 2010 • Removal of four terms (DAF, DES, DEQ and DDU) • Introduction of 2 new terms (DAP - Delivered at Place and DAT - Delivered at Terminal). • Creation of two classes of INCOTERMS - (1) rules for any mode or modes of transport and (2) rules for sea and inland waterway (INCOTERMS 2000 had four categories). • Rules which are able to serve both domestic and international trade. • Express reference to the use of "equivalent electronic records", if the parties agree or it is customary.

33. Main changes in INCOTERMS 2010 • Amended insurance cover to reflect the alterations made to the Institute Cargo Clauses. • Allocation of parties' respective obligations to obtain or to provide information in order to obtain security-related clearances. • Responsibility for Terminal handling charges expressly allocated. •   Including an obligation to "procure" goods to reflect current practices in string sales.

34. Removal of four terms from INCOTERMS 2000 • Delivered At Place (DAP) which should be used in place of DAF, DES and DDU; and • Delivered At Terminal (DAT) which replaces DEQ. • These terms may be used irrespective of the agreed mode of transport. • Part of the reasoning for fewer terms/simplification was that traders often chose the "wrong" term or muddled terms, leading to contradictory or unclear contracts.

35. Creation of two, rather than four categories of terms • The 11 terms have been categorized under two categories: • Deliveries by any mode of transport (sea, road, air, rail) - EXW, FCA, CPT, CIP, DAP, DAT and DDP. These may all be used where there is no maritime transport at all; and • Deliveries by sea/inland waterway - FAS, FOB, CFR and CIF. • This, again, is to make the new INCOTERMS easier to use.

36. What do Incoterms® 2010 Do? • Divides up tasks, responsibilities, costs and risks to deliver goods from seller to buyer • If used correctly, no duplication of effort between seller & buyer • Acts as signposts for who needs to have additional contracts (i.e., with vessel steamship line, inland trucking company, etc.) to complete transaction • If something goes wrong, clearly defines responsibilities based on where the goods were in the transportation chain of delivery • Address “String sales” • Shipments where ownership changes in transit • Address Cargo Security concerns • Authorized Economic Operator (AEO), Customs-Trade Partnership Against Terrorism (C-TPAT), Importer Security Filing (ISF 10+2) • Defines mode of transportation by their use • 4 Terms are for Marine-Restricted for sea & inland waterway transport only • 7 Terms are Omni-modal for use with all modes of transportation • Increasingly considered replacement for Uniform Commercial Code (UCC) shipment/delivery terms.

37. What Incoterms® 2010 DO NOT Do… • Automatically Apply • Determine When Ownership Changes • When delivery occurs or when payment happens can impact when ownership changes • Must be addressed specifically in contract • Under US Law, it is when the product is delivered • If jurisdiction is under another sovereign nation law, you need to address per that country regulation • If contract is subject to the United Nations Convention on Contracts for the International Sale of Goods (CSIG) the law does not specify if it is not addressed specifically within the contract • Identify when Revenue is Recognized • Under GAAP and Securities & Exchange Commission (SEC) Rules 1) ownership must pass prior to recognizing revenue and 2) delivery must occur • If not specifically addressed in contract, look to applicable contract law

38. What Incoterms® 2010 DO NOT Do… • Identify if a Breach of Contract occurs, when it happened • Does not determine remedies for breach of contract • Provide relief from obligations/exemptions from liability in unexpected or unforeseeable situations • Address Payment issues • Tells you that the buyer must pay, but not when or where • Address more than one contract • Drop Shipments are TWO Contracts 1) between the seller and their supplier and 2) between the seller and the buyer • Incoterms® 2010 could be the same or different in each contract • Specifically task a party with container stowage obligations

39. EXW – Ex Works FCA – Free Carrier FAS – Free Alongside Ship FOB – Free On Board CFR – Cost and Freight CIF – Cost, Insurance & Freight CPT – Carriage Paid To CIP – Carriage & Insurance Paid To DEQ – Delivered Ex Quay DES – Delivered Ex Ship DAF – Delivered at Frontier DDU – Delivered Duty Unpaid DDP – Delivered Duty Paid EXW – Ex Works FCA – Free Carrier FAS – Free Alongside Ship FOB – Free On Board CFR – Cost and Freight CIF – Cost, Insurance & Freight CPT – Carriage Paid To CIP – Carriage & Insurance Paid To DAT – Delivered At Terminal DAP – Delivered At Place DDP – Delivered Duty Paid Incoterms® 2000 vs. 2010 Marine Restricted Omni-Modal

40. Group Term Definitions F – Terms C – Terms D – Terms

41. F-Group Terms • Seller • Handles Export Clearance • Handles Pre-carriage • Named Place on Seller’s Side • Buyer • Contracts for Main Carriage • In charge of Carrier (and usually forwarder) selection • Control over Freight Costs • Control of Documentation • Are considered to be “Shipment Contracts” • Are considered Buyer Friendly

