Incoterms 2010: Rules for International Trade

1. Interpretation & Application By Shankar Subramoniam Executive Director – NAFL UAE

2. Incoterms - International Commercial Terms • Published by International Chamber of Commerce (ICC) • Purpose – to provide a set of international rules for the interpretation of the most commonly used terms in trading. • They tell the parties what to do with respect to • Responsibility related to carriage of goods from Seller to Buyer • Export and import clearance • Division of costs and risk • Key elements to contracts of Sale • Impacts on the contract of carriage • Do not deal with Title or Payment

3. Incoterms & Contracting practice • Incoterms standardises contracting practice by • Use of generally recognised key words • Agreeing on most common understanding of such key words • Avoiding misunderstandings in the use of them • Problems remain because • Commercial practice is inconsistent • Variation of the key word may not be appropriate or clear • The Incoterm is not sufficiently precise for that transaction • The parties inadvertently choose the wrong term

4. Incoterms 2010 The main divisions Any mode of Transport Sea & Inland waterway only Group E Departure EXWEX Works Group F Main Carriage Unpaid FCAFree Carrier FASFree Alongside Ship FOBFree On Board * often (incorrectly) referred to as C&F, CNF, C+F etc. Group C Main Carriage Paid CPTCarriage Paid To CIP Carriage & Insurance Paid to CFRCost and Freight * CIFCost, Insurance & Freight Group D Arrival DATDelivered At Terminal DAPDelivered At Place DDPDelivered Duty Paid

5. Obligations General Obligations 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. SELLER BUYER Licences, authorisations, security clearances and other formalities Contracts of carriage and insurance Delivery Taking Delivery Transfer of risks Allocation of costs Notices to the Buyer Notices to the Seller Delivery Document Proof of Delivery Checking – Packaging – Marking Inspection of goods Assistance with information and related costs

6. Incoterms 2010 Key Points : EXW • Minimum obligation for the Seller. • Delivery : Placing goods at disposal of Buyer at Seller’s premises or at another named place. • Evaluate using FCA if Seller has to load on to Buyer’s vehicle. • Seller must not use where more export ‘control’ is required or in safety-sensitive operations. • Buyer should not use EXW if they cannot obtain export clearance. EX WORKS (...named place of delivery) Transport : • Sea - conventional • Sea - containerised • Road • Rail • Air • Combinations

7. Incoterms 2010 Key Points : FCA • Covers all modes of transport incl. multimodal • Delivery • Seller’s premises : Load on Buyer’s vehicle • Other places : Placed at disposal of Buyer (unloading by Buyer). • Seller’s costs can be negotiated as part of the ‘delivery’ obligations • Seller is responsible for the Export clearance • No obligations on the Seller for freight and/or insurance unless requested. FREE CARRIER (...named place of delivery) Transport : • Sea - conventional • Sea - containerised • Road • Rail • Air • Combinations

8. Incoterms 2010 Key Points : • Delivery : Goods handed over to carrier or nominee at agreed place. • Risk & cost transferred at different places. ** • Seller contracts for the freight to a destination place , which can be a port OR an inland destination. • Seller to clear goods for export. • Discharging costs, except where included in the freight, are for the Buyer. CPT CARRIAGE PAID TO (...named place of destination) Transport : Transport : • Sea - conventional • Sea - containerised • Road • Rail • Air • Combinations

9. Incoterms 2010 Key Points : As CPT, except • Seller contracts for insurance (minimum cover) to the destination place , which can be a port OR an inland destination. • Insurance is contracted and paid for on behalf of the Buyer. ** • Risk passes to Buyer at first point of handover to Carrier CARRIAGE ANDINSURANCE PAID TO (...named place of destination) CIP Transport : Transport : • Sea - conventional • Sea - containerised • Road • Rail • Air • Combinations

10. Incoterms 2010 Key Points : • Irrespective of mode of transport. • Delivery : Unloaded from arriving means of transport, placed at disposal of Buyer. • Specify point within the Terminal / Port • Do not use if Seller has to arrange transport further. • Arrival dates become an issue (all ‘D’ terms) • Seller’s risk upto destination !! DELIVERED ATTERMINAL (...named Terminal at Port or place of destination) DAT Transport : Transport : • Sea - conventional • Sea - containerised • Road • Rail • Air • Combinations

11. Incoterms 2010 Key Points : • Irrespective of mode of transport. • Delivery : Placed at disposal of Buyer in arriving transport. • Seller has no obligation to clear the goods for import. • Arrival dates become an issue • Note movement of Seller’s risk to destination !! DELIVERED AT PLACE (...named Place of destination) DAP Transport : Transport : • Sea - conventional • Sea - containerised • Road • Rail • Air • Combinations

12. Incoterms 2010 Key Points : • Irrespective of mode of transport. • Delivery : Goods are cleared for import, placed at disposal of Buyer on the arriving transport. • Maximum obligations for the Seller. • Requires payment of all duties and taxes by the Seller, at import into the destination country. • Seller should not use DDP if unable to obtain import clearance. DELIVERED DUTY PAID (...named place of destination) DDP Transport : Transport : • Sea - conventional • Sea - containerised • Road • Rail • Air • Combinations

13. Incoterms 2010 Key Points : • For sea or inland waterway transport. • Delivery : goods are placed alongside the vessel (quay/barge) nominated by Buyer. • Costs for loading to main carrier are for the Buyer • No obligations on the Seller for freight and/or insurance. • For containers, FCA to be used. • Seller to clear goods for export. FREE ALONGSIDE SHIP (...named port of shipment) FAS Transport : • Sea - conventional • Sea - containerised • Road • Rail • Air • Combinations

14. Situation …. • Seller : Warehouse in Jebel Ali, 2 kms from Port • Buyer : Customer in Kuwait • Goods : Chemicals in drums • Sale terms : FOB Jebel Ali • Discharge port : Kuwait • Who arranges contracts of carriage? • Operations • Container / Truck arranged by forwarder nominated by Buyer • Seller loads goods onto the container at Seller’s premises • Truck leaves for port and meets with accident en route. • Container falls on the quay while loading on ship • Container falls on the deck while loading

15. Incoterms 2010 Key Points : • For sea or inland waterway. • Delivery : Risk passes when the goods are delivered on board the vessel. • Costs for loading are for the Seller. • Seller is responsible for the Export formalities • No obligations on the Seller for freight and/or insurance • Right of access only for carrier’s receipt. • Do not use for containers. FREE ON BOARD (...named port of shipment) FOB Transport : • Sea - conventional • Sea - containerised • Road • Rail • Air • Combinations

16. Incoterms 2010 Key Points : COST AND FREIGHT (...named port of destination) CFR • As FOB, except • Seller contracts for the freight to the destination port on behalf of the Buyer. ** • Discharge & transit costs, except where included in the freight, are for the Buyer • No obligation on Seller to provide (where relevant) copy of Charter Party • Seller has right of access of B/L Transport : • Sea - conventional • Sea - containerised • Road • Rail • Air • Combinations

17. Incoterms 2010 Key Points : COST INSURANCE ANDFREIGHT (...named port of destination) CIF As CFR, except • Seller contracts for insurance to the destination port . • Insurance is contracted on behalf of the Buyer. ** Transport : • Sea - conventional • Sea - containerised • Road • Rail • Air • Combinations

18. On-line resources http://www.iccwbo.org/incoterms/ http://www.mantissa.co.uk http://www.linkedin.com/groups/INCOTERMS-3347103?trk=myg_ugrp_ovr http://navgath.blogspot.com/