42. C-Group Terms • Seller • Contracts for Main Carriage • In charge of carrier (and usually forwarder) selection • Handles pre-carriage • Has control over freight costs • In control of documentation • Passes risk of loss (delivers) to Buyer prior main carriage • Handles export clearance • Buyer • Named Place is on Buyer’s side • Has risk of loss while goods are in transit with carrier selected and paid for by seller • Must rely heavily on Seller for data elements required for ocean shipments such as Importer Security Filing (known as ISF or 10+2) • If informed, should not consider “C” terms due to downside described • Are considered to be “Shipment Contracts” • Are considered Seller Friendly

43. D-Group Terms • Seller • Contracts for Main Carriage • In charge of carrier (and usually forwarder) selection • Handles pre-carriage • Has control over freight costs • In control of documentation • Passes risk of loss (delivers) to Buyer at freight arrival point • Handles export clearance • Seller may have revenue recognition issues since “delivery” occurs on arrival side, meaning revenue is recognized only upon arrival • Buyer • Named Place on Buyer’s side • Must rely heavily on Seller for data elements required for ocean shipments such as Importer Security Filing (known as ISF or 10+2) • Undertakes less risk than in “C” terms • If inexperienced, or does not have good relationship with carriers, is served will by “D” terms • Are considered to be “Arrival Contracts”

44. Omni-Modal Incoterms® 2010

45. Ex Works (EXW) + (Named Place) Named Place is generally Seller’s Location (or where product initially ships from) • Delivery – Seller delivers goods when placed at buyer’s disposal at the name place of delivery • Goods are packaged • Goods are NOT LOADED on the collecting vehicle • Seller Risks – Minimum obligation for seller; once packaged there is a loss of control over transportation movement, where package is finally received, how export or import documentation is presented to relevant governments • Buyer Risks – Buyer bears all costs and risks involved in taking the goods from the named place • Carriage: Buyer responsibility to arrange for pre-carriage, main carriage, on-carriage • Insurance: Neither party required to insure goods • Export/Import Clearance: Buyer must handle all requirements, pay all associated duties and fees Note: Should NOT be used when the buyer cannot carry out export requirements directly or indirectly

46. Free Carrier (FCA) + (Named Place) • Named Place is generally: • Seller’s Place of Business • Seller responsible for having goods available when promised, packaged to the extent known or agree, loaded onto collecting vehicle • Buyer responsible for pre-carriage, main carriage, on-carriage • Another Location on Seller’s side (i.e., International Airport, Freight Forwarder Warehouse for consolidation, another location agreed by Seller and Buyer) • Seller responsible for having goods available when promised, packaged to the extent known or agree, loaded onto collecting vehicle, pre-carriage • Buyer responsible for unloading pre-carriage delivering vehicle, main carriage, on-carriage

47. FCA + (Named Place) • Contract of Carriage: Buyer is responsible to make a contract of Carriage, however if requested or the buyer does not give instruction in due time, the seller may contract for carriage on usual terms at the buyer’s risk and expense. • Risks: passes to buyer at point of delivery • Insurance: Neither party required to insure goods • Export Clearance: Handled by Seller • Associated Licenses can be obtained and maintained under US Law • Automated Export System filings can be completed by Seller • Import Clearance: Handled by Buyer – responsible for the customs formalities and any duties, fees, other charges due upon importation. This is the most versatile of the “F” terms.

48. Carriage Paid To (CPT) + Named Place (on Buyer’s Side) • Delivery: Seller delivers goods to a carrier or another person nominated by the seller, at an agreed place, for transportation to the named destination on the Buyer's side, appropriately packaged • Carriage: Seller chooses and pays cost of carriage to bring the goods to the named destination (the final location, not the destination port) • Risks: Seller bears all risks and costs incurred until the goods are delivered to the first carrier on the Seller’s side • Export Clearance: handled by Seller • Import clearance: Buyer responsibility for paperwork and all costs • Insurance: Neither party required Note: Risk of Loss passes on Seller’s side to Buyer BUT Cost is Seller’s responsibility to named location on Buyer’s side

49. Carriage and Insurance Paid To (CIP) + Named Place (on Buyer’s Side) • Delivery: Seller delivers goods to a carrier or another person nominated by the seller, at an agreed place, for transportation to the named destination on the Buyer's side, appropriately packaged • Carriage: Seller pays cost of carriage to bring the goods to the named destination (the final location, not the destination port) • Risks: Seller bears all risks and costs incurred until the goods are delivered to the first carrier on the Seller’s side • Export Clearance: handled by Seller • Import clearance: Buyer responsibility for paperwork and all costs • Insurance: Seller required to obtain minimum coverage Note: Risk of Loss passes on Seller’s side to Buyer BUT Cost is Seller’s responsibility to named location on Buyer’s side

50. Delivered at Terminal – DAT + Named Place (Buyer’s side) • Replaces DEQ Term • Delivery: Seller delivers goods to named destination terminal on Buyer’s side, packaged appropriately and unloaded • Carriage: • Seller responsible for pre-carriage and main carriage • Buyer responsible for on-carriage • Risks: Transfer from Seller to Buyer once goods are unloaded on buyer’s side at terminal • Export Clearance: Seller Responsibility • Import Clearance: Buyer Responsibility – documentation and fees associated • Insurance: Neither party required to insure